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 Iowa, as in other states, the principal-agent relationship is governed by common law principles of agency, which dictate that a principal can authorize an agent to act on their behalf and enter into binding agreements. The agent's authority to bind the principal can be actual authority, which is explicitly granted by the principal to the agent, either in writing or verbally. Alternatively, the 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. For instance, if a principal knowingly allows an agent to act in a certain way over a period of time, the principal may be estopped from denying the agent's authority if third parties were led to believe such authority existed. Iowa law requires that the agent's actions fall within the scope of their authority for the principal to be bound by those actions. If an agent exceeds their authority, the principal may not be held liable for the agent's unauthorized acts, unless the principal ratifies those acts, either expressly or implicitly.