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District Court of Appeal, Second District, Division 1, California.

Angela CHAVEZ, widow of deceased employee Jose Chavez, et al., Petitioners, v. INDUSTRIAL ACCIDENT COMMISSION of the State of California, Vernon Paving Company, a corporation, and Casualty Insurance Company of California, a corporation, Respondents.*

Civ. 22039.

Decided: March 12, 1957

Levy, Russell & DeRoy, George DeRoy, Los Angeles, for petitioner. Everett A. Corten, San Francisco, Edward A. Sarkisian, Los Angeles, for respondent, Industrial Accident Commission. Thompson & Talbott, George Thompson, Los Angeles, for respondents, Vernon Paving Co., a corporation, and Casualty Ins. Co. of California, a corporation.

The widow and dependent children of Jose Chavez, hereinafter referred to as the employee, seek a review and the annulment of an award to them of certain death benefits and review of an order (entered simultaneously with said award) disapproving a compromise and release. The compromise settled, for an amount larger than the amount of the award, the claims of the employee by reason of an industrial injury suffered by him and hereinafter referred to.

As to the factual background surrounding this proceeding, the record reflects that on January 5, 1956, the employee filed an application for adjustment of compensation claiming injury to his right hand and wrist, when he was thrown off a truck while stacking lumber. The matter was set for hearing on February 27, 1956, at which time oral testimony was taken from the employee and other evidence received. Thereafter, and prior to March 10, 1956, the parties entered into an agreement to settle all claims on account of his said injury. On March 10, the employee signed the compromise agreement (on forms provided by the Commission) and forwarded them to the carrier. On March 12, the employee died from a heart attack, entirely unrelated to his industrial injury.

On March 19, 1956 (one week after the employee's death), the carrier forwarded the compromise and release, duly executed by itself to the Commission for its approval. On the following day the referee issued a notice of intention to take the matter off-calendar, ‘(S)uggestion of the death of the applicant having been made to the referee—and good cause appearing therefor.’

On April 13, 1956, the carrier submitted a certified copy of the death certificate and asked to withdraw from the compromise.

On the same day, petitioners by their counsel requested in writing that the compromise be approved and advised that they were ‘not requesting a hearing at this time because of the provisions' of a sentence in the compromise that it was ‘subject to the following conditions subsequent’, that ‘(R)egardless of any other section’ of the agreement, it was to be ‘withdrawn, void, rescinded of no force and effect’, if the matter were set for hearing as to its adequacy.

On May 9, 1956, the carrier served formal notice that it rescinded its said agreement, ‘based upon the rights given under California Civil Code, Sections 1688 through 1691, and such other laws of California as are applicable.’

On July 2, 1956 the referee, by order, disapproved the compromise, ‘applicant having died prior to the approval thereof and good cause appearing therefor.’

Simultaneously, the referee issued findings and award in favor of the widow, as trustee, for the sum of $407.14, which the referee computed to be the value, at statutory rates, of the temporary disability and permanent disability, accrued and unpaid at the date of death. Labor Code, Section 4700. The findings spelled out that the injury had caused temporary disability from ‘November 29, 1955, to and including January 15, 1956, and again beginning January 28, 1956, to and including February 14, 1956, entitling the applicant to $35.00 per week during said time, based upon maximum earnings, in the total sum of $330.00’ and ‘permanent disability, which, for the employee's age and occupation, is rated at 31–1/4 percent, entitling him to $30.00 per week for 125 weeks, in the total sum of $3,750.00, based upon maximum earnings.’ The unpaid permanent disability accrued to the date of death brought the entire unpaid amount to the sum of $407.14.

On August 16, 1956, the applicants' petition for rehearing was denied by the Commission and applicants thereupon petitioned this court for a Writ of Review.

The order of respondent Commission disapproving compromise and release insofar as here pertinent, reads:

‘The parties to the above entitled action filed a Compromise and Release herein, March 20, 1956, and this Commission, having considered the entire record, now finds that it is not for the best interests of the parties to approve said Compromise and Release and that it should be disapproved, applicant having died prior to approval thereof * * *’

The question presented to us in this proceeding is whether the respondent Commission exceeded its jurisdiction by disapproving (as having been rescinded for failure of consideration) an executed compromise and release, which was submitted to said Commission after the death of the injured employee from a non-industrial cause and where the cause of and actual death of said employee were unknown to respondent employer and its insurance carrier at the time of execution of the aforesaid compromise and release.

At the outset it should be noted that admittedly, respondent Commission did not in any way base its disapproval of the compromise agreement upon the ground that it was inequitable or unfair; upon the ground that it had not been executed or delivered by the employee prior to his death, or that it was executed and delivered to respondent Commission by respondent employer and its insurance carrier under a mistake of fact. On the contrary, the record reflects that respondent Commission disapproved the compromise and release solely upon the ground that the consideration therefor failed in a material respect by reason of the death of the employee giving the employer and its carrier a right to rescind, and upon the ground that the compromise agreement was not valid for the reason that the commission had not approved it at the time of the employee's death.

To us there appears to be no question that, as between themselves the parties to the agreement and release had ‘struck a bargain’ for settling the employee's claims and equally unquestioned is the fact that the employee had formally executed the written embodiment of their agreement and placed it is course of transit to the respondent insurance carrier. Also, it is manifest, that decedent's consent to the terms of the understanding reached by the parties was effectively communicated to respondent insurance carrier thereby making the release immediately operative in accordance with its terms when the employee released possession of it with the apparent intent that it should become immediately effective, Civil Code, Sec. 1583; Restatement of Contracts, Sec. 402, comment b.

Respondent employer and its insurance carrier first contend that due to the non-industrial death of the employee they were entitled to rescind and withdraw from the compromise and release submitted to respondent Commission. That such recission is authorized by the terms of Civil Code, Sections 1688–1691.

Reference to the Report of respondent Commission, Panel Two, on order denying petitioners' application for reconsideration clearly shows that the panel relied upon Civil Code, Section 1689, Subd. 4, which permits recission by a party to a contract if the ‘consideration, before it is rendered to him, fails in a material respect, from any cause.’

All parties to the present controversy agree that the question of whether the consideration for the compromise and release agreement can be said to have failed in a material respect by reason of the death of the employee, thereby giving rise to a right to rescind pursuant to the provisions of Civil Code, Sec. 1689, subd. 4, tenders a case of first impression and has never been decided by the courts of this state. A rather extensive search by us of the annotations to the pertinent code section, as well as a review of the discussions in various text books and digests as to the right to rescind for failure of consideration has proved fruitless insofar as our efforts to find any cases wherein the immediate question involved has been considered or decided by the appellate courts of this state or any other jurisdiction is concerned.

Respondent employer and its insurance carrier's argument seemingly is based upon the claim that the bulk, or at least a substantial part of the settlement and release was to compensate the employee for further permanent disability. Recourse to the agreement discloses that the reason for compromise was ‘To avoid the hazards of litigation, a dispute has arisen as to the nature, extent and duration of the Applicant's disability. The defendants deny that the Applicant is temporarily totally disabled after November 28th, 1955, and further assert that the Applicant's present disability, if any, is a result of a hemorrhoid operation performed February 21st, 1956. It is further alleged that the Applicant's condition will improve with the passage of time, and further activity, and that the Applicant's permanent disability will be less than the present stated medical record. It is therefore believed to be to the best interests of all parties to dispose of this matter by Compromise and Release, and that the amount offered is a just and adequate settlement of this claim.’ The foregoing provisions of the settlement and release agreement would seem to lend force to the view expressed by respondent Commission in its answer to the Petition for Writ of Review herein, that ‘It was not so much temporary disability, so much medical expense and so much permanent disability they would be adjusting, although these were involved in the controversy. It would be the controversy itself which was being settled.’

We have concluded that the contention of respondent employer and its insurance carrier that they were entitled to rescind upon the ground of failure of consideration, Civil Code, Sec. 1689, subd. 4, cannot be sustained and that the facts contained in the evidentiary features of this controversy do not support the findings of respondent Commission that there was a failure of consideration in a material respect.

We are persuaded that the death of the employee Chavez in no wise affected the consideration which respondent employer and its insurance carrier received. That consideration was a settlement and release of Chavez' right to receive on account of permanent disability a sum substantially in excess of that which the real parties in interest agreed to pay. Both parties knew that the payments to Chavez would probably be made in instalments during his lifetime, and that if he died the right to these permanent disability payments would cease, and must have contracted with that fact in mind. The fact that Chavez died before the right to any permanent disability payments accrued did not affect the fact that he released the right to receive payments had he lived.

We come now to the final contention of respondents that the compromise and release agreement was invalid for the reason that it had not been approved by respondent Commission at the time of the death of the employee Chavez.

Labor Code, Section 5000 provides in part as follows:

‘* * * No contract, rule, or regulation shall exempt the employer from liability for the compensation fixed by this division, but nothing in this division shall: (a) Impair the right of the parties interested to compromise, subject to the provisions herein contained, any liability which is claimed to exist under this division on account of injury or death * * *’.

Insofar as here pertinent, Labor Code, Section 5001, provides:

‘* * * No release of liability or compromise agreement is valid unless it is approved by the commission, a panel, commissioner, or referee.’ (Emphasis added.)

There can be no doubt as to the broad powers of the Commission to withhold approval of a compromise agreement, or to amend or vacate an award based thereon, when the equities of the case require it, but here we are not confronted with a situation wherein the Commission rejected the agreement because of any inequities therein affecting either the employer or employee. The sole and only ground upon which the Commission by its order disapproved the compromise agreement, was, as stated therein, ‘Applicant having died prior to the approval thereof and good cause appearing therefor’. The question naturally arises as to whether the approval procedure prescribed by Labor Code, Section 5001 is an integral part of a compromise agreement and that either party thereto is at liberty to rescind the same or withdraw therefrom at any time prior to approval by the Commission. We are inclined to the view that the question must be answered in the negative. Research by the parties herein has failed to disclose any authorities providing a definitive statement of the effect of the provisions of Labor Code, Section 5001, and independent research by us did not unearth any appellate court decisions as to the immediate question here involved. However, as respondent Commission points out in its answer to the petition for a writ of review, ‘In actual practice, the parties themselves negotiate their compromises. Occasionally, the Commission has suggested increase of the amount to be paid for a release. This would indicate that the Commission does not adhere to a view that the approval procedure prescribed by the code is an integral part of a compromise, but rather, that the approval procedure is a subsequent step, superimposed on the negotiations of the parties, and intended to accomplish fairness in every case in which experienced adjusting competence is pitted (very often) against its very opposite.

‘It is to be noted that the settlement herein was for $2,250.00—a sum very substantially less than the amount the employee would have ultimately received, had he lived. There is therefore no question of over-reaching. The agreement apparently was upon a fair figure, fairly arrived at.’

When the aims, purposes and objectives of Labor Code, Section 5000 and 5001 are considered, we are persuaded that the legislation in question does not contemplate that either party has a right to withdraw from or to repudiate a compromise and release after it has been duly executed, but before the Commission has acted upon it, and that, in the instant case, the facts do not, for the reasons heretofore advanced, support the findings of respondent Commission that under Civil Code, Section 1689, subd. 4, there was a failure of consideration due to the death of the employee Chavez.

The award is annulled.

WHITE, Presiding Judge.

DORAN and FOURT, JJ., concur.