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 Tennessee, as in other jurisdictions, the principal-agent relationship is governed by principles of agency law. A principal can give an agent the authority to act on their behalf and enter into contracts or legal obligations within the scope of the agency. This authority can be 'actual authority,' which is expressly granted by the principal to the agent, either in writing or verbally. Additionally, an agent may have 'apparent authority,' which arises when a principal's actions or inactions suggest to third parties that the agent is authorized to act on the principal's behalf. This can occur, for example, if the principal knowingly allows the agent to exercise certain powers or if the principal adopts or ratifies the agent's actions after the fact. In Tennessee, the extent to which an agent can bind the principal to contracts and obligations depends on the nature of the authority granted and the reasonable beliefs of third parties interacting with the agent.