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 Massachusetts, the principal-agent relationship is governed by common law principles, as well as specific statutes that may apply depending on the context of the agency. A principal can give an agent authority to act on their behalf and enter into contracts or legal obligations within the scope of the agency. This authority can be 'actual authority,' which is expressly granted by the principal to the agent, either in writing or verbally. Alternatively, an agent may have 'apparent authority,' which arises when a principal's conduct or circumstances imply to third parties that the agent is authorized to act, even if no explicit authorization was given. Apparent authority depends on the reasonable beliefs of third parties interacting with the agent. If an agent acts within the scope of their actual or apparent authority, the principal is typically bound by the agent's actions. Additionally, if a principal knowingly allows an agent to exercise authority and later adopts the agent's actions, this can further solidify the binding effect of the agent's actions on the principal.