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 Vermont, 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 the principal. The agent's power to bind the principal to contracts and other legal obligations is contingent upon the type of authority granted. Actual authority is explicitly given by the principal to the agent, either in writing or verbally, to perform certain acts. 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 was not explicitly granted. This can occur 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. Vermont courts will look at the interactions between the principal, agent, and third parties to determine if an agent's actions can legally bind the principal. It's important for principals to clearly define the scope of an agent's authority and to communicate any limitations to third parties to avoid unintended obligations.