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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Adams v. Adams (04/23/2004) sp-5798

Adams v. Adams (04/23/2004) sp-5798

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA

MICHAEL A. ADAMS,                  )
                                   )    Supreme Court No. S-10271
               Appellant,               )
                                   )    Superior Court No.
     v.                            )    3AN-00-5519 CI
                                   )
DON ADAMS, individually and on          )    O P I N I O N
behalf of ALASKA RUBBER &               )
SUPPLY, INC., and ADA INVESTMENTS, )
                                   )
                Appellees.               )    [No. 5798  -  April
23, 2004]
                                   )


          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Mark Rindner, Judge.

          Appearances:  Larry L. Caudle, Anchorage, for
          Appellant.   Wevley William Shea,  Anchorage,
          for Appellees.

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          MATTHEWS, Justice.
          CARPENETI,  Justice, with whom EASTAUGH,  Justice,
          joins, dissenting.

           The power to avoid a contract due to misrepresentation

can  be  lost if a party knowing or having reason to know of  the

misrepresentation  affirms  the contract.   But  this  rule  only

applies  in  cases  of non-fraudulent misrepresentations.   Where

there  is fraud the power of avoidance is only lost if the  party

actually knows of the misrepresentation and affirms the contract.

The  main  question in this case is whether, in  the  process  of

negotiating  a  lease, changing a right of first  refusal  to  an

option  to  purchase  without  notice  should  be  considered   a

constructive  fraud  for  purposes of  applying  this  rule.   We

conclude  that it should because of the strong deceptive tendency

of such conduct.

I.   FACTS AND PROCEEDINGS

           Michael  Adams owns four contiguous lots  on  the  Old

Seward  Highway  in  Anchorage.  Adjacent  to  this  property  is

property  owned  and  used  by  Alaska  Rubber  &  Supply,   Inc.

Effective  October 1, 1996, Michael Adams leased his property  to

Alaska   Rubber   and  Alaska  Rubber's  principal,   Don   Adams

(collectively referred to in this opinion as Alaska Rubber).  The

lease  had a three-year term.  The focus of this case is a clause

in  the  lease  that is titled "Right of First Refusal,"  but  is

textually  an  unconditional option running in  favor  of  Alaska

Rubber  to  purchase the leased property at any time  during  the

lease  term  for  $300,000.1  The lease  also  excepts  from  its

coverage   an  L-shaped  portion  of  about  3,750  square   feet

straddling two lots on which Michael Adams lives in a trailer and

has a quonset hut and storage containers.2  A secondary issue  is

whether the option includes the excepted property.

           The  negotiations leading up to the execution  of  the

lease began in earnest in July and August of 1996.  On August  2,

1996,  Michael Adams wrote Don Adams, president of Alaska Rubber,

asking  for a decision on leasing the property before the end  of

the  month.   The  letter mentions a purchase  option.   It  also

contains  language  that suggests that Michael Adams's  objective

was  to sell the property after he found property suitable for  a

tax-free trade.3    Enclosed is a copy of a lease I used for  one

of  my properties.  As you know leases are complicated so if  you

have one you would feel more comfortable with then prepare it and

I  will read it.  Lets try for a three year lease at 3000.00  per

month  and  an  opportunity to purchase the property  during  the

lease  period.   Chances are that I will find a  trade  soon  and

release  you from the lease.   Michael Adams enclosed a  proposed

lease containing a right-of-first-refusal clause under which  the

lessee  was  granted an option to buy conditioned on  the  lessor

attempting  to  sell the property and finding a buyer.   In  that

event  the lessee would have the right to buy on the terms agreed

to  between  the lessor and the buyer.4  Michael Adams  testified

that he brought the letter of August 2, 1996, and the first draft

of  the  lease to Alaska Rubber and gave them to Alaska  Rubber's

general  manager, Janeece Higgins, for transmission to Don  Adams

who resides in the state of Washington.

          Subsequent to the delivery of the August 2, 1996 letter

and   the  first  draft,  the  parties  met  and  discussed   the

prospective  transaction.   Michael  Adams  testified  that  they

reached  an  agreement  and that he instructed  his  attorney  to

prepare  a  second  draft  of a lease in  accordance  with  their

agreement.  Larry Caudle, Michael Adams's attorney, prepared  the

second  draft.  In it the right of first refusal was  changed  by

specifying the sale price, $300,000.  But the lessee's option was

still only exercisable when "Lessor at his sole discretion elects

to  sell  the  property  during the lease  term."   After  Caudle

prepared the second draft, Michael Adams took it to Alaska Rubber

and delivered it to Higgins.

           The  second  draft was transmitted by Higgins  to  Don

Adams, who sent it to Alaska Rubber's attorney, Herbert Viergutz.

Viergutz then prepared a third draft.  The right-of-first-refusal

clause  in  the third draft is almost identical to  that  in  the

second  draft, except that two additional sentences are added  at

the  end  of  the clause concerning sharing of the  cost  of  any

environmental  phase two report that might  be  required  in  the

event  that  lessee exercises its right of first  refusal.5   The

third  draft  was  delivered by Alaska Rubber to  Michael  Adams.

Michael  Adams reviewed it, brought it to Alaska Rubber's office,

and  stated that it was acceptable to him.  Without then  signing

the  draft,  Michael Adams gave it to Higgins,  who  sent  it  to

Washington for Don Adams's review and signature.

           Don  Adams read the third draft and did not agree with

the  right-of-first-refusal clause.  In his view the parties  had

agreed  that  Alaska Rubber would have an option to purchase  the

property  that was not contingent on Michael Adams's decision  to

sell.  He instructed Viergutz to revise the clause so that Alaska

Rubber's  option  to  purchase would be unconditional.   Viergutz

made this change but did not change the caption of the paragraph.

As  a  result,  the paragraph was still titled  "Right  of  First

Refusal."6  Don Adams signed this, the final draft, on behalf  of

himself  and  Alaska Rubber and transmitted it to Higgins.   When

the draft arrived at the Alaska Rubber office, Michael Adams came

to  the  office and signed it without reading it.  No one advised

Michael Adams that the third draft had been changed and that  the

final draft contained an unconditional option to buy.

           Almost  three years passed.  A month before the  lease

was  to expire it was extended for an additional two years.  This

was accomplished by a letter prepared and signed by Michael Adams

that  he delivered to Alaska Rubber on August 30, 1999, and  that

Don  Adams  assented to on September 15, 1999.7     The concerned

parties   have  agreed  to  this  extension  and  affixed   their

respective  signatures.   The circumstances  leading  up  to  the

lease extension are in dispute.

           Michael  Adams testified that he prepared  the  letter

extending the lease because the lease was about to expire and  he

wanted  to  know  Alaska Rubber's intentions in  advance  of  the

expiration  date.   But  Higgins testified  that  the  lease  was

renewed  after a conversation that she had with Michael Adams  in

which  she  told  him that Alaska Rubber wanted to  purchase  the

property.  According to Higgins, Michael Adams said that he would

get  back  to  her,  and  when she did not  hear  from  him,  she

telephoned  him and again told him that Alaska Rubber  wanted  to

exercise  the  option  to purchase.  She testified  that  Michael

Adams  told her that he did not believe that he had to  sell  the

property, that she disagreed, and that he told her that he  would

look into it and get back to her.  The next event of significance

according to Higgins was her receipt of the lease extension  from

Michael   Adams  described  above.   The  trial  court   accepted

Higgins's  description  of the events leading  up  to  the  lease

extension.

           On  November 29, 1999, Alaska Rubber sent a  certified

letter  to  Michael Adams exercising its option to  purchase  the

property.  Michael Adams refused to sell.  Alaska Rubber  brought

the  present  action seeking specific performance or damages  for

breach   of   the  lease  agreement.   Michael  Adams   filed   a

counterclaim, seeking a declaration that the lease  is  null  and

void because of Alaska Rubber's "fraudulent and deceptive act  of

changing  a  material  condition of the  lease  without  [Michael

Adams's] consent or knowledge."

           Following a bench trial, the court issued findings  of

fact  and conclusions of law.  The court found that as of October

1996, when Michael Adams signed the original lease, Michael Adams

was  justified  in  believing that the agreement  he  signed  was

identical  to  the third draft that he reviewed and  that  Alaska

Rubber did not advise him that the right of first refusal in  the

third draft had been converted to an option to purchase.  But the

court  found that the failure of Alaska Rubber to advise  Michael

Adams  of the change was not "an attempt to deceive Michael Adams

in  any  way."  As to Higgins, the court found that she "was  not

involved in the negotiations other than to act as an intermediary

between  the principals."  As to Don Adams, the court found  that

he  "was  justified in believing that an option to  purchase  was

consistent  with the prior negotiations between the  parties"  as

reflected in part in the letter of August 2, 1996, and that  both

he  and  Higgins "were justified in assuming that  Michael  Adams

would read the final version of the lease before signing it."

          With respect to the original lease the court found that

there  was a material misunderstanding as to the option agreement

and that no contract was formed.  The court wrote:

               In Salmine v. Knagin, 645 P.2d 148, 150-
          151, the Alaska Supreme Court recognized that
          a material misunderstanding among the parties
          may  prevent  the formation of any  contract.
          This   may   occur  if  the   parties   meant
          materially different things and neither  knew
          or had reason to know of the other's meaning,
          of if each knew and had reason to know of the
          other's   meaning.   Id.;   See   Restatement
          (Second)  of Contracts  20.  I conclude  that
          this   is   what  occurred  when  the   lease
          agreement dated October 1, 1996 was executed.
          At  that  time Don Adams reasonably  believed
          that  the  agreement contained an  option  to
          purchase   while  Michael  Adams   reasonably
          believed that the contract contained a  right
          of  first refusal.  Neither party knew or had
          reason  to know the meaning attached  by  the
          other.   When  [the  lease]  originally   was
          executed     there     was     a     material
          misunderstanding  between  the  parties   and
          hence no contract was formed.
          
           The  court then turned to the question of the validity

of  the lease extension of August 30, 1999.  The court found that

the  extension was valid and that Michael Adams, by  agreeing  to

the  extension,  affirmed  the terms of  the  original  lease  as

written.  The court stated:

                Based  on  my finding that  there  were
          discussions concerning the option to purchase
          prior to the execution of the lease extension
          (which finding is based in large part  on  my
          finding  that  Mrs.  Higgins  is  a  credible
          witness on this issue) I conclude that  there
          was  no longer a misunderstanding between the
          parties   when   the  lease   extension   was
          executed.   The  lease  agreement  that   was
          extended clearly indicates that Don Adams has
          an   option  to  purchase  the  property  for
          $300,000.00.   Michael Adams  had  reason  to
          know  that plaintiffs believed that they  had
          an option to purchase the property.  A review
          of  the agreement he had signed in 1996 would
          have confirmed this.  On the other hand,  Don
          Adams and Mrs. Higgins only knew that Michael
          Adams  had  indicated  he  would  look   into
          whether  or  not  there  was  an  option   to
          purchase prior to sending the lease extension
          to  Mrs.  Higgins.  Restatement  (Second)  of
          Contracts Section 20 indicates that:
          
               (2)    The  manifestations  of  the
               parties are operative in accordance
               with  the meaning attached to  them
               by one of the parties if:
               
          (a)       that  party does not  know  of
                    any different meaning attached
                    by  the  other, and the  other
                    knows the meaning attached  by
                    the first party; or
                    
          (b)       that  party has no  reason  to
                    know  of any different meaning
                    attached by the other, and the
                    other  has reason to know  the
                    meaning attached by the  first
                    party.
                    
          Id.; see also Salmine, 645 P.2d 151 n.10.   I
          conclude,  therefore,  that  when  the  lease
          extension  was  executed in  1999  there  was
          mutual  assent.  A valid contract existed  at
          that time including an unambiguous option  to
          purchase clause as specified in Paragraph  39
          of  the  original  lease agreement.   Michael
          Adams has breached that agreement by refusing
          to sell the property to Don Adams.
          
           The  court thus decided that specific performance  was

appropriate.   Initially the court concluded  that  the  property

excepted  from  the  lease  occupied by  Michael  Adams  was  not

included in the option to purchase.  Michael Adams filed a motion

for  reconsideration.  One ground for the  motion  was  that  the

contemplated decree of specific performance would require Michael

Adams  to  create an illegal subdivision since the property  that

was  excepted  from the lease was not platted as a separate  lot.

The   court   generally  denied  Michael   Adams's   motion   for

reconsideration  but decided that the excepted property  was  not

intended to be excepted from the option or right-of-first-refusal

clause.  The court stated:

          I   thus  conclude  that  while  the  parties
          intended to exclude a portion of the property
          from  the  lease, this exclusion was intended
          to operate only while the property was leased
          and  was  not intended to affect the sale  of
          the  property.  The sale of the property  was
          intended  to  be  for the  entire  parcel  of
          property without exclusion.
          
The  court  thereupon ordered Michael Adams to convey the  entire

property including the property that was excepted from the lease.

          Michael Adams appeals.

II.  DISCUSSION

     A.   Standard of Review

          Leases are contracts that are reviewed according to the

principles  of  contract  interpretation.8   Issues  of  contract

interpretation are reviewed de novo.9  Findings of fact made by a

trial  court, including those that "provide a factual  basis  for

its  interpretation of a contract,"10 are reviewed  deferentially

under a clearly erroneous standard.  A finding of fact is clearly

erroneous  when the reviewing court is left with a  definite  and

firm conviction that the trial court has made a mistake.11

          B.    Changing  the Final Version of the  Lease  Was  a
          Constructive Fraud.
          
           Michael Adams argues that Alaska Rubber cannot  obtain

specific  performance because its conduct, changing the terms  of

the  final  lease without notifying Michael Adams of the  change,

was  fraudulent as a matter of law.  Alaska Rubber counters  that

the  court's  findings  that Alaska Rubber  did  not  attempt  to

deceive Michael Adams effectively negate his argument that  fraud

was  involved.   For the reasons that follow,  we  conclude  that

Alaska Rubber's conduct with respect to the original lease was  a

constructive fraud.

           Michael  Adams relies on Pierce v. Pierce, a  case  in

which  we  strongly disapproved of a party's  act  of  adding  an

unagreed-to provision to a document without notice to  the  other

party.12   Pierce  was  a  divorce  case  in  which  the  parties

participated in a settlement conference during which they reached

agreement  on  all  issues of child custody, child  support,  and

property division.13  The subject of which party would receive  a

child  support tax credit was not discussed during the settlement

conference.14   After  the settlement conference,  the  husband's

counsel was designated to draft a child custody and support order

memorializing the settlement agreement.15  He inserted a provision

in the draft order giving a fifty percent child support credit to

the  husband.16  This had not been agreed to in the settlement.17

The  draft  order was forwarded to the wife's counsel for  review

without  calling attention to the new term.18  The wife's counsel

reviewed  and approved the document, overlooking the newly  added

term.   The  court  signed the order as prepared and  approved.19

Subsequently  the  wife discovered the new  term  and  moved  for

relief from the order.20  The trial court granted this motion and

issued  an  amended order deleting the provision  that  husband's

counsel had added.21  On appeal we affirmed.22  Although this was

not  the basis for the superior court's action, we ruled that the

order  should have been set aside under Civil Rule 60(b)(3) which

provides   relief   from   judgment   for   "fraud,    .   .    .

misrepresentation, or other misconduct of an adverse party."23  We

held  that  the  action of husband's counsel of adding  the  term

without  notifying the opposing party was misconduct  within  the

meaning of Rule 60(b)(3):

          Insertion  of  a  new term without  informing
          [wife] or the court amounts to an attempt  to
          gain a concession that was not bargained for.
          Insertion of the credit . . . was neither  an
          honest mistake nor a legitimate extension  of
          negotiations, as the settlement  was  already
          complete  when [husband] added the new  term.
          If [husband] wished to add to the agreement a
          new   term  that  had  not  previously   been
          negotiated, his counsel had the obligation to
          bring  the  requested change to the attention
          of   [wife's]   attorney.   This  [husband's]
          counsel  failed  to do.  Rule 60(b)(3)  gives
          the   court  the  authority  to  remedy  such
          misconduct  by  a party or an  attorney.   In
          fact, the court has a duty to rectify such  a
          wrong   to  protect  the  integrity  of   the
          judicial process.[24]
          
            The   policy  expressed  in  Pierce  condemning   the

surreptitious  expression  of  new  terms  in  the   process   of

negotiations  applies here.  The conduct  in  this  case  is,  if

anything,  more blameworthy than that in Pierce because  the  new

language in Pierce was not miscaptioned and it did not contradict

a clause in an earlier draft.  Here, the option was inserted in a

paragraph  that addressed, according to its caption, a  right  of

first  refusal.   Further,  the option  conflicted  with  earlier

drafts that the parties had exchanged, including the third  draft

that was prepared by Alaska Rubber's counsel.

           The  trial court's reasons for concluding that  Alaska

Rubber  was justified in not calling attention to the  change  to

Michael  Adams  are  insufficient.   As  noted  there  are  three

reasons.  First, Higgins was merely an intermediary; second,  Don

Adams believed that an option to purchase was consistent with the

prior negotiations between the parties; and third, Don Adams  and

Higgins thought Michael Adams would read the final version before

signing it.25  While Don Adams may have thought that an option to

purchase  was  consistent  with prior  negotiations  between  the

parties,  that  does not account for the fact that  the  parties'

recent  negotiations had focused on drafts containing a right  of

first  refusal,  not an option, including the most  recent  draft

that was prepared by Alaska Rubber's counsel.  Further, while  it

is  possible  that  each of the actors for Alaska  Rubber  -  Don

Adams,  Higgins, and Viergutz - might have believed  that  others

would  call  attention to the change to Michael Adams,  the  fact

remains  that  no one did so.  Moreover, it is not  a  sufficient

excuse for one party to say that it believed that the other party

would  review a final document and notice an unannounced  change.

Making  unannounced  changes, as Pierce  teaches,  is  inherently

deceptive and wrongful.

           Fraud  may  be  actual or constructive.  "Constructive

fraud  exists  in cases in which conduct, although  not  actually

fraudulent,  ought  to be so treated, - that is,  in  which  such

conduct  is  a  constructive . . . fraud, having all  the  actual

consequences and all the legal effects of actual fraud."26  Stated

otherwise, constructive fraud is a breach of a duty, which  while

not  intentionally  deceptive  or actually  dishonest,  "the  law

declares fraudulent because of its tendency to deceive others."27

           Alaska Rubber's conduct here was a constructive fraud.

While  neither  Higgins, nor Don Adams, nor Viergutz,   may  have

intended  to deceive Michael Adams, the failure of Alaska  Rubber

to  notify Michael Adams of the change had the same effect as  an

intentional  deception.  Viewed corporately, Alaska  Rubber  "had

the  obligation  to bring the . . . change to the  attention  of"

Michael Adams.28  Its breach of this duty was a constructive fraud

because  of  the powerful tendency to deceive that  such  conduct

carries with it.

          C.    The  Right To Avoid a Contract that  Is  Voidable
          Because of Fraud Is Lost Only by a Knowing Affirmance.
          
           To  use  the  terms  of  the Restatement  (Second)  of

Contracts,  Alaska  Rubber's act of changing the  right-of-first-

refusal  clause  to an option without changing  the  caption  and

without  notifying  Michael Adams was a  misrepresentation  -  an

express  and  implied  assertion that the  right-of-first-refusal

clause in the third draft was unchanged.29  The misrepresentation

was  material30  and for the reasons discussed in  the  preceding

section  of this opinion, we consider it to have all the  effects

of  actual  fraud.   But  since Michael Adams  had  a  reasonable

opportunity  to read the lease before he signed it, his  apparent

assent  to  the lease was effective, and the lease  was  voidable

rather than void.31

           Two  illustrations to section 163 of  the  Restatement

come close to the facts of this case.  Illustration 2 states:

               A and B reach an understanding that they
          will  execute  a written contract  containing
          terms  on  which  they have  agreed.   It  is
          properly  prepared and is read by  B,  but  A
          substitutes  a  writing containing  essential
          terms  that  are different from those  agreed
          upon and thereby induces B to sign it in  the
          belief  that it is the one he has read.   B's
          apparent  manifestation  of  assent  is   not
          effective.
          
Illustration 3 states:

               A and B reach an understanding that they
          will  execute  a written contract  containing
          terms  on which they have agreed.  A prepares
          a writing containing essential terms that are
          different from those agreed upon and  induces
          B  to sign it by telling him that it contains
          the  terms  agreed upon and that  it  is  not
          necessary  for him to read it.  B's  apparent
          manifestation of assent is effective if B had
          a reasonable opportunity to read the writing.
          However, the contract is voidable by B  under
          the  rule  stated in  164.  .  .  .   In  the
          alternative, at the request of B,  the  court
          will  decree that the writing be reformed  to
          conform to their understanding under the rule
          stated in  166.
          
The  main  difference between the two illustrations is  that  the

recipient  of the misrepresentation had a reasonable  opportunity

to  read the writing in Illustration 3.  As Michael Adams  had  a

reasonable opportunity to read the lease in the final form before

he  signed  it, Illustration 3 is more analogous to the situation

in  the  present case.  The lease was voidable by Michael  Adams,

but not void.

          The main question in this case is whether Michael Adams

lost his power of avoidance by extending the lease.  The exercise

of the power of avoidance is subject to the limitations expressed

in chapter 16 of the Restatement.32  Section 380(2) deals with the

loss of the power of avoidance by affirmance.  It provides that a

party's  power  of avoidance for misrepresentation  is  not  lost

"until he knows of the misrepresentation if it is fraudulent,  or

knows  or  ought  to  know  of a nonfraudulent  misrepresentation

. . . ."33

            Michael  Adams's  extension  of  the  lease   was   a

manifestation  of "a willingness to go on with the contract"  and

was  thus an "affirmance."34  But the superior court did not find

that   Michael  Adams  actually  knew  that  the  original  lease

contained  an  option rather than a right of first refusal,  only

that  he  "had reason to know that [Alaska Rubber] believed  that

they  had  an option to purchase the property.  A review  of  the

agreement that he had signed in 1996 would have confirmed this."

           For  Michael  Adams to lose his power of avoidance,  a

finding of actual knowledge of the misrepresentation, rather than

reason  to  know of it, is necessary.  Thus, remand is  required.

On  remand, the court should make findings as to whether  Michael

Adams  had  actual knowledge that the lease contained  an  option

when he agreed to extend it.

          D.     Changing   the  Property  Description   Requires
          Reformation.
          
           The  only  property description in the lease  excepted

from  the  lease  is a parcel straddling two of  the  four  lots.

Michael  Adams lives and stores personal property on this parcel.

Although the court initially concluded that the excepted property

was  not  included  in the option, on reconsideration  the  court

concluded  "that  the portion of the property that  was  excluded

from  the  lease was not intended by the parties to  be  excluded

from any eventual sale of the property."  The court gave a number

of reasons for this conclusion:

          First,   the  evidence  indicates  that   the
          purpose  of  excluding  a  portion   of   the
          property from the lease was to allow  Michael
          Adams  the  opportunity  to  remain  on   the
          property  temporarily until  a  sale  of  the
          property finally occurred.  The testimony  of
          the  parties  establishes that Michael  Adams
          intended  to move off the property  when  the
          property was sold and that Michael Adams  was
          seeking  to  dispose of the entire  property.
          The  leasing of the property was intended  to
          be  a temporary measure until the sale of the
          property occurred.  The appraisals that  were
          done  by the parties at trial all valued  the
          entire   parcel  without  reference  to   any
          excluded   portion.   Further,   even   under
          defendant's  theory  of  the  case  that  the
          agreement  only  gave Don Adams  a  right  of
          first  refusal, this right of  first  refusal
          would  have  to  be exercised on  the  entire
          piece  of  property.  Otherwise,  even  under
          defendant's theory the problem of  illegality
          and  violation  of the Municipality's  zoning
          ordinances would arise.  I thus conclude that
          while  the  parties  intended  to  exclude  a
          portion of the property from the lease,  this
          exclusion was intended to operate only  while
          the  property was leased and was not intended
          to affect the sale of the property.  The sale
          of  the  property was intended to be for  the
          entire parcel of property without exclusion.
          
           By  including the excepted property in the option, the

court  reformed  the  only property description  in  the  overall

document.35   Reformation of a contract is  available  when  "the

words  of  the writing do not correctly express the meaning  that

the  parties agreed upon."36  In Voss v. Brooks37 we  listed  the

circumstances under which reformation may be appropriate:

          (1) mutual mistake of fact in which the deed,
          as  written,  does not conform to  the  prior
          agreement  of the parties; (2) fraud  by  one
          party  which  causes the other  party  to  be
          under a mistaken belief as to the contents of
          the  deed;  (3)  duress by  one  party  which
          deprives the other party of any true  freedom
          of  choice;  (4)  unilateral mistake  by  one
          party  and fraudulent or inequitable  conduct
          by  the  other  party, especially  where  the
          latter party knew of the other's mistake  and
          kept silent; and (5) mistake of law. . . .[38]
          
A  party seeking reformation is required to prove the elements of

reformation by clear and convincing evidence.39

           In  the present case the only circumstance that  might

justify  reformation in favor of Alaska Rubber would be a  mutual

mistake of fact if the property description set out in the  lease

does  not conform to the parties' agreement as to what was to  be

sold.   The  court's findings on reconsideration as quoted  above

suggest a mutual mistake rationale.  But they are not based on  a

clear  and convincing standard of proof.  On remand, if the court

decides that Michael Adams has lost his right to avoid the  lease

and  that  specific performance is appropriate, the court  should

explicitly  address  whether  grounds  for  reformation  of   the

property  description as to the option are present,  and  if  so,

whether  the  clear  and convincing evidence  standard  has  been

satisfied.

III. CONCLUSION

           A  remand  is  necessary  for additional  findings  as
described   above.    The  court  should  hold   a   supplemental
evidentiary  proceeding  if it believes that  such  a  proceeding
would  be  useful or necessary to its decision.  For the  reasons
stated the judgment of the superior court is VACATED and the case
is  REMANDED  for  further proceedings in  accordance  with  this
opinion.40
CARPENETI,   Justice,   with  whom  EASTAUGH,   Justice,   joins,
dissenting.
           Introduction
          Michael Adams offered to sell his property to Don Adams
either  directly or through a lease with an option  to  purchase.
The  parties, who are unrelated, subsequently signed a lease with
an  option to purchase, although Michael Adams, who did not  read
the  final  document,  believed it contained  a  right  of  first
refusal.  Near the end of the lease period, Don Adams gave notice
of  his  intent  to  exercise  the lease's  option  to  purchase.
Michael Adams insisted that the lease contained a right of  first
refusal,  not  an option to purchase.  Told that it contained  an
option to purchase, he said that he would read the document.   He
subsequently  extended the lease with an option  to  purchase  by
drafting and signing an extension and sending it to Don Adams.
           Don  Adams later notified Michael Adams again that  he
intended to exercise his option to purchase.  When Michael  Adams
again refused to sell, insisting that the lease contained only  a
right  of  first  refusal,  Don Adams  brought  a  complaint  for
specific   performance.   The  superior  court  granted  specific
performance.
           The superior court correctly decided the case based on
the  court's  factual findings.  Because those findings  are  not
clearly erroneous, I respectfully dissent.
          Facts
           In  October 1995 Michael Adams, who owned the property
next  to  a  lot owned by Alaska Rubber, wrote to Don Adams,  the
owner  of Alaska Rubber, to offer his property for lease or sale.
Michael  Adams  wrote,  "I am writing  to  ask  you  if  you  are
interested in leasing the premises or purchasing it.  I am  ready
to  go  either  way."  He stated, "If you would be interested  in
purchasing the building I would like to have until July or sooner
to   move   off  the  property."   He  referred  to  an   earlier
conversation  between  the  two, mentioned  that  Don  Adams  had
offered  $300,000 for the property but stated that his price  was
$320,000, and closed with these admonitions as to his seriousness
in  offering the property for sale: "I am ready to dispose of the
property.  .  . .  The property is for sale and I will  seriously
consider an offer."
            By  August  1996  the  parties  had  not  reached  an
agreement.  That month Michael Adams sent another letter  to  Don
Adams.   Noting  that he sought a tax free trade,  Michael  Adams
wrote,  "[i]t appears a short term lease with you with a purchase
option would be the way that will benefit me.  Perhaps a two year
lease  with  an  option would be suitable."  In the  same  letter
Michael Adams stated, "Let's try for a three year lease at $3,000
per  month and an opportunity to purchase the property during the
lease  period."   Michael Adams then sent a  lease  form  to  Don
Adams, but it did not contain an option to purchase.  Instead, it
contained  a right of first refusal.  Under the latter provision,
Don  Adams would be able to purchase the property only if Michael
Adams decided to sell.
           Don Adams sent the proposed agreement to his attorney,
who  changed  only one section by adding a provision apportioning
the  costs  of  an  environmental investigation (which  would  be
necessary  only in the event of a sale).  The draft was  sent  to
Michael  Adams, who approved it and returned it to Don Adams  for
his  signature.  At this point, Don Adams noticed that the  draft
did  not  contain the option to purchase - which he believed  the
parties  had earlier agreed upon - and he instructed his attorney
to  delete the right of first refusal and to insert the option to
purchase.  The attorney did so but, as the superior court  found,
"for  reasons  that were not established at trial [the  attorney]
failed to change the heading."  Neither Don Adams nor anyone else
on  his  behalf brought this change to the attention  of  Michael
Adams, who signed the agreement without reading it, believing  it
to  be  the  same as the document he had previously sent  to  Don
Adams.   The  superior court, after hearing all of the  evidence,
concluded  that  "this was not a deliberate  attempt  to  mislead
Michael Adams."  The court based this conclusion on the testimony
of Don Adams, who the court specifically found to be credible.
           Almost  three years later, as the lease was  about  to
expire,  the  office manager for Alaska Rubber, Janeece  Higgins,
spoke with Michael Adams at the company picnic.  She notified him
that  Don  Adams  was  interested in  exercising  his  option  to
purchase  and  therefore  needed to  initiate  the  environmental
investigation before winter set in.  Michael Adams indicated that
he  would get back to her.  When he did not do so, she called him
and  again  stated  that Don Adams had decided  to  exercise  the
option to purchase.  At this point, as the superior court found:
          Michael  Adams indicated to her that  he  did
          not  think  he  had to sell the property  and
          Mrs.  Higgins  told him she  disagreed.   She
          told  Michael Adams that while  she  did  not
          have the lease in front of her she was pretty
          sure there was wording in the lease that gave
          Alaska Rubber & Supply an option to purchase.
          According  to  Mrs.  Higgins,  Michael  Adams
          indicated  that  he would look  into  it  and
          would get back to her.
                Thereafter, [Alaska Rubber] received  a

          faxed  lease  extension from  Michael  Adams.

          The lease extension agreement was drafted and

          signed  by  Michael  Adams  and  subsequently

          executed  by  Don Adams. .  .  .   The  lease

          extension  agreement further  indicated  that

          "all  conditions of the original lease  shall

          apply  without  changes and shall  remain  in

          full force and effect."

           The  superior court made several findings that today's

Opinion  effectively ignores.  The court found that  Don  Adams's

testimony  was  "entirely credible."  The court  found  that  Don

Adams's  testimony was consistent with the initial correspondence

between the parties regarding the sale of the property, and  that

it  was  consistent with the testimony of Janeece  Higgins.   The

court  also  found Higgins to be "fully credible."  In  addition,

the superior court found the testimony of Michael Adams not to be

credible, pointing to a number of factors, including that Michael

Adams's letters uniformly referred to a sale and that negotiation

of  a  purchase price in the letters is consistent with an option

to  purchase and inconsistent with a right of first refusal.   In

contrast to these strong findings, the Opinion merely notes  that

the  superior  court  found  that Don  Adams  "was  justified  in

believing  that  an  option to purchase was consistent  with  the

prior  negotiations between the parties," that  the  trial  court

"accepted Higgins's description of the events leading up  to  the

lease  extension,"  and that both Don Adams and  Janeece  Higgins

were  "justified in assuming that Michael Adams  would  read  the

final version of the lease before signing it."

           Next,  the  superior  court unambiguously  found  that

"there was no longer a misunderstanding between the parties  when

the   lease  extension  was  executed."   While  today's  Opinion

mentions this finding in a long quotation of the superior court's

decision,  the  Opinion ignores the finding in its discussion  of

whether  Michael Adams affirmed the lease when he sent the  lease

extension to Don Adams.

           But  the most critical findings of the superior court,

effectively ignored by today's Opinion in reaching its conclusion

to remand, are the following:

                Michael  Adams  does  not  recall  [the

          follow-up telephone conversation in which  he

          and  Higgins "discussed their differing views

          concerning   whether  or  not  the   contract

          contained   an   option  to  purchase"]   and

          indicates that he sent the lease extension to

          Alaska  Rubber  & Supply merely  because  the

          contract was to expire in another month.   He

          denies  reading  the lease  agreement  before

          sending  the lease extension to Mrs. Higgins.

          I  find  Mrs.  Higgins['s] testimony  on  the

          events leading to the execution of the  lease

          extension  to be fully credible.  Conversely,

          I  do not find Michael Adams['s] testimony on

          this issue to be credible.

(Emphasis added.)   In other words, the superior court found  (1)

that  two  conversations took place between Higgins  and  Michael

Adams  in which Higgins stated that the lease contained an option

to  purchase (which Michael Adams denied)41 and (2) that  Michael

Adams's  testimony that he did not read the lease before  signing

the lease extension was not credible.

           Today's result can be upheld only if Michael Adams had

no  obligation to read the lease on two occasions before signing,

first when he signed the original lease under the mistaken belief

that  it  contained a right of first refusal, and second when  he

signed  the  lease  extension after  being  told  twice  that  it

contained  an option to purchase.  Because there is no reason  to

conclude that the superior court was clearly erroneous in any  of

its  findings - indeed, I would go so far as to suggest that they

are  clearly correct, although that is not the standard of review

to  uphold factual findings - and because I cannot agree  that  a

party  may  indefinitely refuse to read a document and  be  saved

from his folly, I dissent from today's Opinion.

          Law

           I  have  no quarrel with the proposition that  it  may

constitute  constructive fraud to change a  final  version  of  a

lease  without  informing the other party  of  the  change  while

leaving  a misleading heading in place.  But it is impossible  to

accept the propositions that there was not a "knowing affirmance"

of  the  option to purchase by Michael Adams or that the superior

court did not find a knowing affirmance.  A careful review of the

legal  standard  adopted by the court and the  findings  made  by

Judge  Rindner show that there was a knowing affirmance and  that

Judge Rindner so found.

           The court today adopts the Restatement standard.   The

Restatement provides: "The power of a party to avoid  a  contract

for  . . . misrepresentation is lost if after [the party] .  .  .

knows of the misrepresentation if it is fraudulent, he . . . acts

with respect to anything he has received in a manner inconsistent

with disaffirmance."42  Accordingly, if Michael Adams extended the

lease  knowing that it contained an option to purchase,  he  lost

the power to avoid the lease.

           Generally a party acts "knowingly" not only when he or

she  possessed  actual knowledge of a fact,  but  also  when  any

failure  to  possess  actual knowledge was  due  to  the  party's

deliberate  ignorance or willful blindness in  the  face  of  the

information presented to him or her.43   In Louis Vuitton S.A. v.

Lee,44  a trademark case requiring that the defendant's trademark

violation  be "knowing,"  the Seventh Circuit held that  "willful

blindness  is  knowledge enough."45   The court  found  that  the

defendant  did not know that he was selling counterfeit  designer

goods because the defendant "failed to inquire further because he

was  afraid of what the inquiry would yield."46  Thus, the  court

found  that Louis Vuitton had proved that the defendant had acted

knowingly.47

          The equation of willful blindness with actual knowledge

has  been found most frequently in criminal prosecutions, an area

where  the law has historically been extremely solicitous of  the

rights  of  the defendant.  Interpreting the statutory definition

of  "knowingly,"  Alaska courts have held that "one  who  remains

deliberately  ignorant  of  an illegal activity"  is  necessarily

"aware  of a substantial probability of its existence,"  and  so,

acts "knowingly."48

           Federal  law  is  to  the same  effect.   In  U.S.  v.

Picciandra49 the court held that a jury was properly instructed to

consider the willful blindness of a defendant who claimed a  lack

of  knowledge  as part of his defense, where the facts  suggested

that  he engaged in a conscious course of deliberate ignorance.50

The   Ninth   Circuit  has  similarly  held  that  a  defendant's

deliberate  ignorance of a fact cannot serve as a shield  against

prosecution under statutes requiring actual knowledge.   In  U.S.

v.  Jewell51  the  court agreed that " `[t]he rule  that  willful

blindness is equivalent to knowledge is essential.' "52  The court

cautioned  that  this  rule did not adopt a negligence  standard,

whereby  knowledge  is  imputed to a defendant  if  a  reasonable

person  would have known of the fact in that situation.   Rather,

willful  blindness is limited to circumstances where the  party's

studied  ignorance is a result of not wanting to confirm  his  or

her  suspicion of a fact he or she knows is highly likely  to  be

true.53  The Ninth Circuit rule is that willful blindness may  be

equated to actual knowledge in cases where the facts point to the

defendant's deliberate ignorance, where it can be shown that  the

defendant was aware of a high probability of the existence of the

fact  in question, and the defendant cannot show that he actually

believed  that the fact did not exist.54  The Fifth and  Eleventh

Circuits have adopted similar reasoning.55

           Examination of the testimony at trial in  the  present

case  and Judge Rindner's findings concerning the evidence  leads

inescapably to the conclusion that Michael Adams either  actually

knew  that  the  lease contained an option  to  purchase  or  was

willfully blind as to the lease's contents.

           As  to actual knowledge, at trial Michael Adams denied

that  he  had spoken with Janeece Higgins about Don Adams wanting

to exercise the option to purchase,  denied that he had spoken to

her  about  the environmental investigation, denied that  he  had

spoken with her about a lease extension, and even denied that  he

had  read the lease before sending the lease extension.   He  was

asked, "Prior to sending Don Adams and Janeece Higgins the  lease

extension  . . . you read the lease agreement, didn't  you?"   He

responded,  "I  did  not."  Judge Rindner found  Michael  Adams's

testimony concerning the events leading to the lease extension to

be not credible.  Although much of Michael's testimony focused on

his  conversation with Janeece Higgins, the scope of the  finding

that  Michael  Adams was not credible specifically  includes  his

testimony  at  trial  that he did not read  the  lease  agreement

before  sending out the extension.  Judge Rindner's disbelief  of

Michael  Adams's statement that he did not read the lease  before

sending  the  extension, in conjunction with  his  acceptance  of

Higgins's testimony that she had discussed the matter twice  with

Michael Adams,56 is the equivalent of a finding that Michael Adams

had actual knowledge of the lease's terms.  Indeed, Judge Rindner

specifically  found that "there was no longer a  misunderstanding

between the parties when the lease extension was executed."

           As  to  willful  blindness,  the  superior  court  had

abundant  evidence to support its conclusion that, at the  least,

Michael Adams kept himself willfully blind of the contents of the

lease.  That evidence included that:

C                   The lease does contain an option to purchase.
          No party disputes that.
C                    Janeece  Higgins  testified  that  she  told
          Michael  Adams  in person that the lease  contained  an
          option to purchase.  The superior court found her to be
          credible on this point.
C                    Michael  Adams  testified that  he  did  not
          remember being told that the lease contained an  option
          to  purchase.  The superior court found him not  to  be
          credible on this point.
C                   Janeece Higgins testified that she called and
          reiterated  that  the  lease  contained  an  option  to
          purchase.   The superior court found this testimony  to
          be credible.
C                    Michael  Adams  testified that  he  did  not
          recall  the  telephone call.  The superior court  found
          this testimony not to be credible.
C                    Michael Adams prepared, signed, and sent  to

          Don  Adams an extension of the lease that provided that

          "[a]ll  conditions  of the original lease  shall  apply

          without changes."

           These  facts,  found  by the superior  court  and  not

rejected by today's Opinion as clearly erroneous - nor could they

be  -  firmly  establish that Michael Adams  at  the  least  kept

himself  deliberately ignorant of the contents of the  lease  and

was  willfully blind to the fact that it contained an  option  to

purchase.

          Conclusion

           Michael  Adams proposed to sell his property  under  a

lease  with an option to purchase.  He twice signed documents  to

that effect.  Yet the court today remands for a determination, in

effect,  of  whether he ever read the documents he  signed,  even

after  he promised to check the lease when a dispute arose as  to

what  it  contained.  (Indeed, this is not the  first  time  that

Michael Adams has been before this court arguing that he was  not

required to do what he had previously agreed to do: sell property

that  he had leased with an option to purchase.57)  Judge Rindner

properly   found  that  Michael  Adams  knowingly  affirmed   the

contract.   Judge  Rindner was correct, and I  would  affirm  his

decision.  Michael Adams should not escape the obligation that he

had originally suggested and twice agreed to.  For these reasons,

I respectfully dissent.

_______________________________
1See note 6 infra.
2The premises are described as follows in the lease:

                1.   Premises:   Lessor  shall  let  to
          Lessee  and Lessee shall rent from the Lessor
          that  certain  property  together  with   all
          improvements  thereon  including   an   1,800
          square  foot building located on the property
          together  with the real property as described
          in   Exhibit   "A"  which  is  comprised   of
          approximately  Lots 19, 20, and  21  Meredith
          Subdivision and Parcel 14, T 13N R3W  Sec  32
          S1/2NW1/4:  SW  1/4 less a  portion  of  land
          indicated by a dashline shown in Exhibit A to
          be  used by the Lessor for his exclusive  use
          which  is  comprised of a portion of  lot  19
          currently utilized by Lessor as his residence
          which  comprises approximately 50 by 50  feet
          located at the Eastern portion of Lot 19  and
          a  portion of the Northeast corner of  Parcel
          14,  approximately 50 feet by 75  feet  where
          Lessor  is  currently storing a quonset  hut,
          corner  containers and a well.  It is  agreed
          that  Lessor reserves access to the  property
          reserved  by  Lessor as  set  forth  in  this
          paragraph and that Lessee shall not interfere
          with Lessor's ingress and ingress to Lessor's
          reserved  portion of the property.  The  1800
          square foot building and land described above
          (excluding the portion reserved for  Lessor's
          use) are referred to throughout this lease as
          "Premises."
          
3In relevant part the August 2, 1996 letter stated:

                I  would like to make a decision before
          the  end of the month and it appears  I  will
          have to speak only to you.  In the event  you
          will  be involved with the property you  will
          have it for your use and make any arrangement
          with others according to your wishes.  I have
          been  ill  and lost a lot of time  and  I  am
          trying  to  put my future in prospective  and
          get   away  from  real  estate.   What  would
          benefit  me greatly would be some way  I  can
          reinvest from the sale into a tax free trade.
          It appears a short term lease with you with a
          purchase  option would be the way  that  will
          benefit me.  Perhaps a two year lease with an
          option would be suitable.  The lease payments
          would  be  3000.00 per month . . .  Ken  with
          unique  welding  or  machine  shop  would  be
          willing to pay half of that and my tenant who
          occupies the building on the property is also
          willing  to  rent.  Of the 3000 per  month  I
          will  pay  the land taxes which  brings  your
          outlet  to  2500 or 2600 per month.   If  you
          exercise an option then in that event I  will
          furnish  you with an environmental phase  two
          which  you  asked for.  I had some  one  look
          over  the premises and he commented that  the
          property is relatively clean.
          
4The  right-of-first-refusal clause in the first  draft  read  as
follows:

               35.  Right of First Refusal  the Lessor-
          owner  may place the entire Premises  on  the
          Real Estate Market for sale and if the Lessor-
          seller  finds a buyer, the Lessee shall  then
          have  the  right of refusal to buy  at  those
          terms.   In  the event the purchaser  demands
          Phase  two environmental assessment the  cost
          shall  be  shared equally on a non-refundable
          charge to the prospective buyer.
          
5The right of first refusal in the third draft reads as follows:

                39.   Right  of First Refusal:   Lessor
          agrees  to  give  Lessee  a  right  of  first
          refusal  to  purchase  the  subject  property
          during the term of this lease.  This right of
          first refusal shall not be enforceable unless
          Lessor at his sole discretion elects to  sell
          the  property during the lease term.  In such
          event  it  is agreed the sale price shall  be
          $300,000.00   net  of  any  commissions   and
          closing  costs.  If Lessee does not agree  to
          sign  an  earnest money agreement  within  30
          days  of receiving written notice of Lessor's
          desire  to sell for $300,000.00 as set  forth
          herein,  Lessor shall be allowed to sell  the
          property to anyone at market price.   In  the
          event  Lessor sells to a third party,  Lessor
          shall  give  Lessee  30  days  prior  written
          notice of the date Lessor intends to complete
          the  sale of the property.  Upon closing  and
          completion  of  the  sale,  this  lease   and
          Lessee's  rights hereunder shall become  null
          and  void  and this lease shall be terminated
          except  for any liability of Lessee or Lessor
          arising  from  any  breach of  any  provision
          herein.   The  earnest money agreement  shall
          require  $30,000.00 as non-refundable earnest
          money  and  balance  of  purchase  price   of
          $270,000.00 to be paid within 90  days  after
          the  date  set  forth in  the  earnest  money
          agreement.   In  the event  an  environmental
          phase  two is required at the time  of  sale,
          the  cost  is  to be shared equally  by  both
          parties, the parties being buyer and  seller.
          In  the  event the property is not  purchased
          due  to  an  unfavorable report,  each  party
          shall  also share equally in the cost of  the
          report.
          
6Clause 39 of the draft that became the lease reads as follows:

                39.   Right  of First Refusal:   Lessor
          hereby grants to Lessee an option to purchase
          the  subject property during the term of this
          lease.   The  Lessee, at his sole discretion,
          shall  have  the option to elect to  purchase
          the  property  at any time during  the  lease
          term.   In such event, it is agreed the  sale
          price   shall  be  $300,000.00  net  of   any
          commissions and closing costs.  Lessee  shall
          sign  an  earnest money agreement  within  30
          days of exercising his option to purchase  by
          providing  written notice of Lessee's  desire
          to  purchase  for $300,000.00  as  set  forth
          herein.    In  the  event  Lessee  fails   to
          exercise  his option to purchase  within  the
          Lease  term, or fails to execute the  earnest
          money  agreement as provided  herein,  Lessor
          should  be  allowed to sell the  property  to
          anyone  at market price.  In the event Lessee
          fails  to execute the earnest money agreement
          within 30 days of providing written notice of
          intent  to  purchase, Lessor may  sell  to  a
          third party, in which event Lessor shall give
          Lessee  30 days prior written notice  of  the
          date  Lessor intends to complete the sale  of
          the property.  Upon closing and completion of
          the  sale,  this  lease and  Lessee's  rights
          hereunder shall become null and void and this
          lease  shall  be  terminated except  for  any
          liability  of  Lessee or Lessor arising  from
          any  breach  of  any provision  herein.   The
          earnest   money   agreement   shall   require
          $30,000.00  as  non-refundable earnest  money
          and  balance of purchase price of $270,000.00
          to  be paid within 90 days after the date set
          forth in the earnest money agreement.  In the
          event  an environmental phase two is required
          at the time of sale, the cost is to be shared
          equally  by  both parties, the parties  being
          buyer  and seller.  In the event the property
          is   not  purchased  due  to  an  unfavorable
          report,  each party shall also share  equally
          in the cost of the report.
          
7The lease extension provides as follows:

                This  letter  is in reference  to  that
          certain   lease  agreement  with  the   above
          parties  dated 1 October 1996, Lease premises
          being  5773  Old Seward Highway  and  further
          described  in the original lease between  the
          parties.
          
                Please  be advised that your lease  has
          been  extended  for an additional  two  years
          ending 1 October 2001.  All conditions of the
          original  lease  shall apply without  changes
          and shall remain in full force and effect.
          
8Rockstad v. Global Finance & Inv. Co., 41 P.3d 583, 586  (Alaska
2002).
9Id.
10Id.; Alaska R. Civ. P. 52(a).
11Dingeman v. Dingeman, 865 P.2d 94, 96 (Alaska 1993).
12949 P.2d 498, 500 (Alaska 1997).
13Id. at 499.
14Id. at 500.
15Id. at 499.
16Id.
17Id.
18Id.
19Id.
20Id.
21Id. at 499-500.
22Id. at 501.
23Id. at 500.
24Id.
25Supra at page 9.
26In re Arbuckle's Estate, 220 P.2d 950, 954-55 (Cal. 1950).
27Knight v. Day, 36 S.W.3d 300, 303 (Ark. 2001); see also Patel v.
OMH Med. Ctr., Inc., 987 P.2d 1185, 1199 (Okla. 1999).
28Pierce, 949 P.2d at 500.
29Restatement (Second) of Contracts  159 (1981).
30Id. at  162.
31Id. at  163, 164.
32Id.  at   164,  cmt.  a:   "Even if the contract  is  voidable,
exercise  of the power of avoidance is subject to the limitations
stated in Chapter 16 on remedies."
33Id. at  380, cmt. b.  The black letter statement of  380(2)  is
as follows:

               The power of a party to avoid a contract
          for  mistake or misrepresentation is lost  if
          after  he knows or has reason to know of  the
          mistake or of the misrepresentation if it  is
          non-fraudulent    or     knows     of     the
          misrepresentation  if it  is  fraudulent,  he
          manifests to the other party his intention to
          affirm  it  or acts with respect to  anything
          that he has received in a manner inconsistent
          with disaffirmance.
          
34Id. at  380, cmt. a.
35The  court did so explicitly in the final judgment by  deleting
the language in the lease describing the excepted property.
36Arthur L. Corbin, 7 Corbin on Contracts  28.45, at 281 (2002).
37907 P.2d 465 (Alaska 1995).
38Id. at 468.
39Id.
40Michael  Adams  has  made  a number  of  other  contentions  in
connection  with  the  remedy  of specific  performance  and  the
inclusion  of  the  excepted property in  the  option.   We  have
reviewed these contentions and find them to be without merit.
41See infra n.16.
42Restatement (Second) of Contracts  380(2).
43See  Tal  S. Benschar et al., Proving Willfulness in  Trademark
Counterfeiting  Cases, 27 Colum.-VLA J. L.  &  Arts  121,  123-25
(2003);  Ira  P.  Robbins,  The Ostrich  Instruction:  Deliberate
Ignorance  as  a Criminal Mens Rea, 81 J. Crim. L. &  Criminology
191, 192 (1990).
44875 F.2d 584 (7th Cir. 1989).
45Id. at 590.
46Id.
47Id.
48Dawson v. State, 894 P.2d 672, 678 (Alaska App. 1995).
49788 F.2d 39 (1st Cir. 1986).
50Id. at 46.
51532 F.2d 697 (9th Cir. 1976).
52Id. at 700 (quoting G. Williams, Criminal Law: The General Part,
 57 at 157 (2d ed. 1961)).
53Id. at 700 n.7.
54See U.S. v. Alvarado, 838 F.2d 311, 314 (9th Cir. 1988); U.S. v.
Murrieta-Bejarano, 552 F.2d 1323, 1325 (9th Cir. 1977).
55U.S.  v. Batencort, 592 F.2d 916, 918 (5th Cir. 1979); U.S.  v.
Aleman, 728 F.2d 492, 494 (11th Cir. 1984).
56Higgins testified that she twice had conversations in which she
stated  that the lease contained an option to purchase which  Don
Adams  wished  to  exercise,  and that  Michael  Adams  expressed
disbelief that the lease contained such an option.
57Adams v. Waddell, 543 P.2d 215 (Alaska 1975).