What is an exception to the general rule that death or mental incapacity terminates authority?

The correct response identifies "agency power coupled with an interest" as an exception to the general rule that death or mental incapacity terminates an agent's authority. This situation arises when an agent's authority is tied to a specific interest they have in the subject matter of the agency. In such cases, the agency is not automatically terminated upon the principal’s death or incapacity, as the agent stands to benefit from the authority in a substantial way.

For instance, if an individual grants authority to an agent to manage a property that the agent has a financial stake in, that agent’s authority continues even if the principal passes away. This ensures that the agent can protect their own interest and manage the property until it can be appropriately transferred or another arrangement can be made.

The other options typically do not confer similar assurances. Delegation to a third party generally shifts authority without maintaining an interest, while confidential agency arrangements often do not protect against termination by death or incapacity. Partnership agreements, while they can continue under certain circumstances, often dissolve automatically upon the death of a partner, unlike agency powers coupled with an interest. This delineation highlights why the chosen answer accurately reflects an exception to typical agency termination rules.