What is the standard for an agent's authority to bind the principal to third-party contracts?

• A. The agent can bind the principal only if there is explicit written authority.
• B. The agent can bind the principal only with the principal's explicit consent in writing.
• C. The principal is bound only after the agent's action is ratified.
• D. The agent must act within the scope of authority granted (express, implied, or apparent).

Answer: (D)

The central idea is that an agent binds the principal to third-party contracts only when the agent acts within the authority actually granted by the principal. Authority can come in three forms: express, implied, and apparent. Express authority is clear instructions given to the agent, often in writing or oral form. Implied authority covers the duties or powers that naturally accompany the agent’s role or are customary in the agent’s line of work. Apparent authority arises when the principal’s conduct leads a third party to reasonably believe the agent has authority, even if the agent lacks actual authority.

Under these forms, when the agent acts within the scope of authority, the principal is bound to the contract with the third party. If the agent steps outside that scope, the principal generally isn’t bound unless they later ratify the action, which is an after-the-fact approval that retroactively creates authority.