What is agency by estoppel?

A Person Can’t Deny that Someone Else Acts on his Behalf if he Carelessly Causes Others to Believe that the other Person is his Representative

Agency by estoppel means that a defendant will be liable to a plaintiff because the defendant’s negligence caused the plaintiff to reasonably rely on there being an agency relationship between the defendant and someone who purported to act on behalf of the defendant. The defendant will be estopped (legally prevented) from denying that that the third party is its agent. Below we will review what an agent is, discuss agency by estoppel, and then provide a few examples from cases where courts analyzed whether there was an agency by estoppel.

What is an agent? An agent acts on behalf of a Principal

Sometimes a person acts on another’s behalf. We can say that the person acting on behalf of the other person is the agent. The person on whose behalf the agent is acting is called the principal.

For example, a person might be allowed to bind someone else to a contract if he has authority as an agent to act on that person’s behalf. A salesperson (agent) can bind his company (principal) to a sales contract because the salesperson has authority as an agent to represent the company. By way of another example, if an agent sells a house on the owner’s (principal) behalf, the owner can’t suddenly refuse to sell the house. The agent was authorized to act on the principal’s behalf. We would say the salesperson and real estate agent are actual agents, with authority to act on behalf of their principals.

Naturally, the result is different if a person is not really an agent. If a person pretends to be a salesperson for a company he can’t force the company to honor a contract – – the “salesperson” is an imposter and no agency relationship exists with the company.

If a Person Carelessly Allows Others to Believe that Someone is his Agent, then he Can’t Deny that the Other Person is his Agent

Courts apply an exception where a person or company is careless and as a result a third party reasonably relies on the existence of an agency relationship, even if no agency relationship actually exists.

For example, let’s say an imposter goes around purporting to act as a salesperson for a store that sells television sets. The store management, if it had paid attention, would realize that the imposter is pretending to act as its salesperson and trying to persuade people to buy their televisions. But the store does nothing to stop the imposter.

Under these circumstances, especially if the electronics store is benefiting from the imposter, or customers are reasonably relying on the imposter being a real salesperson, a court might find there is an agency by estoppel. That is, although the imposter was not actually an agent, the store will be liable to the customer because the store carelessly allowed the customer to believe that the imposter was an actual salesperson.

Below you can see examples of agency by estoppel in actual cases:

Examples of Agency by Estoppel From Actual Cases

Cullen v. BMW of North America (EDNY 1980)

Defendant’s motion for summary judgment was denied because there were issues of fact as to whether plaintiff reasonably believed car dealership was agent of BMW. Plaintiff relied on doctrine of agency by estoppel because BMW apparently allowed dealership to use its logo and name.

Warden v. Oralndi (NY App. Div. 2004)

Plaintiff patient was allowed to amend her claim to rely on agency by estoppel to allege that she reasonably believed that person dressed as doctor in doctor’s office was acting on behalf of the defendant.

Torres v. Goodyear Tire (9th Cir. 1989)

Plaintiff failed to demonstrate that subsidiary manufacturer’s use of tire company’s trademark created an agency by estoppel between the subsidiary and the parent company or that at the time of purchase plaintiff reasonably believes subsidiary was an agent of the parent company.