ACCA Applied Skills · Corporate and Business Law (Global) · Agency law
Lena appoints Mateo as her agent. Before Mateo makes any further contracts, Lena becomes mentally incapacitated and loses legal capacity. Mateo, unaware, contracts with a third party on Lena's behalf. What is the general effect on the agency?
The agency generally ends automatically by operation of law when the principal loses capacity, even if the agent does not know. Some legal systems give limited protection to good-faith third parties, but authority itself is not preserved by lack of notice.
- AThe agency terminates automatically by operation of law, subject to protections for third parties in some systemsCorrect
- BThe agency continues unaffected, because only the agent's incapacity ends authority
- CThe agency continues until Lena formally notifies the third party
Explanation
Loss of the principal's capacity (as well as death or bankruptcy) generally terminates the agency by operation of law. Mateo's authority therefore ends without notice, though some legal systems protect agents or third parties acting in good faith. Options B and C misstate this.
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