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 Rhode Island, as in other jurisdictions, 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. When a principal explicitly grants authority to an agent, this is known as actual authority, and the agent can bind the principal to contracts and other legal obligations within the scope of that authority. Apparent authority, on the other hand, arises when a principal's conduct leads a third party to reasonably believe that the agent is authorized to act, even if the agent does not have actual authority. This can occur through the principal's acquiescence or by allowing the agent to act in a certain way that signals to others the agent has the authority to bind the principal. In Rhode Island, if a third party reasonably believes an agent has the authority to act based on the principal's representations, the principal may be bound by the agent's actions, even if the agent exceeded their actual authority. It is important for principals to clearly define and communicate the extent of an agent's authority to prevent unauthorized commitments.