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 Hawaii, 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. The agent's power to bind the principal to contracts and 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 expressly 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. In Hawaii, the principal can be bound by the actions of the agent if the agent's authority is deemed actual or apparent, and third parties rely on that perception of authority. It is important for principals to clearly define and communicate the scope of an agent's authority to prevent unauthorized acts that could legally obligate them.