National Real Estate Exam (PSI)General Principles of AgencyHard
A property owner tells a neighbor, in front of a potential buyer, that a certain individual is her authorized agent to sell the property, even though no formal agency agreement was ever signed with that individual. The buyer relies on this statement and negotiates with the individual as the owner's agent. If the owner later denies the agency existed, what legal doctrine would likely prevent her from doing so?
- AAgency by ratification
- BAgency by estoppel
- CAgency coupled with an interest
- DUniversal agency
Show answer & explanationAnswer & explanation
Correct answer: B. Agency by estoppel
Agency by estoppel arises when a principal's conduct or statements lead a third party to reasonably believe an agency relationship exists, and the principal is then legally prevented ('estopped') from denying that agency to the detriment of the third party who relied on it.
Why the other options are wrong
- A. Ratification applies when a principal approves an already-completed unauthorized act, not merely represents someone as an agent beforehand.
- C. Agency coupled with an interest concerns an agent's financial stake in the property, unrelated to this fact pattern.
- D. Universal agency describes broad scope of authority, not how the agency relationship was created here.
Agency by Estoppel
An agency relationship implied by law when a principal's words or conduct cause a third party to reasonably believe someone is their agent, preventing the principal from later denying that relationship.
- Based on reasonable reliance by a third party
- Principal is 'estopped' from denying the agency
- Different from ratification, which approves a completed act
Memory trick: Estoppel = 'You said it, so you're stuck with it'