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 Pennsylvania, 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 grants the agent authority to act on their behalf within the scope of the agency. This authority can be actual authority, which is expressly given by the principal to the agent, either in writing or verbally, to perform certain acts. Alternatively, an agent may have apparent authority, which arises when a principal's actions or inactions create a reasonable impression to third parties that the agent is authorized to act. If a third party reasonably believes an agent has the authority to act on behalf of the principal, based on the principal's representations, the principal may be bound by the agent's actions, even if the agent exceeds their actual authority. Pennsylvania courts will look at the interactions between the principal, agent, and third parties to determine whether apparent authority exists. It is important for principals to clearly define and communicate the extent of an agent's authority to prevent unintended obligations.