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C is corrent. The declaration of Elkin’s incapacity constitutes the termination of the agency relationship by operation of law. When an agency relationship is terminated by operation of law, the agent’s authority to enter into a binding agreement on behalf of the principal ceases. There is no requirement that notice be given to third parties when the agency relationship is terminated by operation of law. In this case Elkin will not be liable to Ajax, regardless of the fact that Ajax was not given notice of the termination of the agency relationship, because Harris was without authority to enter into the contract.
A is incorrect. Insanity of the principal terminates the agency relationship even though the third parties are unaware of the principal’s insanity.
B is incorrect. The relationship was terminated by operation of law. Consequently, no notice need be given to Harris, even though Harris had previously dealt with Elkin.
D is incorrect. Harris’ authority terminated upon the declaration of Elkin’s incapacity.