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 Iowa, as in other states, the principal-agent relationship is governed by common law principles of agency, which dictate that a principal can authorize an agent to act on their behalf and enter into binding agreements. The agent's authority can be 'actual authority,' which is explicitly granted by the principal to the agent, either in writing or verbally. Alternatively, an agent may have 'apparent authority,' which arises when a principal's actions or communications suggest to third parties that the agent is authorized to act, even if the principal has not explicitly given such authority. 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 such authority. In Iowa, 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 an agent exceeds their authority, the principal may not be held liable for the agent's unauthorized acts. It's important for principals to clearly define the scope of an agent's authority and for third parties to verify the extent of an agent's authority when entering into contracts.