Under what circumstance is an agency terminated by operation of law?

The termination of an agency by operation of law occurs automatically under specific circumstances that do not require the mutual consent of the involved parties. One key circumstance is the death or incapacity of either the principal or the agent. When one party involved in the agency agreement dies or becomes incapacitated—meaning they are unable to fulfill their role—this automatically dissolves the agency relationship. This is grounded in the principle that an agency is based on mutual consent and reliance on the parties' ability to act, which is compromised in such situations.

In contrast, changes in agency status due to factors like ownership changes, mutual agreements between agents, or the withdrawal of an agent's services may involve negotiation or consent and do not constitute an automatic termination of the agency relationship. Thus, option B accurately reflects a situation where the law intervenes to end the agency without requiring action by either party.