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 South Dakota, as in other states, the principal-agent relationship is governed by principles of agency law. 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, or apparent authority, where the principal's actions or inactions suggest to third parties that the agent is authorized to act. Actual authority is typically outlined in a contract or agreement, detailing the agent's powers and duties. Apparent authority, on the other hand, arises when a principal's behavior creates a reasonable impression in a third party that the agent is authorized to act in certain ways, even if the agent does not have the actual authority to do so. If an agent acts within the scope of their actual or apparent authority, the principal is generally bound by the agent's actions and can be obligated to contracts and other legal duties as a result. 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.