Final answer:
Apparent agency or agency by estoppel is a legal concept where someone reasonably believes another person is their agent based on the principal's actions or circumstances, even without formal employment.
Step-by-step explanation:
The situation described where someone is led to believe that another person is their agent, when in fact there has been no formal employment by the principal, is known as apparent agency or agency by estoppel. This occurs in legal contexts where the principal's actions or circumstances lead a third party to reasonably conclude that an agency relationship exists.
For example, if a principal gives a person a title or position within a company that typically comes with certain authorities, third parties may rely on the appearance of agency.
However, without the principal's intended authorization, this does not create an actual agency relationship, but rather one that is based on appearances, which can still bind the principal to certain obligations if third parties reasonably relied on the apparent authority.