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 Massachusetts, the principal-agent relationship is governed by common law principles, as well as specific statutes that may apply to certain types of agency relationships. The principal gives the agent authority to act on their behalf, which includes entering into contracts and incurring other legal obligations within the scope of the agency. An agent's authority to bind the principal can be 'actual authority,' which is the power granted by the principal to the agent either explicitly or implicitly. 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, for example, 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 such cases, the principal may be bound by the agent's actions, even if the agent exceeded their actual authority, provided the third party's belief in the agent's authority was reasonable. It is 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.