Agency by implication occurs when:

Agency by implication arises when the actions or behaviors of the principal suggest that a relationship of agency exists, even without a formal agreement. This type of agency can be established through conduct that leads a third party to reasonably believe that the agent has authority to act on behalf of the principal.

For example, if a business owner allows a person to consistently handle negotiations with clients and does not intervene or restrict their actions, the business owner’s behavior may imply that the person has the authority to act as their agent. This inferred authority is recognized because it creates reliance by third parties based on what they observe.

In contrast, formal appointment of an agent, written contracts, or verbal agreements represent explicit types of agency relationships, where authority is clearly defined and agreed upon by both parties. These types of agreements eliminate ambiguity regarding the agent's authority, which is not the case in agency by implication. Thus, the correct understanding of agency by implication lies in the implicit trust and expectations developed through the principal's behavior towards the agent.