Short answer. Generally no. Article 2033 of the Civil Code requires juridical persons — including corporations — to compromise only in the form and with the requisites necessary to alienate their property. For most corporations, that means a formal board resolution authorising the settlement, not just the word of an officer.
What the law says
Juridical persons may compromise only in the form and with the requisites which may be necessary to alienate their property.
Civil Code, Article 2033 — Compromise by Juridical Persons. Read the full provision →
Why the alienation standard applies to settlements
A compromise or settlement is not a simple procedural act — it typically involves giving up rights, accepting payment, or waiving claims, all of which affect the corporation's assets. Article 2033 treats a compromise by a juridical person the same way it treats the disposal of that person's property: it must follow the same form and requisites required to alienate their property. For a corporation, alienating property — particularly real estate or major assets — requires board authorization. A compromise that has similar financial consequences is held to the same standard.
What board authorization typically looks like
For most corporations, a valid compromise requires at minimum a board resolution authorising the settlement. The resolution should identify the case, the terms of the compromise, and the officer authorised to sign the settlement agreement on behalf of the corporation. In cases involving immovable property or substantial claims, a special power of attorney granted by the board to the signing officer may also be required. An officer who signs a settlement without this authority acts outside the scope of corporate power, and the settlement may be challenged as unauthorised.
Risks of settling without proper authority
A compromise entered into by a person without authority to bind the corporation is vulnerable to being declared unenforceable against the corporation. The other party to the settlement may find that the agreement they negotiated cannot be enforced because the corporate officer who signed had no board authorization. Conversely, a corporation may try to repudiate a settlement that a rogue officer signed by arguing lack of authority. Both situations create costly uncertainty. Proper authorization prevents both problems.
How to protect yourself when settling with a corporation
If you are negotiating a settlement with a corporation, ask for a copy of the board resolution authorising the compromise before you sign. Verify that the person signing the agreement is the officer named in the resolution and that the resolution covers the specific terms being agreed to. If the settlement involves real property or a complex transaction, a lawyer can review the corporate authority documentation and confirm that the settlement will be binding on the corporation. Do not rely on an officer's assurance that they have authority — insist on seeing the resolution.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Paraiso International Properties, Inc. vs. Court of Appeals, et al, G.R. No. 153420, April 16, 2008 — read the decision on LawPhil →