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 Texas, the principal-agent relationship is governed by principles of agency law, which dictate that a principal can authorize an agent to act on their behalf and enter into binding agreements within the scope of the granted authority. This authority can be 'actual authority,' explicitly given by the principal to the agent, or 'apparent authority,' where the principal's conduct suggests to third parties that the agent is authorized to act. Actual authority is the direct power the agent has been given by the principal either orally or in writing. Apparent authority arises when a principal's actions lead a third party to reasonably believe that the agent is authorized to act, even if the agent does not have the actual authority. This can occur through the principal's previous acceptance of the agent's actions or by setting up a situation where the agent appears to have certain powers. In Texas, as in other jurisdictions, for an agent to bind the principal, the third party must also act in good faith and have a reasonable belief in the agent's authority.
