How do events like death or bankruptcy of a principal affect agency relations and authority?

• A. The agency continues for a fixed period regardless of circumstances.
• B. The agency generally terminates, and agents cannot bind the principal for future actions without authority.
• C. The principal's heirs automatically assume all authority.
• D. The agent must seek court approval to terminate the relationship.

Answer: (B)

When a principal dies or becomes bankrupt, the agency relationship generally ends and the agent loses the authority to bind the principal for new acts. Authority to act on behalf is granted by the principal, or arises from the agent’s ongoing duties, but both death and bankruptcy remove the principal’s capacity to authorize future transactions. Once the fact of death or bankruptcy is known, the agent should stop acting on behalf of the principal for new matters, because any new obligations would typically require authority from the principal or from the principal’s estate or trustee.

There can be winding up tasks or the completion of transactions already in process, but these do not create new authority to bind the principal for future deals. In bankruptcy, control may pass to the trustee or debtor-in-possession, who would need to authorize further actions; otherwise, the agent cannot bind the principal.

Other options misstate the reality: the agency does not endure indefinitely after such events, heirs do not automatically assume all authority, and court approval is not the general rule for terminating the relationship. The core idea is that death or bankruptcy terminates the principal’s authority, and the agent cannot bind the principal for future actions without new authority.