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 York, the principal-agent relationship is governed by state common law, which recognizes the concepts of actual and apparent authority. Actual authority occurs when a principal directly grants an agent the power to act on their behalf, either through explicit instructions or an agreement. Apparent authority, on the other hand, arises when a principal's actions or communications lead a third party to reasonably believe that the agent is authorized to act, even if the agent does not have actual authority. This can occur through the principal's acquiescence or by allowing the agent to act in a way that suggests such authority. If an agent has either actual or apparent authority, they can bind the principal to contracts and other legal obligations within the scope of that authority. It is important for principals to clearly define the extent of an agent's authority and to communicate any limitations to third parties to avoid unintended obligations.