**Facts**:
1. *Initial Complaint*: Victor Prado, Sr. and Matilde Tuscano filed a complaint against Loyola Security and Detective Agency and its general manager, Ruperto Acle, Jr., for illegal dismissal and various monetary claims, including unpaid wages, overtime pay, and other benefits.
2. *Labor Arbiter’s Decision (March 30, 1989)*: The Labor Arbiter ruled in favor of Prado and Tuscano, awarding them a total of P91,317.93, excluding attorney’s fees.
3. *Appeal*: Loyola Security appealed to the National Labor Relations Commission (NLRC), which affirmed the Labor Arbiter’s decision.
4. *Execution of Award*: Prado and Tuscano filed a Motion for Issuance of a Writ of Execution. On October 19, 1990, they acknowledged full satisfaction of the award.
5. *Alias Writ of Execution (November 17, 1992)*: Prado and Tuscano moved for an alias writ, claiming a discrepancy between the received amount and the awarded amount. The motion was granted despite objections and a motion for reconsideration by Loyola Security, the latter of which was denied.
**Issues**:
1. Whether the satisfaction of the judgment entered into between private respondents and petitioners, without legal counsel and Labor Arbiter’s approval, constituted a valid novation or compromise settlement.
2. Whether Prado had the authority to execute a settlement on behalf of Tuscano as well, without a special power of attorney.
**Court’s Decision**:
1. *Invalid Compromise & Novation*: The Supreme Court found that an agreement entered into by the parties outside the presence and approval of the Labor Arbiter, without the assistance of counsel, did not meet the requirements set out in the NLRC’s New Rules of Procedure. The large disparity between the awarded amount and the compromised settlement further indicated the lack of fairness and voluntariness in the agreement. Thus, the agreement was not a valid novation or compromise.
2. *Authority to Settle*: The Court noted that Prado executed the settlement on behalf of himself and Tuscano, but without proper authorization from Tuscano. Under Article 1878 of the Civil Code, a special power of attorney is required for acts that involve compromising or waiving claims. Since Prado lacked such authority, the settlement was not binding on Tuscano.
**Doctrine**:
A compromise or novation agreement, especially in labor cases before the NLRC, requires execution in the presence of the labor arbiter, with legal counsel, and must be fair, equitable, and not in violation of any law, morals, or public policy. Agreements made without observing these safeguards are likely void and unenforceable under the Labor Code and NLRC Rules of Procedure. Furthermore, a special power of attorney is mandatory for authority in compromising claims for another per Article 1878 of the Civil Code of the Philippines.
**Class Notes**:
– **Labor Relations**: Under Philippine Labor Law, compromise settlements need to comply with procedural safeguards, including legal counsel presence and labor arbiter approval.
– **Civil Code Authority**: Article 1878 of the Civil Code requires a special power of attorney for payments, novations, compromises, and waivers.
– **Execution of Labor Awards**: Even if parties claim satisfaction, inconsistencies or a lack of procedural compliance can render such agreements invalid.
**Historical Background**:
This case highlights the stringent procedural requirements in labor dispute settlements to protect the rights of workers, reflecting the Philippines’ adherence to ensuring substantive labor rights are not capsized by procedural shortcuts or inadequate legal representation. Additionally, the ruling reinforces the application of civil law principles pertaining to authority in contractual agreements, ensuring that waivers and compromises are properly authorized. During this time, adherence to these principles was crucial in preventing exploitation and ensuring equitable enforcement of labor rights.
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