Hao vs. Galang

A person who signs a lease contract as lessee for the purpose of establishing a future corporation, and with the lessor's knowledge of that purpose, acts as an agent or promoter of the corporation. Upon the corporation's subsequent ratification of the pre-incorporation contract, the agent is not personally liable for the obligations arising therefrom.

Petitioner Eliseo N. Hao signed a five-year lease contract with respondent Emerlinda S. Galang in February 2011 for a property intended to house a diagnostic center. In March 2011, Hao and others incorporated Suremed Diagnostic Center Corp. (SUREMED), with Hao as its initial president. SUREMED thereafter occupied the leased premises and operated its business there. After Hao ceased being president, SUREMED fell into rental arrears. Galang filed an unlawful detainer suit against both Hao and SUREMED to recover possession and unpaid rentals.

• Nature of the Lease: On February 25, 2011, Eliseo N. Hao signed a five-year lease contract with Emerlinda S. Galang for a property, with a monthly rental of P100,000.00, intended for a diagnostic center.
• Incorporation and Occupancy: In March 2011, Hao and associates incorporated Suremed Diagnostic Center Corp. (SUREMED). Hao was its initial president. SUREMED began occupying the leased property in April 2011 to operate its business.
• Change in Management and Default: In 2012, Hao was replaced as SUREMED's president. By 2014, SUREMED failed to pay rent. Galang sent demand letters to SUREMED's new president and, later, to both Hao and SUREMED.
• Unlawful Detainer Suit: Galang filed an unlawful detainer case against Hao and SUREMED in June 2014 to recover possession and unpaid rentals amounting to P540,655.75.
• Defense of Hao: Hao argued he was not personally liable, claiming SUREMED was the actual lessee and occupant, and that Galang was estopped from claiming otherwise as she had initially demanded payment from SUREMED and accepted its checks.
• Defense of SUREMED: SUREMED argued it was not a party to the lease contract signed by Hao and that the complaint against it should be dismissed.
• Lower Court Findings: The MTC found Hao liable as the signatory lessee, dismissed the case against SUREMED for lack of privity, and dismissed Hao's cross-claim against SUREMED. The RTC and CA affirmed.

• Agency and Pre-incorporation Contract: Petitioner Hao argued that he signed the lease contract as an agent for SUREMED, a corporation in the process of formation. He contended that SUREMED ratified the contract by occupying the premises, thus assuming the obligations and extinguishing his personal liability.
• Estoppel and Novation: Hao maintained that Galang's conduct—sending demand letters to SUREMED and accepting rental checks from the company—showed her recognition of SUREMED as the true lessee, constituting an implied novation or substitution of debtor.
• Cross-Claim: Hao argued that if held liable, his cross-claim against SUREMED for reimbursement should be allowed, as SUREMED was the actual beneficiary of the lease.

• Privity of Contract: Respondent Galang contended that the lease contract clearly identified Hao as the lessee. She argued that SUREMED was not a party to the contract and never consented to a new one, so no novation or substitution of debtor occurred.
• Personal Liability of Signatory: Galang asserted that Hao's personal liability was established by his signature on the contract. Whatever arrangement Hao had with SUREMED was an internal matter that did not bind her.
• Dismissal of Cross-Claim: Galang supported the dismissal of Hao's cross-claim against SUREMED, as the unlawful detainer case against SUREMED had been dismissed.

• Personal Liability of the Signatory: Whether petitioner Hao is personally liable for the rental arrears under the lease contract he signed, despite the subsequent incorporation and occupancy by SUREMED.
• Viability of the Cross-Claim: Whether the cross-claim of Hao against SUREMED should have been sustained by the lower courts.

• Personal Liability of the Signatory: No. Hao is not personally liable. The lease contract was a pre-incorporation contract entered into by Hao as an agent for a corporation yet to be formed. Galang was aware the lease was for establishing a diagnostic center, which became SUREMED. SUREMED ratified the contract by occupying the premises. Under the law of agency (Article 1897, Civil Code), an agent acting as such is not personally liable to the third party unless he expressly binds himself or exceeds his authority. Here, Hao acted within his authority as a promoter, and the principal (SUREMED) ratified his acts.
• Viability of the Cross-Claim: The cross-claim was correctly dismissed. The unlawful detainer case against SUREMED was dismissed for lack of cause of action (as it was not a party to the contract). Consequently, the cross-claim, which is ancillary to the main action against SUREMED, could not subsist. Hao's remedy, if any, is a separate action for collection or reimbursement.

• Pre-incorporation or Promoter's Contract — A contract entered into by a promoter on behalf of a corporation yet to be formed is governed by the law of agency. The promoter acts as an agent for the future corporation. The corporation, upon coming into existence, may ratify the contract, thereby assuming the obligations and releasing the promoter from personal liability, provided the third party was aware the contract was made for the corporation's benefit.
• Ratification in Agency — Under Articles 1898 and 1901 of the Civil Code, if an agent (the promoter) contracts in the name of a principal (the future corporation) and the principal later ratifies the contract, the contract becomes binding on the principal. The third party cannot later hold the agent liable if the principal has ratified or signified willingness to ratify.

• "Galang is fully aware that Hao was only acting in representation of a corporation in the process of organization and incorporation. Hao's role as an agent of SUREMED is fortified by the undisputed fact that after SUREMED's organization, the company, without Galang's dissent, occupied the leased premises." — This passage underscores the Court's finding of the lessor's knowledge and the subsequent ratification by the corporation.
• "The contract of lease between the parties is clearly a pre-incorporation contract, wherein the 'representative of a corporation in the process of incorporation binds oneself to ensure that the corporation, once formed, will ratify the contract entered in its name. The representative becomes personally liable for such contract in the event that the corporation does not so ratify it once it comes into existence.'" — This excerpt succinctly states the legal nature of the contract and the conditional liability of the promoter.

• The decision does not extensively cite specific Philippine Supreme Court precedents by name and number. It primarily relies on statutory provisions (Civil Code) and legal scholarship (Cesar L. Villanueva's work on Corporate Contract Law) to explain the doctrines of pre-incorporation contracts and agency.

• Articles 44, 45, and 46, Civil Code — Cited to establish that a private corporation acquires juridical personality only upon its creation according to law, and prior to that, it has no legal capacity to contract.
• Article 1897, Civil Code — Provides that an agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds his authority without sufficient notice.
• Articles 1898 and 1901, Civil Code — Govern the effects of ratification by the principal (the corporation) of the agent's acts, binding the principal and releasing the agent from liability to the third party.

• Justice Alfredo Benjamin S. Caguioa
• Justice Rodil V. Zalameda
• Justice Mario V. Lopez
• Justice Samuel H. Gaerlan