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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Asinuk Corporation v. Lower Yukon School District (07/31/2009) sp-6393

Asinuk Corporation v. Lower Yukon School District (07/31/2009) sp-6393

     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


ASKINUK CORPORATION, )
) Supreme Court No. S- 12786
Appellant, )
) Superior Court No. 4BE-05-309 CI
v. )
) O P I N I O N
LOWER YUKON SCHOOL )
DISTRICT, ) No. 6393 - July 31, 2009
)
Appellee. )
)

          Appeal  from the Superior Court of the  State
          of  Alaska, Third Judicial District,  Bethel,
          Leonard R. Devaney III, Judge.

          Appearances:    A.  Lee  Petersen,   Petersen
          Professional  Corp., Willow,  for  Appellant.
          Raymond  E. Goad, Jr., and Saul R.  Friedman,
          Jermain  Dunnagan  & Owens, P.C.,  Anchorage,
          for Appellee.

          Before:   Matthews, Eastaugh, Carpeneti,  and
          Winfree, Justices.  [Fabe, Chief Justice, not
          participating.]

          EASTAUGH, Justice.
          MATTHEWS, Justice, dissenting.

I.   INTRODUCTION
          After  the  Lower Yukon School District  leased  twenty
acres  from  Askinuk Corporation on which to build  a  school  in
Scammon  Bay,  Askinuk  sued the school  district  to  reform  or
invalidate  the lease.  The lease specified a lease rate  of  one
dollar  per year, subject to renegotiation after ten  years.   It
also  provided  that  if  the  parties  could  not  reach  mutual
agreement  upon  renegotiation, the original payment  rate  would
remain  in  effect  until agreement could  be  reached.   Askinuk
claimed  that  it  never  assented  to  the  leases  payment  and
renegotiation  provisions; that the lease  lacked  consideration;
and  that George Smith, who signed the lease for Askinuk and  was
chair  of  Askinuks  board,  had  a  conflict  of  interest  that
invalidated  the  lease.   The  superior  court  rejected   these
contentions and entered summary judgment for the school district.
Because we conclude that the lease was valid and enforceable,  we
affirm.
I.   FACTS AND PROCEEDINGS
     A.   Factual History
          The   Lower  Yukon  School  District  provides   public
education in the region that includes the village of Scammon Bay.
Askinuk Corporation is the Scammon Bay native village corporation
created  by the Alaska Native Claims Settlement Act.  In  October
2003  the  school district proposed leasing from  Askinuk  twenty
acres  on  which  to  build and operate a new  public  school  in
Scammon  Bay.  The school districts proposed lease had a term  of
fifty-five  years,  with  options  for  two  ten-year   renewals.
Section III of the proposed lease addressed the duration  of  the
lease; Section IV addressed the payment rate.  The proposed lease
called  for  the  school district to pay Askinuk one  dollar  per
year.
          Askinuks  attorney reviewed the proposed lease  and  in
October 2003 sent Askinuks board of directors a letter commenting
on the school districts proposal.  The letter cautioned the board
that approving a payment of one dollar per year could be regarded
as  breaching  the directors fiduciary duty to the  shareholders.
The  letter  added that because some members of [Askinuks]  Board
[were] also members of the school board . . . an obvious conflict
of interest existed.  George Smith was then the chair of Askinuks
board  and the vice-chair of the school districts board.  Timothy
Kaganak  was  the  school districts treasurer  and  was  also  on
Askinuks board.  The lawyers October 2003 letter also stated that
the  conflict of interest could be avoided if a reasonable rental
rate  were  agreed  upon  or  if  the  corporations  shareholders
approved the lease:
               If  the school district were offering to
          pay   a   fair   rental  on  this   property,
          adjustable to changes of circumstances  every
          five  or  ten  years,  there  may  not  be  a
          conflict  of interest.  But when  the  school
          district is asking for a gift of the use [of]
          some  of the corporations most valuable  land
          for   75   years,  the  issue  becomes   very
          difficult, especially when the corporation is
          struggling to pay its bills.  One appropriate
          way  to deal with a transaction of this  sort
          would  be  to call a special meeting  of  the
          shareholders and let them vote on it.  If the
          shareholders    approve,    it    is    their
          responsibility, not the responsibility of the
          Directors.
          
          In response, Askinuks board asked its attorney to draft
a  lease addressing his concerns.  He revised the proposed  lease
by changing, among other things, the payment rate.  He proposed a
rate  of  $400  dollars per month for the first ten years,  after
which  the  rate would be adjusted to conform to changes  in  the
cost of living index.
          In  November 2003 Askinuks three board members who  had
no conflict of interest and one member of Askinuks land committee
met  to discuss the proposed terms.  The attendees decided  that,
to  encourage  the school district to build a school  in  Scammon
Bay, the corporation would charge only $400 per month.
          School district representatives met with Askinuks board
on  March  4, 2004 to discuss Askinuks proposed changes.   George
Smith,  chair  of  Askinuks board and vice-chair  of  the  school
districts  board, did not attend.  Smith stated in  an  email  to
Askinuks  lawyer that he completely stayed away from the  meeting
not wanting to taint the proceedings with a possible conflict  of
interest.   Of  the five Askinuk representatives  present,  three
later  submitted affidavits giving nearly identical  accounts  of
what happened at the meeting.  Their affidavits stated that there
was  discussion of the school districts proposed one  dollar  per
year  payment  rate   subject to renegotiation  after  ten  years
after a representative of the school board stated that the school
district  could  not pay more than that.  The  affidavits  stated
that  nothing was said during the meeting about what would happen
if  the  parties could not agree on a new rental rate  after  ten
years  and that, at the end of the meeting, the language  of  the
leases payment term was still to be revised.
          Karen  Goodwin, the school districts business  manager,
also  attended the March negotiation meeting and had a  different
understanding of what had happened. According to her, both  sides
left  the meeting with a revised draft of the lease that not only
provided  for a dollar per year rate subject to renegotiation  in
ten  years,  but also provided that rent would continue  at  that
rate   should   no   contrary   agreement   be   reached   during
renegotiation.
          On  the  afternoon  of  March 4,  2004,  Smith  emailed
Goodwin,  stating, I made short work of the lease agreement  with
the  changes.   The  email  indicated  that  an  electronic  file
entitled lease.doc was attached.  Later that same day, Smith sent
an email to Askinuks attorney indicating that he was attaching  a
copy  of  the lease with a revised payment term for the attorneys
review.
          In the final draft of the lease agreement, the sections
relating to duration and payment stated in relevant part:
                           Section III
                                
                              Term
                                
     The  lease  term shall be for fifty-five
(55)  years, commencing on the first  day  of
October 2003, and shall terminate on the last
day of October 2058, or upon such date as the
premises  are  no  longer used  for  purposes
authorized  under  Section  II  above.    The
Lessee  is entitled to two (2) ten (10)  year
renewals  of the Lease under the  same  terms
and conditions.

                 Section IV
                      
                   Payment
                      
     In  consideration of the mutual promises
contained herein, Lessee shall pay to  Lessor
the  sum  of $1.00 a year, for the first  ten
(10)  years  of  the Lease, after  which  the
Lessor  and Lessee shall renegotiate  SECTION
IV PAYMENT.

     However,  in  the  event  both   parties
cannot reach mutual agreement on this section
the  sum  of $1.00 per year payment shall  be
the  amount that will remain in effect  until
such an agreement can be reached.

     If  during  the term of the Lease  taxes
are  assessed  on  the leased  property,  the
Lessee may use its exempt status to have  the
taxes  abated, but if abatement of  taxes  on
the  leased  land is not allowed, the  rental
will   be   adjusted   to  provide   adequate
additional  funds  to pay the  taxes  on  the
land.

Apparently  after  reviewing  this  language,  Askinuks
lawyer  responded  to  Smith in a  March  4  email  and
cautioned Smith that its effect would be to giv[e]  the
property  away for 75 years, unless the school district
volunteer[ed] to pay rent.  Smith said he would pass on
the  lawyers insights to the members that participated.
Smith  did  forward  a  copy of the  lawyers  email  to
Goodwin,  telling her not to sweat over  it  unless  we
cant  decide on what font to use on the language.   But
there  is  no  evidence Smith sent any of  the  lawyers
cautionary  advice to Askinuks representatives.   In  a
March  5 email to Smith, Askinuks lawyer described  the
wording  of the payment term as being inept and  stated
that   Askinuk   had  given  away  the  store   without
consulting its attorney.
          Askinuks board decided at the regular board meeting  on
March  12  to  submit  the  lease to  Askinuks  shareholders  for
approval at the annual meeting in April.  When the subject of the
lease  came  up  for discussion at the annual meeting  in  April,
Timothy  Kaganak  told  the shareholders that  if  they  did  not
approve  an annual rental rate of one dollar, the school district
would  put the new school somewhere else.  Although George  Smith
presided  over the meeting, he did not express any opinion  about
the  proposed lease.  The shareholders discussed the benefits and
consequences  of  leasing  land to the school  district  for  one
dollar per year.  Some shareholders stated that they favored  the
proposed rate because they wanted a school for their children and
the  high-wage job opportunities the project would bring  to  the
community.  Some shareholders expressed a desire to get a  better
rate to help out the cash poor corporation.
          During  the  discussion,  Anthony  Ulak,  a  member  of
Askinuks land committee, made a motion to lease the land  to  the
school  district for one dollar a year, subject to  renegotiation
after  ten  years.  Thirty-nine shareholders voted  in  favor  of
Ulaks  motion; ten shareholders voted against.  Ulak later stated
in  an affidavit that the text of the proposed lease was not read
to  the  shareholders before the vote and that he did not  see  a
copy  of  the  lease during the meeting.  He also stated  in  his
affidavit that [n]othing was said about what would happen if  the
parties  could not agree on the rent after 10 years and that  was
not included in [his] motion.
           After  the meeting Smith notified the school  district
that  Askinuks  shareholders had approved  the  lease.   Askinuks
lawyer  had previously advised Smith that, so long as he did  not
participate in the approval process, his school board  membership
did  not  preclude  him from signing the lease,  as  signing  was
solely  a  ministerial act.  In late April 2004 Smith signed  the
lease  for  Askinuk; Superintendent Robert Robertson  signed  the
lease for the school district.
     B.   Procedural History
          In August 2005 Askinuk filed a superior court complaint
seeking  to invalidate or reform the lease.  The school  district
moved  for  partial  summary judgment.  Askinuk  cross-moved  for
partial summary judgment, arguing that the court should find that
the lease signed on April 27, 2004 should be reformed to become a
legal and valid contract.
          In  an  amended  complaint Askinuk asserted  that:  (1)
internal  corporate  mistakes make the  lease  invalid;  (2)  the
school district exerted undue influence on Askinuks shareholders;
(3)  the lease results in an unconstitutional taking; and (4) the
lease   violates  equal  protection  principles.    The   amended
complaint  did  not  alter  Askinuks  request  for  relief.   The
superior  court denied summary judgment to Askinuk on each  cause
of  action of the amended complaint, granted summary judgment  to
the  school  district on each cause of action, ordered  the  case
dismissed, and entered final judgment for the school district.
          In  May 2007 Askinuk asked the superior court to  alter
or amend the judgment.  The superior court denied this motion.
          Askinuk appeals.
III. DISCUSSION
     A.   Standard of Review
          Askinuk  argues  that  the superior  court  erroneously
granted   summary  judgment  to  the  school  district.   Askinuk
advances  multiple  theories for reversal.  Its  most  persuasive
arguments  concern  contract formation and contract  voidability.
We  review  grants of summary judgment de novo  on  questions  of
contract  formation.1  We will affirm a grant of summary judgment
if  the  evidence  in  the record presents no  genuine  issue  of
material fact and the moving party is entitled to judgment  as  a
          matter of law.2  On questions of law, we exercise our independent
judgment.3   We adopt the rule of law that is most persuasive  in
light of precedent, reason, and policy.4
     B.   The  Superior Court Correctly Held that a  Valid  Lease
          Was Formed.
          Askinuk  argues  that a valid lease  was  never  formed
because:   (1)  George  Smith  lacked  authority  to   bind   the
corporation,   (2)  neither  the  corporations  board   nor   its
shareholders  assented  to  the lease,  and  (3)  the  lease  was
unsupported by sufficient bargained-for consideration.
          1.   Authority to act
          Askinuk  argues  that the lease is void  because  Smith
acted  without authority to bind the corporation.  We focus  here
on  whether  Smith had apparent authority to sign the  lease  for
Askinuk.5
          Apparent  authority to do an act is  created  as  to  a
third  person when a principals conduct,  reasonably interpreted,
causes the third person to believe that the principal consents to
have  the act done on his behalf by the person purporting to  act
for  him.6   Three  considerations are  pertinent  in  evaluating
apparent  authority: (1) the manifestations of the  principal  to
the  third party; (2) the third partys reliance on the principals
manifestations;  and (3) the reasonableness of the  third  partys
interpretation   of   the  principals  manifestations   and   the
reasonableness of the third partys reliance.7
          There  is  no  real dispute here about  the  first  two
elements.   The closer question is whether it was reasonable  for
the  school district to rely on Smiths apparent authority to sign
the  lease.   In the official commentary to AS 10.06.020-.025  of
the Alaska Corporations Code, legislative counsel recognized that
a  third partys belief in the real authority of a corporate agent
must  go  beyond  the  white heart and  empty  head  standard  of
subjective good faith.8  Nonetheless, we have held that  a  third
party  need not investigate the extent of an agents authority  or
deal  only  at  its  peril.9  It is undisputed  here  that  Smith
informed  the  school  district that  Askinuks  shareholders  had
approved  the lease.  There is also no evidence that any  Askinuk
representative said anything to the school district before  Smith
and Superintendent Robertson signed the lease that would have led
the school district to think either that the shareholders had not
approved the proposed lease or that they were uninformed  of  the
material  provisions of the lease when they voted.   It  is  also
undisputed that Askinuk held Smith out as the chair of its  board
of  directors.  There is consequently no genuine material factual
dispute  as  to  this  issue  it was reasonable  for  the  school
district to believe that Askinuk had authorized Smith to sign the
lease  on  its  behalf.  We accordingly conclude that  Smith  had
apparent authority to sign the lease and bind Askinuk.
          2.   Mutual assent
          Askinuk  argues  that  the lease  is  nonetheless  void
because  Askinuk  never  assented  to  all  of  its  terms,  most
particularly the provision in Section IV stating that the  annual
payment  rate  would remain one dollar if the parties  could  not
agree  on a different amount after renegotiation.  Askinuk argues
          that because neither its board of directors nor its shareholders
ever approved this provision in Section IV, the corporation never
assented  to  its  terms.  Although the shareholders  approved  a
rental  rate  of  one dollar per year, subject  to  renegotiation
after  ten  years,  Askinuk argues that the lease  was  not  made
available to the shareholders and that the motion voted  on  made
no mention of Section IV or its terms.  Askinuk implicitly argues
that  the shareholders did not know and could not have known that
the  rental  rate  would  remain at one  dollar  per  year  if  a
different rate could not be agreed upon after renegotiation.
          Askinuk  contends  that  the formation  of  a  contract
requires both an offer that includes all essential terms  and  an
unequivocal acceptance of the same terms by the offeree.  Askinuk
assumes that the provision that the rental rate would remain  the
same absent contrary agreement was an essential term.
          It   is  unnecessary  to  consider  here  whether  this
provision  was an essential term.  Because we conclude  that  the
superior  court was correct in holding that AS 10.06.020 prevents
Askinuk  from  prevailing  on  this argument,  it  is  irrelevant
whether  the shareholders, when they voted at the annual meeting,
were  ignorant of specific lease terms even if those  terms  were
essential.  Alaska Statute 10.06.020 prevents a corporation  from
avoiding  its  contractual  liability in  certain  circumstances,
stating that
          [a]   limitation  upon  the  powers  of   the
          shareholders, officers, or directors, or  the
          manner or exercise of their powers, contained
          in    or   implied   by   the   articles   of
          incorporation,  bylaws,  or  action  of   the
          board,  or  by  AS 10.06.605 -  10.06.678  or
          10.06.705  -  10.06.788 or by a  shareholders
          agreement may not be asserted as between  the
          corporation  or  a shareholder  and  a  third
          person . . . .
          
The  official  commentary  to section .020  states  that  it  was
intended  to  apply  in situations in which actual  authority  is
lacking.10  The commentary explains that if apparent authority to
enter  a  contract is present, the third party acquires the  full
liability  of the betrayed corporate principal upon the executory
terms  of the unauthorized agreement.11  We concluded above  that
George Smith had apparent authority to enter into the contract on
behalf of Askinuk.12  Alaska Statute 10.06.020 therefore precludes
Askinuk  from  avoiding  its  contract  on  the  basis  that  the
directors  arguably failed to observe internal  requirements  for
corporate action by neglecting to inform the shareholders of  the
disputed provision before they voted.13
          Askinuk  argues  that AS 10.06.020  does  not  bar  its
mutual  assent argument because the lease was not signed  by  two
Askinuk  corporate officers, as Askinuk contends AS  10.06.483(d)
requires.14  Alaska Statute 10.06.483(d) restricts a corporations
ability  to  contest  the validity of a contract  signed  by  two
specified officers:
          Subject to the provisions of AS 10.06.020,  a
          note,  mortgage,  evidence  of  indebtedness,
          contract, conveyance, or other instrument  in
          writing, and an assignment or endorsement  of
          these,  executed or entered into between  the
          corporation and another person, if signed  by
          two  individuals, one of whom is the chairman
          of   the   board,   the   president,   or   a
          vice-president and the other of whom  is  the
          secretary,   an   assistant  secretary,   the
          treasurer, or an assistant treasurer  of  the
          corporation,  is not invalidated  as  to  the
          corporation  by  a lack of authority  of  the
          signing  officers  in the absence  of  actual
          knowledge  on  the part of the  other  person
          that the signing officers had no authority to
          execute the instrument.[15]
The  school  district argues that Askinuk failed to preserve  its
argument  as  to  the application of subsection  .483(d).   As  a
general  rule,  we will not consider arguments  first  raised  on
appeal.16   Because Askinuk did not raise its subsection  .483(d)
argument in the superior court, it has not been preserved.
          In   any   event,  we  are  unpersuaded   by   Askinuks
contention.  It is not likely the legislature intended subsection
.483(d)  to limit the application of section .020.  Instead,  the
legislative history shows that subsection .483(d) was intended to
eliminate   the  possibility  of  the  corporation   successfully
contesting liability,17 by providing a strategy by which a  third
party can preclude a corporate principals denial of the authority
of  an officer as agent.18  Subsection .483(d) does not impose  a
two-signature requirement for all corporate contracts; rather  it
ensures  greater  security for third parties  who  contract  with
corporations when the two-signature standard has been met.   When
the two-signature standard has been satisfied, subsection .483(d)
prevents a corporation from avoiding contractual liability unless
the  third party had actual knowledge that authority to bind  the
corporation was lacking.19
          The  superior court therefore did not err  in  granting
summary  judgment to the school district on the issue  of  mutual
assent.
          3.   Consideration
          Askinuk  also argues that the lease lacks bargained-for
consideration  because [t]here is no evidence that  Askinuk  ever
bargained  for the peppercorn o[f] legal detriment of  $1.00  per
year;  they bargained for just compensation.  It similarly argues
that  the  school districts promise to renegotiate the  lease  is
illusory   and  cannot  be  consideration  because   the   leases
renegotiation provision does not provide a definite and  specific
rental rate and because the renegotiation provision is not easily
enforceable.
          The  superior  court determined that the  renegotiation
provision  is  not illusory and that the lease  is  supported  by
adequate consideration.20
          We  have  held  that [t]o constitute  consideration,  a
performance or a return promise must be bargained for . . .  .  A
          performance or return promise is bargained for if it is sought by
the  promisor  in exchange for his promise and is  given  by  the
promisee in exchange for that promise.21  Here Askinuk promised to
lease  land  to  the  school district  and  the  school  district
promised to pay one dollar per year to lease the land solely  for
public   school  purposes;  the  lease  implicitly   contemplated
construction and operation of a new school in the village.   This
exchange  provided sufficient bargained-for consideration,  apart
from the payment rate.
          Moreover,  Askinuks  argument  that  the  renegotiation
provision  is  illusory  and cannot constitute  consideration  is
unpersuasive.   Illusory promises are those that by  their  terms
make  performance  entirely optional with  the  promisor.22   The
renegotiation  provision requires the parties to renegotiate  the
payment  term  in ten years and provides that in the  event  both
parties  cannot reach mutual agreement on [the payment term]  the
sum  of $1.00 per year payment shall . . . remain in effect until
such  an agreement can be reached.  Because the covenant of  good
faith  and  fair dealing is implied in all contracts in Alaska,23
this provision is not illusory.  The covenant prevents each party
from  doing anything that will injure the right of the  other  to
receive  the  benefits of the agreement.24 Askinuk can  therefore
rely  on the school districts express promise to renegotiate  the
rate  and its implied promise to renegotiate in good faith.   The
superior  court did not err in granting summary judgment  to  the
school district on this issue.
     C.    The  Superior Court Correctly Held that the Lease  Was
Enforceable.        Askinuk alternatively argues that  the  lease
is  unconscionable  and is therefore not  enforceable.   It  also
argues  that  the lease does not accurately reflect  the  parties
true mutual intention.
          1.   Unconscionability
          Quoting  the Restatement (Second) of Contracts, section
208,  comment  b,25  Askinuk  first  argues  that  the  lease  is
unconscionable because it reflects a bargain that no man  in  his
senses and not under delusion would make on the one hand, and  as
no  honest  and  fair  man would accept on  the  other.   Askinuk
contends  that  there  was a vast disparity of  bargaining  power
between  Askinuk  and  the  school district  in  terms  of  their
available resources and the experience and educational background
of  their  representatives.  The fact that it was represented  by
counsel  is immaterial, Askinuk argues, because its attorney  was
not  present  at  the critical meetings at which  the  lease  was
discussed,  notably  the  annual shareholders  meeting.   Askinuk
implicitly  argues that its shareholders were coerced to  approve
the  one-dollar-per-year rental rate because of Kaganaks  threats
that there would be no new school otherwise.
          We  have relied on the Restatement approach in the past
when   applying   the   doctrine  of  unconscionability.26    The
Restatement does not provide a concise definition of what makes a
contract  or  term unconscionable and instead states  that  [t]he
determination that a contract or term is or is not unconscionable
is  made  in  the  light  of its setting, purpose  and  effect.27
Although   inadequacy  of  consideration  does  not   of   itself
invalidate  a  bargain,  the Restatement provides  that  a  gross
disparity in the values exchanged may be an important factor in a
determination that a contract is unconscionable.28  A contract or
a  contractual  term  is not unconscionable  merely  because  the
parties  to  it  are  unequal in bargaining  position,  nor  even
because the inequality results in an allocation of risks  to  the
weaker party.29  But we have also held that unconscionability may
exist   if  the  circumstances  indicate  a  vast  disparity   of
bargaining power coupled with terms unreasonably favorable to the
stronger party.30
          The superior court held that the lease in this case was
not  unconscionable.   It  concluded that,  because  Askinuk  was
represented  by  counsel  and  was  experienced  in  the  art  of
negotiation,  no disparity of bargaining power was present.   The
court  explicitly noted that the school district had leased  land
for public school purposes from four other entities on terms that
were  similar to those in Askinuks lease.31  Each of those  other
four  leases had a term of fifty-five years (with the  additional
option  of two ten-year renewals) and a rental rate of one dollar
per  year.   None  of the leases contained a provision  that  the
rental  rate was subject to renegotiation after ten  years.   The
superior court concluded that the fact that Askinuk was  able  to
negotiate  a renegotiation provision demonstrated that there  was
no  disparity  of  bargaining power between  it  and  the  school
district.
          Askinuk  has not demonstrated that the superior  courts
conclusion  was erroneous.  We are unconvinced that there  was  a
disparity  of bargaining power even though Askinuks attorney  was
not  present when the lease was discussed and eventually approved
by  the shareholders.  Askinuk and its shareholders had access to
legal  advice throughout the negotiation process and  could  have
          availed themselves of their attorneys advice at any time.32  We
are  also unpersuaded by Askinuks contention that the shareholder
vote was coerced or that the lease is so one-sided on its face as
to  render  it unconscionable.  The shareholders had a meaningful
choice  whether  or not to enter into the lease  and  could  have
refused.   While  the  payment rate  is  no  doubt  minimal,  the
evidence suggests that the shareholders ultimate decision was not
motivated  by how much the district was to pay annually.   Before
voting  to approve an annual rental rate of one dollar,  some  of
the  shareholders discussed how they wanted not only a new school
for  their children but the high-wage job opportunities the lease
would  bring into the community.  We accordingly cannot  conclude
that  the lease  or any one term within it  is unconscionable  in
light of its setting, purpose, and effect.
          Askinuk  also  argues that the lease is  unconscionable
because  George  Smith  sat  on the boards  of  both  the  school
district and Askinuk and allegedly drafted the offending  in  the
event that both parties cannot reach mutual agreement language in
the amended Section IV.
          Transactions   between   entities   with   interlocking
directorates may be voidable in certain situations if the  common
directors  participate  in  the  decision  to  enter   into   the
transaction.33   But the mere fact that the directorates  of  two
contracting  entities  overlap  does  not  make  any  transaction
between  them  voidable if the shareholders,  not  the  board  of
directors, voted to approve the transaction.  Even assuming Smith
drafted  the language to which Askinuk now objects, the lease  in
its  final  form  was available to the shareholders  before  they
voted  to  approve  it.  Askinuk has not alleged  that  Smith  or
anyone  else  would not have provided the actual  lease  had  the
shareholders wanted to see it.
          We accordingly hold that the superior court did not err
in concluding that the lease was not unconscionable.
          2.   Mistake
          Askinuk  argues  that  the lease  does  not  accurately
reflect  the  true  mutual intention of  the  parties,  and  that
reformation is consequently appropriate.  The superior court held
that reformation was not an appropriate remedy.
          The  equitable remedy of reformation is available  only
in  certain  well-defined circumstances.34   These  circumstances
include  situations involving mistake of fact, fraud,  or  mutual
mistake,  or  situations  in which a  party  executes  a  written
instrument  knowing the intention of the other party  as  to  the
terms  to be embodied therein, and knowing that the writing  does
not   accurately  express  that  intention.35   A  party  seeking
reformation must prove the elements of reformation by  clear  and
convincing  evidence.36  Askinuk seems to  base  its  reformation
argument on a theory of unilateral mistake.
          The  Restatement (Second) of Contracts provides that  a
mistake  of  one party may in certain situations make a  contract
voidable,  but only if that party did not bear the  risk  of  the
mistake.37  According to section 154 of the Restatement  (Second)
of Contracts, a party bears the risk of a mistake if he is aware,
at  the  time  the  contract is made, that he  has  only  limited
          knowledge with respect to the facts to which the mistake relates
but  treats  his  limited  knowledge as  sufficient.38   This  is
sometimes   referred  to  as  conscious  ignorance.39    Askinuks
shareholders  bore  the  risk  of  mistake  when  they  voted  to
authorize  the  lease  without asking  that  the  lease  be  made
available to them for closer review.
          Askinuk  contends that it reasonably expected  that  it
would  receive just compensation for its land and that the  lease
in  its  final  form does not accurately express that  intention.
Askinuk  seems also to contend that the school district  executed
the  lease  knowing that it did not accurately  reflect  Askinuks
intent.   It  argues the school district knew all along  that  it
should  pay just compensation as evidenced by the fact  that  the
school   district  had  sometime  before  October  2003  budgeted
$120,000  for land.  Askinuk accordingly requests that we  reform
Section  IV  to  make  the amount of consideration  specific  and
definite,  legal  and  just.  We decline  Askinuks  request.   We
conclude  that Askinuk has not demonstrated there was  a  genuine
question of material fact about whether the school district  knew
that  the Askinuk shareholders had authorized the lease  under  a
mistaken apprehension.
          Nor  is this a case in which it would be unconscionable
to  enforce  any mistake on Askinuks part.  Askinuks shareholders
knowingly  agreed  to accept the one-dollar-per-year  rate  after
discussing the advantages and disadvantages of doing so.  We have
already  concluded that this rate and the holdover-rate provision
in  Section  IV  were  not  unjust in light  of  the  anticipated
benefits   a new school and high-wage job opportunities  for  the
community  Askinuk would gain from the lease and in light of  the
school districts duty to renegotiate the rate in good faith.   We
conclude  that the superior court did not err in denying Askinuks
reformation request.
IV.  CONCLUSION
          We therefore AFFIRM the superior court judgment.
MATTHEWS, Justice, dissenting.
          In reviewing a judgment that is based on the grant of a
motion  for summary judgment, the appellate court is required  to
take  that  view  of  the facts, including reasonable  inferences
drawn  from  the  facts,  that is most favorable  to  the  losing
party.1  In  discussing  the facts related  below  I  adopt  this
perspective.
          Askinuk  Corporation was willing to lease  the  twenty-
acre  parcel to the school district for a dollar a year  for  the
first ten years of the lease term in order to ensure that the new
school  was  built.  But after the initial ten-year term  Askinuk
wanted  fair  compensation for the use  of  its  land.   Askinuks
shareholders thought that providing for renegotiation of the rent
after  ten  years  would  ensure  fair  compensation.   But   the
shareholders  were  not alerted to the fall-back  clause  in  the
revised  lease that provided that if the parties could not  agree
on  the amount of the rent when the time for renegotiation  came,
the rent would still be one dollar per year.
          The  fall-back clause is of great importance.   Without
it,  one could assume that if the parties could not agree  on  an
amount for the new rent a court would set the rent for them based
on  a  standard  that would recognize Askinuks  desire  for  fair
compensation  after the initial ten-year period.2  But  with  the
fall-back  clause  in place the renegotiation clause  means  very
little.  The district will always be able to claim in good  faith
that  it is strapped for funds and that it must therefore decline
to  pay  more  than nominal rent.  This predictable posture  will
satisfy  the districts obligation of good faith and fair dealing.
The upshot will be that Askinuk will have made a gift of land for
seventy-five years when in actuality it only intended a  ten-year
gift.
          I  believe  that  the lease with the  fall-back  clause
falls  readily within the definition of unconscionability  quoted
in  todays opinion.3  No lessor desiring fair compensation  after
an  initial  ten-year term would sensibly agree to the  fall-back
clause  and  no  lessee knowing what the lessor  thought  it  was
achieving  by  the  clause could fairly and honestly  accept  it.
Further,  no comfort can be taken from the fact that Askinuk  was
represented  by counsel.  It is true that Petersen, the  attorney
for  Askinuk,  correctly advised Smith that the fall-back  clause
has  the effect of giving the property away for 75 years,  unless
the  school  district volunteers to pay rent.  But though  Smith,
who  was both the chairman of the board of Askinuk and the  vice-
chairman  of the school districts board, dismissively4  forwarded
this opinion to the school district, there is no evidence that he
communicated  it to Askinuks other board members or  to  Askinuks
shareholders.   Thus, the fact that Askinuk  was  represented  by
counsel,  in  fact  by  counsel who gave excellent  advice,  does
nothing  to  cure  the  unconscionability in  this  case  because
counsels   opinion  concerning  the  illusory   nature   of   the
renegotiation clause was communicated only to Smith, and  through
Smith  to  the  school  district, but not  to  the  disinterested
representatives of Askinuk.
          Smiths failure to communicate Petersens opinion to  the
          board is of critical importance.  Petersen had advised the
Askinuk  board in October of 2003 that the proposed lease  was  a
seventy-five-year  give-away.   The  board   took   this   advice
seriously and sought a lease under which the rental rate would be
$400 per month for the first five years.  At the end of the first
five  years,  the  rent  would  be  adjusted  for  cost-of-living
changes,  and  this process would be repeated at  each  five-year
anniversary.   At the March 4, 2004 meeting, the school  district
representatives told the board that it could not afford more than
one  dollar  per year.  At that point, in order to resolve  their
impasse,  the  parties discussed the possibility of renegotiating
the  rent  after  ten years.  They  tentatively  agreed  to  this
approach.   The  board members appear to have thought  that  even
though they had not completely eliminated the give-away character
of  the lease, they had reduced its duration from an unacceptable
seventy-five years to an acceptable ten years.  Petersens opinion
that  the fall-back clause made the renegotiation clause illusory
would have disabused them of this belief, but Smith withheld this
information from them.
          I  also  do not agree that the transaction is insulated
from  the need for judicial scrutiny on unconscionability grounds
by  the  fact  that  the shareholders at the  annual  meeting  of
April  20,  2004, agreed to a motion to lease the  proposed  land
site  . . . for [$]1.00 a year but negotiable after 10 years.   A
shareholder resolution may remove the taint that would  otherwise
attach  to  a  transaction where directors  have  a  conflict  of
interest, but the general rule is that such a cure can occur only
when  the  shareholders are fully informed.5  The Model  Business
Corporation Act requires a conflicted director to disclose  those
facts  known  to  him  that a director free of  such  conflicting
interest  would  reasonably believe to be  material  in  deciding
whether  to  proceed with the transaction.6  Applying  this  same
standard  to disclosures to ratifying shareholders, the  standard
would  not be satisfied in this case.  There is no evidence  that
the shareholders were advised either of the existence of the fall-
back clause or of their attorneys opinion that it meant that  the
renegotiation right would be meaningless.
          In   conclusion,   I   believe  that   the   lease   is
unconscionable  under  the  facts of  this  case  when  they  are
considered   in  the  light  most  favorable  to  Askinuk.    The
unconscionability can in no sense be said to have been purged  by
the   approval  of  the  lease  by  Askinuks  board  or  by   its
shareholders.  Neither the board nor the shareholders knew of the
fall-back  clause  or  that  it  made  the  renegotiation  clause
illusory  because the dual director, Smith, kept  that  knowledge
from  them.   I  would  therefore reverse  the  judgment  of  the
superior court and remand this case for trial.
_______________________________
     1     Copper  River  Sch. Dist. v. Traw,  9  P.3d  280,  283
(Alaska  2000)  (citing  Davis v. Dykman,  938  P.2d  1002,  1006
(Alaska 1997)).

     2    Id. at 283.

     3    Id. (citing Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska
1979)).

     4    Id.

     5     Given the outcome of the apparent authority issue,  we
do  not need to decide whether Smith had actual authority to sign
the  lease with the disputed default payment term.  An agent acts
with  actual authority if, at the time of taking action that  has
legal  consequences  for  the  principal,  the  agent  reasonably
believes, in accordance with the principals manifestations to the
agent,   that  the  principal  wishes  the  agent  so   to   act.
Restatement   (Third)   of  Agency   2.01   (2006).    There   is
insufficient  evidence in the record to conclude at  the  summary
judgment  stage  that Smith reasonably believed the  shareholders
had authorized the lease in its final form prior to his signing.

     6     Anderson v. PPCT Mgmt. Sys., Inc., 145 P.3d  503,  509
(Alaska  2006)  (quoting City of Delta Junction v.  Mack  Trucks,
Inc., 670 P.2d 1128, 1130 (Alaska 1983)).

     7     Id.  at 509 (citing Cummins, Inc. v. Nelson, 115  P.3d
536, 542 (Alaska 2005)).

     8     Commentary  on the Alaska Corporations  Code,  Senate-
House  Joint  Journal Supp. No. 9 at 17, 1987 House-Senate  Joint
Journal.   Legislative counsel was likely referring to  the  pure
heart and empty head standard of good faith applied by courts  in
other  contexts.  See Alaska Fed. Sav. & Loan Assn of  Juneau  v.
Bernhardt,  794  P.2d 579, 583 (Alaska 1990) (quoting  Schwarzer,
Sanctions  Under  the New Federal Rule 11-  A  Closer  Look,  104
F.R.D.  181,  187 (1985) (There is no [longer] room  for  a  pure
heart, empty head defense under Rule 11.)).

     9     Sea  Lion Corp. v. Air Logistics of Alaska, Inc.,  787
P.2d  109,  117 n.3 (Alaska 1990) (holding corporation liable  on
contract despite agents lack of authority to bind the corporation
because board of directors ratified contract).

     10     Commentary  on the Alaska Corporations Code,  Senate-
House  Joint  Journal Supp. No. 9 at 16, 1987 House-Senate  Joint
Journal.

     11    Id.

     12    See Part III.B.1.

     13     Askinuk also argues that Smith failed to abide  by  a
provision  in the corporations bylaws that required contracts  to
be  signed by two officers.  This argument is also foreclosed  by
AS 10.06.020.

     14     Askinuk makes a similar argument with respect  to  AS
10.06.015.  That section governs situations in which a  claim  of
ultra vires may affect the rights of third parties who have dealt
with  a  corporate entity.  Commentary on the Alaska Corporations
Code,  Senate-House Joint Journal Supp. No. 9 at 14, 1987  House-
Senate  Joint Journal.  A transaction is ultra vires when  it  is
beyond  the  powers  of  the  corporation  as  those  powers  are
conferred  by law and the terms of the articles of incorporation.
Id.  Because there was no showing that Askinuk was prohibited  by
law  or its articles from leasing its land, or from doing  so  on
the  disputed terms, the transaction at issue here was not  ultra
vires.  AS 10.06.015 is accordingly irrelevant.

     15    AS 10.06.483(d) (emphasis added).

     16     Hoffman  Constr. Co. of Alaska v. U.S. Fabrication  &
Erection, Inc., 32 P.3d 346, 355 (Alaska 2001) (citing  Frost  v.
Ayojiak, 957 P.2d 1353, 1355-56 (Alaska 1998)).

     17     Commentary  on the Alaska Corporations Code,  Senate-
House  Joint  Journal Supp. No. 9 at 19, 1987 House-Senate  Joint
Journal.

     18    Id. at 113 (emphasis added).

     19    AS 10.06.483(d).

     20    The superior court addressed Askinuks illusory promise
argument as follows:

          Askinuk claims that the renegotiation  clause
          of  the  lease renders the contract illusory.
          The phrase illusory promise means words in  a
          promisory  form  that  promise  nothing.   An
          illusory promise is not a promise at all  and
          cannot  act  as consideration;  therefore  no
          contract  is  formed.  Cordry  v.  Vanderbilt
          Mortgage & Finance, Inc., 445 F.3d 1106, 1110
          (8th  Cir. 2006), quoting Corbin on Contracts
          5.28  (rev. ed. 1995).  A good example of  an
          illusory  promise is a contract that  says  I
          will  pay five dollars for the bike unless  I
          choose not to.  Alaska courts have found that
          satisfaction  clauses, which appear  to  give
          one  side of a contract the incentive to  act
          in  bad  faith, are not illusory because  the
          courts  read them to require the exercise  of
          honest   judgment  and  good  faith.  Kennedy
          Associates,  Inc. v. Fischer, 667  P.2d  174,
          180 (Alaska 1983).
          
          Askinuk  argues that Section IV of the  lease
          creates an illusory promise with this clause:
          However,  in  the event both  parties  cannot
          reach  mutual agreement on this  section  the
          sum  of  $1.00 per year payment shall be  the
          amount that will remain in effect until  such
          an  agreement  can be reached.   This  clause
          does  not  make  the promise  to  renegotiate
          illusory even though it does put the District
          in  a  much  stronger  negotiating  position.
          Like  in  Kennedy Associates,  a  promise  to
          renegotiate  assumes that  the  renegotiation
          will  happen  in good faith even  though  the
          District  is  given much more  power  in  the
          negotiation  through the Section  IV  clause.
          The District still must renegotiate after  10
          years and, by the covenant of good faith  and
          fair    dealing,   it   must   enter    those
          negotiations  in good faith.  Section  IV  of
          the  lease  provides a promise  the  District
          will renegotiate and it is required by law to
          renegotiate  in good faith.  As a  matter  of
          law, this is not an empty promise.  There  is
          no  issue  of  material fact as  to  illusory
          promise.    The  court  grants  the  District
          summary  judgment  on  the  illusory  promise
          claim.    This  implicitly  denies   Askinuks
          summary judgment claim.
          
     21     Reust v. Alaska Petroleum Contractors, Inc., 127 P.3d
807,  811  n.4  (Alaska  2005) (quoting Restatement  (Second)  of
Contracts  71 (1981)).

     22    Restatement (Second) of Contracts  77 cmt. a (1981).

     23     Casey v. Semco Energy Inc., 92 P.3d 379, 384  (Alaska
2004) (citing Ellingstad v. State, Dept of Natural Res., 979 P.2d
1000, 1009 (Alaska 1999)).

     24     Ellingstad, 979 P.2d at 1009 (citing Guin v. Ha,  591
P.2d 1281, 1291 (Alaska 1979)).

     25    Restatement (Second) of Contracts  208 cmt. b (1981).

     26     Helstrom v. North Slope Borough, 797 P.2d 1192,  1199
(Alaska  1990) (citing Vockner v. Erickson, 712 P.2d 379,  381-83
(Alaska 1986)).

     27    Restatement (Second) of Contracts  208 cmt. a (1981).

     28    Id. at cmt. c.

     29    Vockner, 712 P.2d at 382 (quoting Restatement (Second)
of Contracts  208 cmt. d (1981)).

     30    OK Lumber Co. v. Alaska R.R. Corp., 123 P.3d 1076, 1081
n.17  (Alaska 2005) (quoting Municipality of Anchorage v. Locker,
723 P.2d 1261, 1265-66 (Alaska 1986)).

     31     The four entities were Pilot Station, Inc., Sea  Lion
Corporation, the City of Kotlik, and Swan Lake Corporation.

     32     The  dissent similarly argues that no comfort can  be
taken  from  the  fact  that Askinuk was represented  by  counsel
because  the  cautionary  legal  advice  the  attorney  gave  was
communicated only to Smith and not to the shareholders  or  other
board  members.  (Slip Op. at 25)  But three of the disinterested
board members and one member of the land committee were aware  of
Askinuks  attorneys  negative  opinions  regarding  the  original
proposed  lease agreement.  The minutes from a joint  meeting  of
Askinuks board of directors and its land committee indicate  that
the  participants had read the letter Askinuks attorney sent  the
board in October 2003.  The letter explained that the lease as it
was  then written contemplated that Askinuk would give away  some
of  its  principal  asset  for what was effectively  seventy-five
years.   That  the  board  may not have been  apprised  of  later
correspondence which largely reiterated these observations is  of
little significance, in our view.

     33    AS 10.06.478(c) governs the voidability of interlocking-
directorate  transactions  approved  by  an  entitys   board   of
directors.   According to subsection .478(c),  such  transactions
will not be void or voidable solely because a common director was
present  when the board authorized the transaction  if:  (1)  the
board  votes  in  good faith to authorize the  transaction  after
having   been  informed  of  all  material  facts,  or  (2)   the
shareholders   approve  the  transaction  in  good   faith.    AS
10.06.478(c) provides:

          A  contract  or other transaction  between  a
          corporation  and a corporation or association
          of   which  one  or  more  directors  of  the
          corporation are directors is neither void nor
          voidable  because the director  or  directors
          are  present at the meeting of the board that
          authorizes,   approves,   or   ratifies   the
          contract  or  transaction,  if  the  material
          facts  of  the transaction and the  directors
          other  directorship  are fully  disclosed  or
          known  to the board and the board authorizes,
          approves,   or  ratifies  the   contract   or
          transaction  in  good faith by  a  sufficient
          vote  without counting the vote of the common
          director  or  directors or  the  contract  or
          transaction  is approved by the  shareholders
          in good faith.
          
AS  10.06.478(c) implies that transactions between entities  with
interlocking  directorates may be void or voidable if  they  were
approved by board action, a common director was present when  the
board   approved  the  transaction,  and  neither  of   the   two
safeguarding conditions were met.

     34    Ahwinona v. State, 922 P.2d 884, 887 n.3 (Alaska 1996)
(stating  contract reformation is the proper remedy where  it  is
alleged  that  the  instrument does not  conform  to  the  actual
intentions of the parties (quoting D.M. v. D.A., 885 P.2d 94,  96
(Alaska 1994))).

     35     Id.  at 887 n.3 (quoting Lathrop Co. v. Lampert,  583
P.2d  789,  790  (Alaska  1978)); see   Restatement  (Second)  of
Contracts  155 cmt. a (1981) ([R]eformation is available when the
parties, having reached an agreement and having then attempted to
reduce  it  to  writing,  fail to express  it  correctly  in  the
writing.); see also Firemans Fund Mortgage Corp. v. Allstate Ins.
Co.,  838 P.2d 790, 797 (Alaska 1992) (Traditionally, reformation
is  a  tool courts use to correct what are essentially errors  in
the drafting of a contract so as to conform the written agreement
to  the  clear  intention of the parties.   (citing  Oaksmith  v.
Brusich, 774 P.2d 191, 197 (Alaska 1989))).

     36    Adams v. Adams, 89 P.3d 743, 752 (Alaska 2004) (citing
Voss v. Brooks, 907 P.2d 465, 468 (Alaska 1995)).

     37    Restatement (Second) of Contracts  153 (1981) provides
that:

          Where  a mistake of one party at the  time  a
          contract was made as to a basic assumption on
          which  he  made the contract has  a  material
          effect on the agreed exchange of performances
          that  is  adverse  to him,  the  contract  is
          voidable by him if he does not bear the  risk
          of the mistake under the rule stated in  154,
          and
               (a)   the effect of the mistake is  such
          that  enforcement  of the contract  would  be
          unconscionable, or
               (b)   the other party had reason to know
          of  the  mistake  or  his  fault  caused  the
          mistake.
          
     38    Id.  154.

     39     Wasser  &  Winters Co. v. Ritchie  Bros.  Auctioneers
(Am.), Inc., 185 P.3d 73, 79 (Alaska 2008).

1     Beegan  v.  State, Dept of Transp. & Pub.  Facilities,  195
P.3d  134,  138 (Alaska 2008) (explaining that when  reviewing  a
grant  of summary judgment, [a]ll reasonable inferences are drawn
in favor of the nonmovant).

     2     Cf.  City  of Kenai v. Ferguson, 732 P.2d 184,  186-88
(Alaska  1987)  (lease which called for rent to  be  renegotiated
every  five  years  was enforceable as court  could  declare  the
missing rental term in order to effect the reasonable expectation
of the parties).

     3    Slip Op. at 17.

     4     When  Smith  emailed  Goodwin,  the  school  districts
business manager, a copy of Petersens seventy-five-year give-away
memo,  Smith  stated:  I wouldnt sweat over  it  unless  we  cant
decide  on  what  font  to  use on  the  language.   It  is  also
noteworthy  that  Petersen  was not in  Scammon  Bay  during  the
formation of the lease.  Rather his office is in Willow, some 500
miles away, and there is no indication that he communicated  with
any representative of Askinuk other than Smith during the time in
question.

     5     Edward Brodsky & M. Patricia Adamski, Law of Corporate
Officers and Directors: Rights, Duties, and Liabilities  3.7,  at
3-14 (2003) (For shareholder approval to have any effect, it must
be  given  after  full disclosure . . . .); id.  at  3-16  ([The]
entire  atmosphere is freshened and a new set  of  rules  invoked
where   formal  approval  has  been  given  by  a   majority   of
independent,  fully informed stockholders. (quoting  Gottlieb  v.
Heyden  Chemical  Corp.,  91 A.2d 57, 59 (Del.  1952))  (internal
quotation marks omitted)).

     6     Model Business Corp. Act Ann.  8.60(7) (4th ed. 2008);
see id. at  8.61(b),  8.63(a).

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