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 New Jersey, 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', on the other hand, arises when a third party reasonably believes, based on the principal's conduct or statements, that the agent is authorized to act, even if the agent does not have actual 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 New Jersey, 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 unless the principal ratifies those acts or was negligent in supervising the agent or in communicating the limits of the authority to third parties.