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 Michigan, 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. When a principal explicitly grants authority to an agent, this is known as actual authority, and the agent can bind the principal to contracts and other legal obligations within the scope of that authority. Apparent authority, on the other hand, arises when a principal's conduct or communication leads 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, for example, if a principal knowingly allows an agent to act in a certain way over a period of time, thereby creating the impression of authority. In Michigan, if an agent has either actual or apparent authority, their actions can legally bind the principal. It is important for principals to clearly define and communicate the scope of an agent's authority to avoid unintended obligations.