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 North Dakota, 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 principal can grant actual authority to an agent either explicitly through direct communication or implicitly through actions that allow the agent to assume such authority. Apparent authority, on the other hand, arises when a principal's behavior creates a reasonable impression to third parties that the agent is authorized to act, even if the agent does not have actual authority. This can occur if the principal knowingly permits the agent to exercise authority or holds the agent out to the public as having such authority. In North Dakota, if an agent acts within the scope of their actual or apparent authority, the principal is typically bound by the agent's actions and contracts entered into on their behalf. It is important for principals to clearly define and communicate the extent of an agent's authority to prevent unauthorized commitments.