2026 Comprehensive Practice Test on Agency, Fiduciary Duty, and Corporate Governance

In agency law, a principal is bound by contracts entered into by an agent only when the agent acts within the scope of authority the principal has granted. That scope can be express (clearly stated, in words or writing), implied (not spoken but inferred from the agent’s role, duties, and customary practices needed to carry out the express instructions), or apparent (the principal’s conduct or representations lead a third party to reasonably believe the agent has authority). When the agent stays within any of these authorities, the principal is bound by the contract. If the agent goes beyond what’s granted, the principal isn’t bound unless there’s later ratification. The correct idea, therefore, is that authority includes express, implied, or apparent, and the agent must operate within that scope. Claims that the agent can bind the principal to any beneficial contract are incorrect; authorities aren’t unlimited. Authority isn’t limited to express only, and apparent authority does apply in appropriate circumstances.