Which concept occurs when the principal's actions or inaction lead a third party to believe the agent has authority?

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

Answer: (B)

Apparent authority occurs when the principal’s conduct or inaction leads a third party to reasonably believe that the agent has authority to act on the principal’s behalf. The focus is on how the principal presents or refrains from correcting appearances to outsiders, not on any actual grant of power to the agent. Because a third party relies on that outward appearance, the principal can be bound by the agent’s acts within that apparent authority, even if the agent lacks actual authority. This is different from actual authority, which comes from explicit permission or implied authority given directly by the principal to the agent. It’s also distinct from estoppel, which is a broader doctrine preventing a party from denying a fact when it would be unjust to allow reliance on the party’s conduct. For example, if a company manager signs contracts and the company does nothing to correct the impression that the manager can bind the company, those contracts may be enforceable under apparent authority.