Which concept describes the principal being bound when a third party detrimentally relies on a belief caused or not corrected by the principal?

• A. Agency
• B. Apparent authority
• C. Estoppel
• D. Ratification

Answer: (C)

Estoppel. When the principal’s words, actions, or even silence create a belief in a third party that an agent has authority or that a representation is true, and the third party relies on that belief to their detriment, fairness requires the principal to be bound to the consequences. The essential idea is that the principal cannot deny the obligation after having induced the reliance through their conduct or failure to correct a misbelief.

This differs from apparent authority in that estoppel centers on preventing the principal from turning away after the reliance has occurred, while apparent authority focuses on the external appearances that lead the third party to believe the agent has authority. Ratification would come into play if the principal affirmatively approves the agent’s unauthorized act after the fact, which has a different effect than estoppel.