In a principal-agent relationship, the principal gives the agent authority to act on behalf of the principal, and to bind or obligate the principal to contracts and other legal obligations, as permitted by the scope of the agency (authority). An agent’s authority may be sufficient to bind or obligate the principal if the authority was expressly given to the agent (actual authority), or if it was implied to other persons that the agent had authority to act on behalf of the principal (apparent authority)—such as by the principal’s adoption of the agent’s prior actions on behalf of the principal.

In Hawaii, as in other states, the principal-agent relationship is governed by common law principles and state statutes that define how an agent can act on behalf of a principal. The principal grants the agent authority to enter into contracts and create legal obligations within the scope of their agency. This authority can be 'actual authority,' which is explicitly given to the agent by the principal, either in writing or verbally. Alternatively, an agent may have 'apparent authority,' which arises when a third party reasonably believes the agent has the authority to act, based on the principal's representations or conduct (such as allowing the agent to act in a certain way without objection). If an agent acts within the scope of their actual or apparent authority, the principal is typically bound by the agent's actions. However, if an agent exceeds their authority, the principal may not be obligated, unless they ratify the agent's actions after the fact. It's important for principals to clearly define the scope of an agent's authority and for third parties to verify that authority when entering into agreements with agents.