Which statement correctly defines the scope of agent authority to bind the principal?

• A. Authority can be created only by written contract.
• B. The agent must act within the scope of authority granted (express, implied, or apparent).
• C. Authority is the sole responsibility of the principal and not relevant.
• D. Agents cannot bind the principal.

Answer: (B)

The key idea is how far an agent can bind the principal, which rests on the scope of the agent’s authority. Authority can come in three forms: express, implied, and apparent. Express authority is the explicit permission given to the agent, usually in writing or spoken terms. Implied authority covers powers that aren’t stated outright but are necessary to carry out the express instructions or flow from the agent’s role and customary practices. Apparent (or ostensible) authority arises when the principal’s conduct or representations lead a reasonable third party to believe the agent has authority to act on the principal’s behalf, even if the agent has no actual authority.

When an agent acts within this scope, the principal is bound by the agent’s actions. When the agent goes beyond what has been granted or reasonably assumed, the principal normally isn’t bound unless the principal later ratifies the act or the situation creates estoppel due to the principal’s representations.

That clarifies why this is the best answer: it directly defines how authority is created and limited, and how that authority determines whether the principal is bound by the agent’s conduct. The other statements misstate who controls authority or the ways it can be created.