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 Tennessee, as in other jurisdictions, the principal-agent relationship is governed by principles of agency law. A principal can give an agent the 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. Additionally, an agent may have 'apparent authority,' which arises when a principal's actions or representations lead third parties to reasonably believe that the agent is authorized to act. This can occur, for example, if the principal knowingly allows the agent to act in a certain way or fails to correct the impression that the agent has certain powers. 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 the agent exceeds their authority, the principal may not be obligated, unless they ratify the agent's actions after the fact. Tennessee courts will look at the interactions and communications between the principal, the agent, and any third parties to determine the scope of the agent's authority.