What is the principle of estoppel in agency relationships?

The principle of estoppel in agency relationships revolves around the idea that if one party induces another to believe in a certain state of affairs and that party relies on that belief to their detriment, the first party cannot deny the existence of that relationship or the implications that arise from it. This means that a person must act upon reasonable inference of the relationship based on the behavior and representations of the parties involved.

For example, if a principal allows an agent to act in a certain capacity and a third party reasonably believes that the agent has authority, the principal may be estopped from denying that the agent had that authority. This principle serves to protect the interests of third parties who engage with agents under the belief that they have the authority to act on behalf of the principal.

In contrast, the other options focus on formalities, such as requiring written agreements, stating that all contracts must be explicit, or asserting that relationships cannot exist without formal agreements. However, estoppel highlights that relationships can exist based on actions and representations, even in the absence of a written or formal agreement, as long as the inference is reasonable.