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 New Jersey, as in other states, the principal-agent relationship is governed by common law principles and state statutes that define the extent of authority an agent has to act on behalf of a principal. An agent with 'actual authority' has been explicitly granted the power to make decisions and enter into agreements that legally bind the principal. This authority can be conferred either in writing or verbally. 'Apparent authority', on the other hand, arises when a third party reasonably believes, based on the principal's conduct, that the agent has the authority to act, even if such authority has not been explicitly granted. This can occur if the principal's actions or omissions suggest that the agent's actions are endorsed, such as by allowing the agent to act in a certain capacity without objection. In New Jersey, the scope of an agent's authority to bind the principal to contracts and other legal obligations is typically assessed based on the communications between the principal and the agent, the principal and the third party, and any relevant past conduct or industry practices.