Par is a purchasing agent for Elkin, a sole proprietor.  Par has the express authority to place purchase orders with Elkin’s suppliers. Par typically conducts business through the mail and has very little contact with Elkin.  Elkin was incapacitated by a stroke and was declared incompetent in a judicial proceeding. Subsequently, Par placed an order with Ajax, Inc. on behalf of Elkin. Neither Ajax nor Par were aware of Elkin’s incapacity.  With regard to the contract with Ajax, Elkin (or Elkin’s legal representative) will
　　A. Be liable because Ajax was unaware of Elkin’s incapacity.
　　B. Not be liable provided that Par had placed orders with Ajax in the past.
　　C. Not be liable because Par was without authority to enter into the contract.
　　D. Be liable because Par was acting within the scope of Par’ authority.
　　Answer:C
　　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.