G.R. No. 153690 - Lu vs. Lu Ym, Sr.

On February 25, 2011, Eliseo N. Hao (Hao) signed a lease contract with Ermelinda S. Galang (Galang) over her property for five years starting April 1, 2011, with monthly rent of ₱100,000.00. The premises were leased for establishing a diagnostic center.
In March 2011, Hao and others organized Suremed Diagnostic Center Corp. (SUREMED). Hao became company president, and SUREMED started operating its business in the leased property.
In 2012, Dr. Ramon Ragos replaced Hao as SUREMED president. Galang sent a revised lease contract to SUREMED to replace Hao as lessee, but SUREMED refused to execute it, continuing occupancy in 2013.

SUREMED delayed rent payments starting 2013 and defaulted in 2014. Galang sent demand letters in April and May 2014 to Dr. Ragos for payment and notice to vacate.
As of June 2014, rental arrears reached ₱540,655.75. Galang sent a demand letter with notice to vacate to both Hao and Dr. Ragos on June 5, 2014.

With no response, Galang filed an unlawful detainer suit against Hao and SUREMED on June 13, 2014.
SUREMED denied liability, asserting non-party status to the lease. Hao signed the contract as lessee, and there was no proof of his authority to bind the corporation or substitution of lessee.
SUREMED also argued that the complaint was moot because it no longer occupied the premises as of July 2014 and filed a counterclaim against Galang for damages and attorney’s fees.
Hao argued estoppel regarding his liability, stating Galang knew the property was used by SUREMED and addressed arrear demands to Dr. Ragos. He contended he was no longer president in 2014 and unaware of SUREMED’s refusal to execute new lease or failure to pay. Hao filed a cross-claim against SUREMED for reimbursement if held liable.

The Metropolitan Trial Court (MTC), in a decision dated July 25, 2017, ruled Hao primarily liable for rental arrears, attorney’s fees, and costs, holding he was the lessee under the contract and no evidence showed he was authorized by SUREMED. The complaint was dismissed as to SUREMED due to lack of privity. Hao’s cross-claim and SUREMED’s counterclaim were dismissed.
The Regional Trial Court (RTC), on April 27, 2018, affirmed the MTC ruling. It held no novation or substitution of lessee occurred because no new contract was executed by SUREMED, which refused the revised lease. It found Hao was still liable and that Galang’s demand letters to both parties supported such liability. Hao was advised to file a separate suit for his claim against SUREMED.

The CA, in a May 10, 2019 decision, upheld the RTC decision, finding no valid substitution of lessee due to SUREMED’s refusal to execute a new contract and, consequently, no novation of obligations.
It dismissed Hao’s cross-claim because the unlawful detainer case against SUREMED had been dismissed.

Hao filed a petition for review, asserting subjective novation extinguished his obligation, transferring it to SUREMED, the actual occupant. Hao stressed Galang’s demand letters and acceptance of checks from SUREMED as evidence of recognition of SUREMED’s tenancy.
Galang argued that Hao was contractually liable as signatory. SUREMED was not yet incorporated at execution, never consented to a new lease, and thus there was no valid novation or substitution. She insisted any agreement between Hao and SUREMED was beyond her concern.

Whether Eliseo N. Hao is personally liable for rental arrears under the lease contract despite SUREMED’s occupancy and usage of the leased premises.
Whether there was a valid substitution of the lessee or novation of the lease contract from Hao to SUREMED.
Whether Hao’s cross-claim against SUREMED for reimbursement should have been allowed or subsist in the unlawful detainer case.