Case Name: John LEWIS and Ann Lewis, husband and wife, Plaintiffs-Counterdefendants-Respondents, v. Robert C. HUFF and Judy Huff, husband and wife, R.C. Holdings, Inc., a California corporation, Defendants-Counter-claimants-Appellants
Court: Idaho Supreme Court
Jurisdiction: Idaho
Decision Date: 1994-02-10
Citations: 125 Idaho 438
Docket Number: No. 19239
Parties: John LEWIS and Ann Lewis, husband and wife, Plaintiffs-Counterdefendants-Respondents, v. Robert C. HUFF and Judy Huff, husband and wife, R.C. Holdings, Inc., a California corporation, Defendants-Counter-claimants-Appellants.
Judges: TROUT, J., and MICHAUD and CAREY, JJ., pro terns, concur.
Reporter: Idaho Reports
Volume: 125
Pages: 438–445

Head Matter:
872 P.2d 701
John LEWIS and Ann Lewis, husband and wife, Plaintiffs-Counterdefendants-Respondents, v. Robert C. HUFF and Judy Huff, husband and wife, R.C. Holdings, Inc., a California corporation, Defendants-Counter-claimants-Appellants.
No. 19239.
Supreme Court of Idaho, Boise,
March 1993 Term.
Feb. 10, 1994.
Rehearing Denied May 12, 1994.
Givens, Pursley, Webb & Huntley, of Boise, for appellants. Robert C. Huntley, Jr. argued.
Roark, Rivers & Phillips, of Hailey, for respondents. Ray Keith Roark argued.

Opinion:
JOHNSON, Justice.
This case concerns a joint venture for the construction of commercial buildings and a hotel in Ketchum, Idaho.
I.
THE BACKGROUND AND PRIOR PROCEEDINGS.
John Lewis was introduced to Robert C. Huff through a real estate broker who had agreed to help Huff locate additional potential investors for Huffs Boulder Mountain Village Hotel construction project (the project) in Ketchum. In April 1989, Lewis and Huff signed various agreements. Under these agreements, Lewis was to take over management of the hotel and receive a one-half share in the project in exchange for investing capital and securing further credit. Lewis was to receive his share in the form of one-half of the shares of R.C. Holdings, Inc. (R.C. Holdings), in which Huff was majority shareholder prior to the signing of the agreements by Lewis and Huff.
In June, 1989, Lewis wrote two letters of rescission citing ten grounds for rescinding the agreements. Huff and Lewis met and discussed the letters of rescission on or before July 3, 1989. Lewis demanded that he be paid back his initial investment and that Huff assume liability for money expended from a line of credit. Lewis later testified Huff told Lewis that the rescission would be "no problem." Huff testified that he said he would try to find financing so that Lewis could get out of the deal. Lewis delivered and Huff accepted Lewis's keys to the hotel he had been managing. On July 10, 1989, Huff wrote Lewis a letter stating that he disagreed with the bases for rescission contained in Lewis's letters, but that Lewis's decision was "one we will just have to live with."
The parties negotiated during the ensuing summer to settle their differences. In September, 1989, Lewis and his spouse filed an action for rescission by right and for other relief against Huff, his spouse, and R.C. Holdings. Huff and his corporation filed a counterclaim in October, 1989, alleging fraud, breach of contract, violation of the securities laws, and declaratory relief. In October, 1989, Huff also gave Lewis a notice of default pursuant to the agreement for Lewis's purchase of R.C. Holdings stock (the basic agreement), which contained a seventy-five day notice and cure provision.
Huff later filed an amended counterclaim alleging claims against Lewis under the federal and state racketeering [RICO] acts and asserting, in the alternative, a right to punitive damages. Specifically, Huff alleged that in addition to the situation between himself and Lewis, Lewis had engaged in two earlier "fraudulent schemes to acquire the wealth of others."
In his RICO act claims in this case, Huff alleged, among other things: (1) Lewis telephoned Richard Racich, an investor in the project, and, when Racich refused to cooperate with Lewis, told Racich that Lewis would have Huff put in jail for allegedly stealing from the project and that Racich would lose his entire investment; (2) Lewis attempted to remove from R.C. Holdings all available cash by writing a corporate check payable to himself, but the bank refused to honor the check because it did not bear the required two signatures; (3) Lewis later contacted Racich in an effort to purchase at a discount a note and trust deed representing an amount loaned to the project in order to push Huff out of the project; and (4) Lewis purchased a note payable by R.C. Holdings to Kreizenbeck Constructors, Inc. (Kreizenbeck Constructors) through a corporation incorporated with Lewis's twenty-one year old son as president; Lewis did so to conceal the fact that Lewis was in fact purchasing the note, after which he immediately instituted foreclosure proceedings on the deed of trust on the Boulder Mountain Village real property which secured the note.
After negotiations broke off between Lewis and Huff, Huff turned to a business associate, Robert Thompson, in an effort to replace Lewis. Thompson agreed to become involved in the project only if Lewis was not part of the deal. Huff had R.C. Holdings incur more debt without notice to Lewis, and also caused the corporation to enter into a limited partnership with Thompson's development company, Thompson Devco, Inc. (Thompson Devco), so that an interest in the project was granted to Thompson Devco. In March, 1990, Lewis's shares in R.C. Holdings were sold.
Huffs bookkeeper prepared a financial statement for R.C. Holdings stating in a footnote that Huff had accepted Lewis's rescission and that their agreements were null and void. This financial statement was given to a bank and then revised to remove the footnote.
The case was tried to the trial court, sitting without a jury. At trial, the Lewises pursued their claim for rescission. The trial court bifurcated the proceeding, holding Huffs racketeering claims in abeyance. Following the trial, the trial court issued findings of fact and conclusions of law, and entered a judgment in favor of the Lewises. The basic premise of the trial court's decision was that there was a mutual rescission by Lewis and Huff. Huff filed a motion to alter or amend the findings, conclusions, and judgment or for a new trial, alleging seventy-seven errors of fact and law in the trial court's decision. The trial court denied Huffs motion. Huff appealed.
II.
THE TRIAL COURT WAS CORRECT IN CONSIDERING ACCEPTANCE OF RESCISSION BY HUFF.
Huff asserts that the trial court should not have considered acceptance of rescission by Huff because the Lewises never pleaded their case on the theory that there was a mutual rescission, nor did the Lewises move to amend their pleadings to conform to' the proof. We disagree.
The Lewises pleaded rescission in both their complaint and in their answer to Huffs counterclaim. In addition, the record indicates that Huff responded to the theory of mutual rescission weeks before the trial and during the trial itself. Huff never objected to the introduction of any of the Lewises' evidence on the ground that the evidence was outside the pleadings.
I.R.C.P. 15(b) provides:
When issues not raised by the pleading are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues____
In addition, Huff has not indicated that he was prejudiced by the lack of opportunity to present witnesses or evidence on the question of mutual rescission.
III.
THE TRIAL COURT PLACED THE BURDEN OF PROOF ON THE LEWISES TO PROVE THAT HUFF VOLUNTARILY AGREED TO A RESCISSION.
Huff asserts that the trial court failed to place the burden on the Lewises to prove that Huff voluntarily agreed to a rescission. In M.K Transport v. Grover, 101 Idaho 345, 349 n. 5, 612 P.2d 1192, 1196 n. 5 (1980), the Court stated: "An intent to rescind a contract may be inferred____ However, such a rescission is in effect a parol modification of the written agreement which in Idaho must be proven by clear and convincing evidence." In the present case, the trial court concluded that Huffs acts, as found by the trial court, clearly showed that Huff agreed with Lewis's rescission. This conclusion indicates that the trial court placed the burden on the Lewises to prove mutual rescission by clear and convincing evidence and concluded that the Lewises had carried this burden.
IV.
THERE IS SUBSTANTIAL AND COMPETENT EVIDENCE TO SUPPORT THE TRIAL COURT'S CHARACTERIZATION OF HUFF'S ACTIONS AS ACCEPTANCE OF LEWIS'S OFFER OF RESCISSION.
Huff asserts that the trial court incorrectly characterized his "efforts to mitigate damage caused by Lewis's breach" as "acceptance of Lewis's offer of rescission." We conclude that there is substantial and competent evidence to support the trial court's characterization.
In Jensen v. Chandler, 77 Idaho 303, 307, 291 P.2d 1116, 1118 (1955), the Court held that refusal of one party to comply with a contract, in which refusal the other party has acquiesced, constitutes implied rescission by consent. Rescission, an equitable remedy that totally abrogates the contract, may be granted when there is a mutuality of assent to rescind. This mutuality of assent may be express or implied. Lowe v. Lym, 103 Idaho 259, 262, 646 P.2d 1030, 1033 (Ct. App.1982). Where the facts of a case clearly establish that the parties have mutually consented to a rescission, it may be determined as a matter of law that there has been a rescission. Id. at 263, 646 P.2d at 1034.
The trial court based its conclusion that between June 27, 1989, and October 4, 1989, Huff clearly acquiesced in, and agreed with, Lewis's rescission on the following acts of Huff:
1. The July 3, 1989, meeting between Huff and Lewis in which Huff agreed to the rescission and to obtain funds or financing to pay Lewis back for monies paid or advanced under the agreement. In this meeting Lewis personally delivered, and Huff personally accepted, Lewis's keys to the hotel.
2. The July 10, 1989, letter from Huff to Lewis acknowledging the July 3 conversation and terming the decision to rescind "one we have to live with," again pledging to obtain the funds necessary to pay back Lewis.
3. Huffs accepting the resignation of the Lewises as officers and directors of R.C. Holdings on June 30, 1989, by electing himself president and his wife as secretary of R.C. Holdings. In Lewis's letters of rescission, the resignation of the Lewises was conditional upon Huff accepting the rescission.
4. Huffs causing to be prepared and filed in the corporate records of R.C. Holdings a "Unanimous Written Consent of Director to Corporate Action," dated June 30, 1989. This was implicitly premised on Huff being the only director because he had accepted the resignation of the Lewises.
5. Huffs creating, without notic.e of any kind to Lewis, a liability of R.C. Holdings in the amount of $312,000.00, and causing the corporation to issue a promissory note for this amount to Kreizenbeck Constructors, which led to the recording of a trust deed securing the obligation against R.C. Holdings's assets. This obligation represents an assumption by R.C. Holdings of a debt owed by Huffs solely owned corporation, The Holding Company.
6. Huffs causing R.C. Holdings to enter into a partnership agreement with Thompson Devco, in which Thompson Devco was granted an eighteen percent interest in the project.
7. Huffs receiving a letter from Ralph Kreizenbeck, dated June 30, 1989, affirming that Huff had accepted the rescission, and Huffs confirming that he had given Kreizenbeck this information over the phone.
8. Huffs telling Morgan Burkett in August 1989 that Lewis was being bought out of the project by Huff. Burkett testified that Huff never thereafter represented to Burkett that Lewis was not being bought out.
Although there is much conflict in the evidence, there is substantial and competent evidence in the record to support these findings. The findings support the trial court's' characterization of Huffs actions as acceptance of rescission.
V.
THE TRIAL COURT'S REFUSAL TO CORRECT ALLEGED ERRORS IN ITS FINDINGS AND CONCLUSIONS DOES NOT REQUIRE REVERSAL.
Huff asserts that the trial court should have corrected seventy-seven errors in its findings and conclusions, when Huff moved the trial court to do so. As to the findings Huff challenges, we conclude that there was no reason for the trial court to correct them. Virtually all of the challenged findings were supported by substantial and competent evidence and were, therefore, not clearly erroneous. After reviewing of the record, we are uncertain whether there is substantial and competent evidence to support findings 11, 13, 22, 28, and 53. We are unable to discern that any of these findings affected the outcome of the case, however. As to the conclusions of law Huff challenges, the trial court correctly stated the law. Huffs challenges to the conclusions are merely argumentative.
VI.
THE TRIAL COURT WAS NOT REQUIRED TO RULE THAT A PARTY WHO IS IN DEFAULT CANNOT UNILATERALLY RESCIND A CONTRACT.
Huff asserts that the trial court should have ruled that Lewis was in default and could not unilaterally rescind the agreement. We disagree.
The trial court concluded that there was mutual rescission, not a unilateral rescission. Therefore, it would have been inconsistent for the trial court to rule that Lewis was in default and could not unilaterally rescind the agreement.
VII.
LEWIS'S FAILURE TO INVOKE THE DEFAULT PROVISION OF THE BASIC AGREEMENT DID NOT BAR THE LEWISES' CLAIMS.
Huff asserts that the trial court should have ruled that the Lewises' remedy, if any, was to invoke the default provision of the basic agreement. We disagree.
The Lewises chose not to invoke the default clause of the basic agreement. By doing so, they took the risk that either they would be able to prove a basis for rescission or that Huff would accept or acquiesce in mutual rescission. If the Lewises had not convinced the trial court that Huff acquiesced in the mutual rescission, the Lewis-es might have been confronted with the consequences of their failure to invoke the default provision. Mutual rescission was simply another means of resolving the defaults that the Lewises believed existed in Huffs performance under the agreements.
VIII.
THE TRIAL COURT CORRECTLY REFUSED TO ENTER JUDGMENT IN FAVOR OF HUFF FOR DAMAGES AND CORRECTLY REFUSED TO RULE ON HUFF'S PUNITIVE DAMAGE CLAIM.
Huff asserts that the trial court should have entered judgment in his favor for damages of $2,371,945.00, plus interest, and should have ruled on Huffs punitive damage claim. We disagree.
The premise for Huffs assertions is that the trial court did not make a finding of the damages Huff sustained and did not rule on Huffs punitive damage claim because the trial court did not apply the law of repudiation. Instead, the trial court concluded that there was a mutual rescission. Because we have affirmed the trial court's conclusion that there was mutual rescission, we necessarily conclude that the trial court was correct in not entering judgment in favor of Huff for damages and in not ruling on Huffs punitive damage claim.
IX.
THE TRIAL COURT CORRECTLY REFUSED TO TRY HUFF'S RICO CLAIM.
Huff asserts that after concluding that the parties had mutually rescinded their agreements, the trial court should have pro ceeded to try Huffs RICO counterclaim, which had been bifurcated from the other claims. We disagree.
Huff challenges the following conclusion of law of the trial court:
The rescission having been agreed to by the parties, as determined by the Court, the defendants cannot independently pursue the RICO claim.
Huff argues that the trial court was incorrect in premising its decision not to try the RICO claim on the following reasoning in its memorandum decision:
Defendants lack standing to maintain a RICO cause of action.
U.S.C.A. 1962, Prohibited activities, in part provides: "to use or invest, directly or indirectly, any part of such income or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise____" Idaho Code § 18-7804 uses almost identical language.
Once the agreements between plaintiff and defendant were rescinded, there ceases to be any business transaction to which RICO statutes apply. Both parties are returned to the status quo. Plaintiff ceases to maintain an interest in defendants' project, and defendant is free to solicit new investors. Consequently, the RICO cause of action is dismissed and summary judgment is granted thereon.
(Emphasis by the trial court.)
We agree with the trial court that when the parties rescinded their agreements, there was no basis for Huff to pursue a RICO claim which was based on the transaction that had been rescinded. To allow Huff to pursue his RICO claim in spite of mutual rescission would be to ignore the nature of rescission. Rescission requires restoration to the status quo. Lowe, 103 Idaho at 262, 646 P.2d at 1033. The status quo was the position of the parties before the transaction. It would be logically fallacious to say that the transaction is rescinded but that one of the parties can pursue a RICO claim based on the transaction.
X.
CONCLUSION.
We affirm the judgment of the trial court.
We award costs on appeal, but not attorney fees, to the Lewises.
TROUT, J., and MICHAUD and CAREY, JJ., pro terns, concur.