Legal Definitions - ostensible agency

Ostensible agency, also known as agency by estoppel, describes a situation where a person (the "principal") acts in a way that leads a third party to reasonably believe that another person (the "agent") has the authority to act on their behalf, even if no actual agency relationship exists or if the agent exceeds their actual authority. Because the principal created this appearance of authority, and the third party reasonably relied on it, the principal is legally prevented (estopped) from denying the agent's authority and is bound by the agent's actions. This legal principle protects third parties who reasonably believe they are dealing with an authorized representative.

• Example 1: The Unauthorized Sales Representative

  Imagine a car dealership owner, Mr. Henderson, frequently allows his friend, David, to spend time on the showroom floor, chat with customers, and even hand out business cards that list David as a "Sales Associate" (which Mr. Henderson printed for David as a joke). One day, while Mr. Henderson is out, David negotiates a deal with a customer, Ms. Chen, for a new car at a significantly discounted price, signing a preliminary sales agreement on dealership letterhead. David does not actually work for the dealership and has no authority to sell cars or offer discounts.

  How this illustrates ostensible agency: Mr. Henderson's actions (allowing David on the floor, providing "Sales Associate" business cards) created the appearance that David was an authorized agent. Ms. Chen reasonably relied on this appearance when negotiating and signing the agreement. Even though David had no actual authority, the dealership would likely be bound by the terms David negotiated because Mr. Henderson's conduct led Ms. Chen to reasonably believe David was an authorized representative.

• Example 2: The Former Employee's Continued Access

  A marketing firm, "Creative Campaigns Inc.," recently terminated an employee, Sarah, but failed to immediately revoke her company email access and remove her from the company's public-facing team directory on their website. A long-standing client, "Global Brands," emails Sarah regarding a new project, assuming she is still employed. Sarah, using her company email, responds and commits Creative Campaigns Inc. to a new project timeline and budget that she is not authorized to approve.

  How this illustrates ostensible agency: Creative Campaigns Inc.'s inaction (not revoking email, not updating the directory) created the appearance that Sarah was still an authorized agent. Global Brands reasonably relied on this appearance, believing they were dealing with an authorized representative of the firm. Creative Campaigns Inc. would likely be bound by Sarah's commitments, even though she was no longer an employee, because their negligence created the ostensible agency.

• Example 3: The Property Manager's Overreach

  Ms. Rodriguez owns several rental properties and employs a property manager, Mr. Lee, to handle day-to-day operations, including collecting rent, arranging repairs, and showing vacant units. Ms. Rodriguez explicitly told Mr. Lee he could not sign new leases without her final approval. However, Mr. Lee, in a hurry to fill a vacancy, signs a new one-year lease agreement with a tenant, Mr. Davies, offering a lower rent than Ms. Rodriguez had authorized, and without obtaining her final consent. Mr. Davies had previously seen Mr. Lee sign other documents related to the property.

  How this illustrates ostensible agency: Ms. Rodriguez's actions (employing Mr. Lee as a property manager, allowing him to handle all other aspects of tenant relations, and Mr. Lee's prior visible actions) created the appearance that Mr. Lee had the authority to sign lease agreements. Mr. Davies reasonably relied on this appearance, believing Mr. Lee was authorized to finalize the lease. Despite Mr. Lee exceeding his actual authority, Ms. Rodriguez would likely be bound by the lease terms he signed because her conduct led Mr. Davies to reasonably believe in Mr. Lee's authority.