What is the effect of death or bankruptcy on agency relations?

• A. Agency generally terminates on death or bankruptcy; agents cannot bind the principal for future actions without authority.
• B. Agency continues normally after death.
• C. Death terminates agency but bankruptcy has no effect.
• D. The principal's death expands agent's authority.

Answer: (A)

Agency authority rests on the principal’s ongoing capacity and permission for the agent to bind them. When the principal dies, there is no living person who can authorize future actions on behalf of the deceased, so the agency relationship ends and the agent cannot bind the principal for new transactions. Similarly, bankruptcy changes who controls the principal’s assets and limits the ability to enter into binding contracts for the principal’s benefit; the agent cannot bind the principal’s estate for future actions without new authority from the trustee or court. Acts that occurred before death or bankruptcy may have effect, but nothing new can bind the principal absent fresh, valid authority.

Other views suggesting continuation after death, no effect of bankruptcy, or that death expands the agent’s authority don’t fit with how agency operates, since the relationship relies on the principal’s ongoing capacity and control.