SECTION 4. Authority of lawyer to bind client. – A lawyer can bind a client in a legal engagement only when so authorized through a written agreement. The lawyer, however, cannot compromise a client’s litigation, or receive anything in discharge of a client’s claim, without a special power of attorney for such purpose. (2023 Code of Professional Responsibility and Accountability or CPRA)
Under this section, lawyers can “bind a client in a legal engagement only when so authorized through a written agreement.”
Compromise – refers to “a contract whereby parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced.” (Anacleto v. Twest, G.R. No. 131411, August 29, 2000, Per Mendoza, J.)
Under this section, without a special power of attorney (SPA) for authorizing compromise, lawyer “cannot compromise a client’s litigation, or receive anything in discharge of a client’s claim.”
Like any other contract, therefore, [a compromise] must comply with the requisites provided in Art. 1318 of the Civil Code, to wit: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. (Anacleto v. Twest, G.R. No. 131411, August 29, 2000, Per Mendoza, J.)
CITIBANK, N.A. v. Chua, G.R. No. 102300, March 17, 1993, Per Campos, Jr., J.:
• [A lawyer] cannot, without special authority, compromise his client’s litigation or receive anything in discharge of a client’s claim but the full amount in cash. The special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to J.P. Garcia & Associates are very explicit in their terms as to the counsel’s authority in the case at bar.
Anacleto v. Twest, G.R. No. 131411, August 29, 2000, Per Mendoza, J.:
• The basic issue to be resolved here is whether a party who enters into a compromise agreement with another allegedly represented by a lawyer who has no authority to institute a litigation, much less enter into a compromise agreement, is estopped from questioning the validity of such agreement.
• Now, it is admitted by Atty. Perez that his only authority to represent Van Twest and Euroceanic is the retainer agreement he had with Van Twest. This agreement reads:
11 July 1990
MR. ALEXANDER VAN TWEST
Dear. Mr. Van Twest:
Thank you for deciding to retain our law firm as general counsel to handle your civil and criminal cases.
The retainer will amount to P7,500.00 per month. In order to facilitate your account, we shall bill this retainer monthly, starting July, 1990, if agreeable to you.
The retainer will cover office conferences, drawing of ordinary business documents, contracts, deeds, and the like as well as legal advise not requiring substantial time expense on our part. The retainer will not cover the trial of any litigated matters in court or before any administrative body. The cases that we will handle for you shall be subject of a separate progressive billings. In such cases we cannot usually determine in advance the amount of work that will be required. However, any extraordinary matters will be discussed with you in advance so that you may have an estimate of the amount that might be involved before making any commitments.
If the above arrangement is acceptable to you, please sign, date and return the enclosed duplicate copy of this letter for our file.
Very truly yours,
MARTINEZ & PEREZ
ERNESTO V. PEREZ
The above arrangement is acceptable:
10 July 1990
• It is clear from this agreement that Atty. Perez’s authority to represent Van Twest does not include a special authority to enter into the questioned compromise agreement as required by [then] Rule 138, §23…
• Indeed, a special power of attorney constituting Atty. Perez as attorney-in-fact is necessary. Art. 1878 of the Civil Code provides:
ART. 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;
• It is noteworthy that the action for reconveyance filed by Atty. Perez was brought not only in behalf of Van Twest but also of Euroceanic, a juridical person from which he should have secured the necessary authority to institute this case and enter into a compromise agreement. The law specifically requires that juridical persons may enter into a compromise only in the form and with the requisites which may be necessary to alienate their property.5 The power to compromise or settle claims in favor of or against the corporation is vested in the board of directors.6 Hence, in the absence of any authorization from the board of directors of Euroceanic, Atty. Perez could not file any suit in its behalf, regardless of the fact that Van Twest was the former chairman of its board.
• As Atty. Perez had no authority to litigate or enter into a compromise agreement in behalf of Van Twest or Euroceanic, the compromise agreement is void.
• The same is true as regards the judgment based on the compromise agreement.