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 Colorado, 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' occurs when a principal's behavior creates a reasonable impression among third parties that the agent is authorized to act, even if the agent has not been expressly given that authority. If a principal knowingly allows an agent to act in a certain way or fails to correct the impression that the agent has certain powers, the principal may be bound by the agent's actions under the doctrine of apparent authority. Colorado courts will look at the interactions between the principal, the agent, and any third parties to determine whether apparent authority exists. Additionally, if a principal ratifies actions taken by an agent without authority, the principal is typically bound by those actions. It's important for principals to clearly define and communicate the scope of an agent's authority to avoid unintended obligations.