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 California, the principal-agent relationship is governed by principles that allow a principal to authorize an agent to act on their behalf and enter into binding agreements. The agent's authority to bind the principal can be 'actual authority,' which is the power granted by the principal to the agent either explicitly through direct communication or implicitly through conduct that reasonably allows the agent to believe they have the authority to act. Additionally, an agent may have 'apparent authority,' which arises when a third party reasonably believes the agent has the authority to act on behalf of the principal, based on the principal's representations or conduct. This can occur when the principal knowingly allows the agent to act in a certain way or fails to correct the impression that the agent has such authority. California law requires that the agent's actions fall within the scope of their authority for the principal to be bound by those actions. If an agent acts outside their authority, the principal may not be obligated unless they ratify the agent's actions, either expressly or by implication, such as by accepting the benefits of the unauthorized act.