Preface

The Philippine tourism industry perennially played a pivotal role in the

lives of many Filipinos. It has been a generator of foreign exchange, which
impacts on the country's balance of payments and a key driver of the purchasing
power of the peso. It is a main source of direct and indirect employment to over 11
million Filipinos working in hotels and resorts, restaurants and bars, travel and tour
agencies, entertainment outlets, parks, museums, galleries, theaters, cinemas,
casinos, event management firms, and other tourist-oriented establishments. It is an
inclusive industry that provides education, relaxation, and leisure to its target local
and foreign markets. The industry is made up of several sectors that provide both
business opportunities and public service.
Just like any dynamic industry, the forces of the market create various
business and personal experiences that cause challenging situations to arise. For
example, the number of labor cases in tourism and hospitality has remained high in
the past 20 years. Air, sea, and land transportation accidents continue to hug
headlines from time to time. Some industry professionals who get promoted to
executive positions find it challenging to make adjustments in their decorum and
mindset giving rise to cases of sexual harassment, fraud, gross negligence, poor
decision-making, and violations of labor laws.
This textbook was written to provide a serious look at the different laws
affecting the Philippine tourism industry and all its sectors—hospitality, travel
trade, MICE (meetings, incentives, conventions, and events), academe, labor,
finance, and public sector, with the hope of achieving the following:
(a) provide a working guide to students, teachers, and professionals in
their daily conduct;
(b) prevent unnecessary litigation by promoting industrial peace; and

(c) serve as a catalyst in improving the lives of the workers and executives
in the tourism industry.
This labor of love is brought about by the passion of the authors for
academic excellence, professionalism, quality, and innovation. The ten (10)
chapters of this book tackle the most comprehensive spectrum of topics, which
may be covered within one semester or trimester. There are over 100 cases cited or
adapted from Supreme Court decisions to enlighten the readers on the applications
of the laws.

xi
 MESSAGE

Never has the Philippine tourism industry been

more challenging than it is at present with COVID-19
causing the closure of operations of airlines, cruise line
companies, tourist transport providers, hotels, restaurants,
meetings, incentives, conventions, and events (MICE)
companies, and travel and tour enterprises. From a major
dollar earning industry for the country, this pandemic has
suddenly plunged tourism into a dark abyss with a lot of
unknowns. As we face the challenge of a "new normal" in the tourism industry, it
is perhaps a good idea to revisit the laws that governed our industry prior to the
outbreak, their relevance, and their potential for amendments.
This book gives a comprehensive understanding of tourism laws in the
Philippines, allowing the reader to better understand the significance of these laws
in relation to the rights and responsibilities of the stakeholders. Written by industry
practitioners, the book provides clear insights on the legalities that shaped the
industry to what it is at present. My deepest gratitude to the authors and publisher
of Legal Aspects in Tourism and Hospitality. It is both a valuable and significant
source of information, much needed in these uncertain times. Congratulations!

Anabelle Ochoa Moreno Past Chairman

Tourism Industry Board Foundation, Inc.
 The inspiring one-liner blurb mentioned at the start of each chapter or
major topic sets the focus of the laws enumerated, the discussion of the laws, and
the application of the laws in the succeeding pages. An opening case enables
the teacher to provide an assignment reading to the students. Each chapter has
concise learning objectives, guide questions for oral exercises, classroom
discussion and recitation, and class activities, studies, and Internet research topics.
This. textbook will come in handy with a test bank and PowerPoint
presentation slides for teachers only. It is the vision of the authors that improved
instruction of Legal Aspects in Tourism and Hospitality will be instrumental in
developing responsible, ethical, and quality-conscious tourism professionals,
managers, and workers.
 CHAPTER 1
REVIEW OF THE PHILIPPINE
CONSTITUTION AND BUSINESS LAWS
Ignorantia juris non excusat. Ignorance of the law excuses no
one Without law, our world would be very unstable with
anarchy in our streets and peace would be difficult to achieve,
(A legal doctrine from the Roman law)

The Case of Patty Robinson's Drowning

The Robinson family went on a 3-day sale weekend getaway in a resort in
Cebu, the Coral Resort, which takes pride in its hospitable service, first-rate
cuisine, and well-maintained resort facilities. Martin Robinson, president of an
American multinational company based in Manila, took his wife Angie and
children Patty, aged 6 and Geoff, aged 5, to this beautiful resort to celebrate their
wedding anniversary. The first day was enjoyable because the children had a great
time at the resort's refreshing swimming pool despite the lack of a lifeguard on
duty. The resort's chef delighted the family with local cuisine and every staff was
courteous and cheerful. On the second day, there were not many resort guests. Just
before sunset, Angie woke up and started to Patty who has been missing for two
hours. Geoff was with his dad the whole afternoon walking by the beach. After
searching for 15 minutes with the help of some hotel staff, Patty was found in the
swimming pool already dead. One of the staff immediately performed standard
CPR but the effort was to no avail.

Questions
Can the Robinson family hold the hotel
liable for the death of their daughter? What
are the responsibilities of a resort with a
swimming pool?
Would you consider the resort negligent?
 What are the rights of the hotel guests?
What is the role of the Department of
Tourism (DOT) and the local government
in ensuring safety of guests in resorts and
hotels?
(b) Maritime Law — the law dealing with commerce by sea, involving
regulation of ships and harbors and the status of seamen.
(c) Mercantile Law — the law of commercial transactions derived from the
law of merchant which includes, commercial paper, insurance, and
other types of agency.

Concept of Tourism Law

Tourism is defined as the custom or practice of traveling for pleasure, as well as
the promotion by the establishment of countries to attract tourist. I
The World Tourism Organization defines tourism as the activities of persons
traveling to and staying in places outside their usual environment for not more than one
consecutive year for leisure, business, and other purposes.2
Tourism law may be defined as a body of rules or principles of action which
deals with the regulation, authority, relations, and obedience among members of a
society involved in tourist travel and accommodation. It includes persons traveling
from place to place for pleasure (tourist) and business establishments or persons
engaged in the occupation of providing various services for tourists. It applies to
various sectors such as hospitality, travel trade, attractions, MICE (meetings,
incentives, conventions, events), academe, labor, and the public sector.

Importance and Application of Tourism Law

Today, society has evolved wherein business establishments engaged in
tourism have been in the food service, hotel service, transportation service, travel and
tour operations, events management, and even medical tourism, among others, all for
the interest of gratification, happiness, amusement, and entertainment of people
traveling from place to place. E-commerce has now been considered a way of
necessity to do business in tourism.3
 All things being considered, it will not be denied that there are now various or
even millions of commercial transactions involved in tourism. In addition, numerous
regulations are being different imposed by the different government agencies to
promote tourism development for the national interest. Hence, there is a need to study
the different principles and statutes governing tourism development.
This book will deal with the various laws governing Philippine tourism,
including the various government agencies involved therein. It will also provide
current situations existing in the tourism, travel, and hospitality industry which may
be analyzed, interpreted, and resolved applying existing jurisprudence and legislation.

1 The Lexicon-Webster Dictionary, 1981 Encyclopedic Edition.

2 World Tourism Organization, 2020. 3 Ibid.
Learning Objectives
Explain the concept of tourism law, its sources and examples of its application
Identify vital provisions in the Philippine Constitution related to tourism and travel
Enumerate the rights of travelers as well as entities engaged in tourism
Identify the different kinds of obligations and contracts as applied in the tourism industry
Differentiate the various kinds of partnerships and corporations
Identify the requirements in the formation and dissolution of partnerships and corporations
Describe and explain the nature of sales and credit transactions
Identify the functions and operations of agencies in the tourism industry

Kinds of Law
The different kinds of law are classified as follows: As
to purpose:
(1) Substantive Law — a law that creates, defines, and regulates rights, or
which regulates the rights and duties which give rise to a cause of action.
(2) Adjective Law — a law that provides the method of aiding and protecting
certain rights.
As to scope:
(1) General or Public Law — a law that applies to all the people of a state or to all
of a particular class of persons in a state, with equal force and obligation.
Examples are:

(a) Criminal Law — a law dealing with crimes and their punishment, as
well as the procedure for that purpose.
(b) International Law — a body of rules or principles of action
governing the relations between States.
(c) Political Law — law regulating the relations sustained by the
inhabitants of a territory to the sovereign.
(2) Special or Private Law — a law which relates to particular persons or things
of a class. Examples are:
(a) Civil Law — the mass of precepts which determines and regulates
those relations of assistance, authority, and obedience existing among
members of a family and those which exist among members of a
society for the protection of private interests.
Sources of Law Relevant to the Tourism Industry
(1) The Philippine Constitution — It is the fundamental law of the land, to
which all other laws must conform.
(2) Statutes or legislative enactments — It is the written will of the
legislative department rendered authentic by certain prescribed forms
and solemnities, prescribing rules of action, or civil conduct with
respect to persons, things, or both. Examples: Dangerous Act, Public
Service Act, Civil Code of the Philippines, Labor Code of the
Philippines, Revised Penal Code, Seatbelt Law, and local government
ordinances.
(3) Administrative or executive orders, regulations, and rulings — These
are issued by administrative officials under legislative authority.
Examples: (a) Rules and Regulations promulgated by the Secretary of
Tourism to Govern the Accreditation of hotels , Tourist Inns, Motels,
Apartelles, Resorts, Pension Houses, and other Accommodation
Establishments; (b) BIR circulars and rulings; (c) Administrative
issuances by the Department of Foreign Affairs; and (d) Omnibus Rules
Implementing the Labor Code of the Philippines.
(4) Judicial decisions or jurisprudence — These refer to the decisions of
the Supreme Court in interpreting the laws of the Constitution.
(5) Custom — It is a rule of conduct which in a given place among given
groups of people, has been followed for an appreciable time.
(6) Other sources — These refer to decisions of foreign tribunals and
opinions of textbook writers.

The Right to Travel. Freedom of movement is the very essence of our free
society. Once the right to travel is curtailed, all other rights suffer.
(William Douglas, former Associate Justice, US Supreme Court)

The Philippine Constitution

 The Constitution is defined as the original and fundamental principles of
law by which a system of government is created and according to which a country
is governed.1 It is the fundamental law of the land, to which all other laws must
conform. It is a written instrument by which the fundamental powers of the
government are established, limited, and defined, and by which those powers are
distributed among several departments for their safe and useful exercise for the
benefits of the body politic.2

1Barron's Legal Dictionary, 5th Edition, p. 102.

2Philippine Legal Encyclopedia by Jose Agaton R. Sibal, Central Lawbook Publishing Co.,
Inc., p. 169.
 Article Ill (Bill of Rights) and Article XII (National and Patrimony) are
some of the Constitutional provisions related to tourism which may be given
preferential attention.
The Law

The Bill of Rights

Section I. No person shall be deprived of life, liberty and property without
due process of law, nor shall any person be denied the equal protection of
the laws.
Discussion of the Law
Under the constitution, the term "life," of which a person may not be
deprived without due process, means more than animal existence. With the
emphasis on social and economic rights at present, life includes at the very least
the right to a decent living.6
According to Justice Malcolm, "liberty," means that measure of freedom
which may be enjoyed in a civilized community consistently with the peaceful
enjoyment of life freedom of others. xxx. Liberty includes the right to be free to
use his faculties in all lawful ways; to live and work where he wills; to earn his
livelihood by any lawful calling, to pursue any avocation; and for the purpose, to
enter into all contracts which may be proper, necessary, and essential to his
carrying out these purposes to a successful conclusion. Liberty is the freedom to do
right and never wrong; it is guided by reason and the upright and honorable
conscience of the individual.7
"Property" is defined as "anything which is or may be the object of
appropriation." Anything which has money value and which is supposed to be
within the commerce of man is embraced in the term property. The right to earn
one's daily wage and the right to engage in business are likewise property. 8
"Equal protection of the law" means that persons similarity situated
should be similarly treated. There should be no favoritism. The benefits of
membership in a state as well as the burdens should be distributed in equal
measure. Uniformity of treatment should be the rule.9
"Due process of law" is a law which hears before condemns; which
proceeds upon inquiry, and renders judgment after trial. 10 Due process of law does
not necessarily mean a judicial proceeding in the regular courts. The guarantee

I OF THE AND 5
 6 Supra p. 520.
7 Ibid., p. 518. 8 Ibid., p. 783. 9 Ibid., p. 282.
10 Raquiza v. Bradford, 75 Phil. 50.

CHAPTER REVIEW CONSTmrtTON

of due process, viewed in its procedural aspect, requires no particular form of

procedure. It implies due notice to the individual of the proceedings, an
opportunity to defend himself and the problem of the propriety of the deprivations,
under the circumstances presented, must be resolved in a manner consistent with
essential fairness. In effect, it means a fair and impartial trial and reasonable
opportunity for the preparation of the defense. 11
The essential requirements of procedural due process in courts are as
follows: (1) There must be a court or tribunal clothed with judicial power to hear
and determine the matter before it; (2) jurisdiction must be _lawfully acquired over
the person of the defendant •or over the property which is the subject of the
proceedings; (3) the defendant must be given an opportunity to be heard; and (4)
judgment must be rendered upon lawful hearing. 12 Application of the Law
Case: Congressman Peter Genuino, a Filipino citizen, has been accused of tax
evasion and investigated for dealing prohibited drugs in the United States of
America. He is currently residing in the Philippines so that he can pursue his
alleged illegal business and his seat in congress as a convenient cover. In this
regard, the United States government requested for the extradition of Congressman
Genuino from the Philippine government so he will be investigated under U.S.
jurisdiction. Pending the evaluation of his extradition, Congressman Genuino
demanded for his extradition papers from the U.S. government through the
Philippine government so that he can already file his opposition in the Philippine
courts without the need of being extradited to the U.S. The Philippine government,
with the concurrence of the American government, refused to provide
Congressman Genuino with the extradition papers. In this situation, is
Congressman Genuino already deprived of his right to "due process"?
Legal Opinion: No. Congressman Genuino is not deprived of his right to "due
process. " P.D. No. 1069 (Prescribing the Procedure for the Extradition ofPersons
Who Have Committed Crimes in a Foreign Country" signed into law on January
13, 1977) which implements the RP-US Extradition Treaty provides the time when
an extraditee shall be furnished a copy of the petition for extradition as well as its
supporting papers, i.e., after the filing of the petition for extradition in the
extradition court. The law does not grant an extraditee a right to notice and hearing
The Law
during the evaluation stage of an extradition process. A different interpretation
will be dangerous as this will be an opportunity for the extraditee to flee while the
investigation during the evaluation of the extradition process is pending.13

11 Aquino, Jr., v. Military Commission, G.R. No. 2, 63 SCRA 546.

12 El Blanco Espafi01-Fi1ipino v. Palanca, G.R. No. L-11390, 37 Phil. 921, 934 (1918).
13 Secretary of Justice v. Hon. Ralph C. Lantion, et al., G.R. No. 139465, October 17, 2000.

6 ASPECTS TOURISM AND L.rry

In many instances, communication and correspondences are inevitable in
the tourism, travel, and hospitality industry. Because of its daily use, it is important
to understand what laws may be applied.
Section 3. (1) The privacy of communication and correspondence shall be
inviolable except upon lawful order of the court, or when public safety or order
requires otherwise as prescribed by law.

(2) Any evidence obtained in violation of this or the preceding section shall
be in admissible for any proceeding.
Discussion of the Law
The forms of correspondence and communication that are covered in the
provision include letters, telegrams, telephone calls, messages, and the like.
Republic Act No. 4200, otherwise known as the Anti-Wiretapping Law,
provides penalties for specific violations of the privacy of communication. Under
Section 3 of the Act, the court will authorize wiretaps in certain crimes, such as
treason, espionage, provoking war and disloyalty in case of war, piracy, mutiny in
the high seas, rebellion, conspiracy and proposal to commit rebellion, inciting to
rebellion, sedition, conspiracy to commit sedition, inciting to sedition, kidnapping,
and other offenses against national security.
Any evidence obtained in violation of the above shall be considered "fruit
from the poisonous tree" and shall not be admitted as evidence in any
administrative or criminal proceeding.
Application of the Law
Case: The National Bureau of Investigation (NBI) received a tip on a very
important case the bureau has been working on. It deals with massive drug dealing
using hotel suites as meeting places of high-profile drug dealers. The bureau
sought the cooperation of the hotel management for an entrapment operation.

I OF THE AND 7
Wiretapping devices were installed. The adjacent suite was reserved for NBI
agents on a stakeout. Was the operation legal and justified?
Legal Opinion: The operation is considered illegal in violation of R.A. No. 4200,
and any evidence obtained by virtue of such wiretapping devices shall not be
admissible as evidence in any administrative or criminal proceeding. The massive
drug dealing in violation of the Dangerous Drugs Act is not one of the offenses
which authorizes wiretaps under the law. 3 It is a rule of salutatory construction that
laws must be strictly construed, and what the law excludes must not include.

3Section 3 paragraph 1, R.A. 4200.

CONST}TUTION BUSINESS LAWS

The Law
For a labor-intensive industry like the tourism industry, it is common to

have disputes between the labor sector and management. Likewise, the depiction of
women and children in an exploitative manner has happened in the past. Freedom
of speech has to be understood in the right context.
Section 4. No law shall be passed, abridging the freedom of speech, of
expression, or of the press, or the right of the people peaceably to assemble
and petition the Government for redress of grievances.
Discussion of the Law
Speech, expression, and press include every form of expression, whether
oral, CD, or .DVD recorded. The tourism industry, in some instances, has depicted
women as objects of pleasure in billboards, videos, advertisements, brochures,
uniforms and attires they are made to wear on duty or during festivals, and even
clandestine services by a number of spas, resorts, clubs, fitness centers,
entertainment bars, and events.
Obscenity is defined as it includes materials which, taken as a whole,
appeals to the prurient interest and lacks serious literary, artistic, political, or
scientific value. Matter so classified is not protected under the "free speech"
guarantee of the Constitution. Guidelines for determining obscenity have changed
through the years, but a material will be considered "obscene" when the following
requisites concur: (a) the subject as a whole appeals to the prurient interest of the
average person, using contemporary community standards; (b) the work depicts or
describes in a patently offensive way sexual conduct as prohibited by law; (c) the
work as a whole lacks serious literary, artistic, political, or scientific value. 15
It is worth considering the pronouncement of the Supreme Court on
obscenity as in the case of People of the Philippines v. Padan Y Alova et al., G.R.
No. L-7295. Thus:
"xxx. We have had occasion to consider offenses like the exhibition of still
or moving pictures of women in the nude, which we have condemned for
obscenity and as offensive to morals. On those cases, one might yet claim
that there was involved the element of art; that connoisseurs of the same, and
painters and sculptors might find inspiration in the showing of pictures in the
nude, or the human body exhibited in sheer nakedness, as models in tableaux
vivants. But an actual exhibition of the sexual act, preceded by acts of
lasciviousness, can have no redeeming feature. In it, there is no room for art.
 One can see nothing in it but clear and unmitigated obscenity, indecency,
and offense to public morals, inspiring and causing as it does, nothing but
lust and lewdness, and exerting a corrupting influence especially on the
youth of the land.

15 Barron's Law Dictionary, 5th Edition, p. 352.

8 ASPECTS 'rot.}1USM AND HOSPITALITY

Application of
Case: Fort Santiago is a well-maintained wholesome historic theme park in Manila.
The regular park promenaders were suddenly awed by the parading young girls clad
in skimpy bikinis. These were movie starlets who were doing a pictorial for a
magazine. There were occasions when the director would tell• the girls to take off
their bikini bras only to cover their breasts with their arms. The crowd was uneasy
and grew bigger as the pictorial lasted almost over an hour. A Manila councilor
who was near the location reminded the director of the city ordinance and the law
that they were violating. Did the Manila councilor have the right to put a stop to the
pictorial? Did the organizers and participants of the pictorial really violate any law?
Legal Opinion: The Manila councilor had the right to put a stop to the pictorial by
virtue of a city ordinance prohibiting any lewd acts which are offensive to morals
and public policy. Such act may be considered a right of the State, in the legitimate
exercise of police power, to suppress smut provided it is smut. It is a known
principle that the state has the authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare. (See Leo Pita v.
The Court of Appeals, G.R. No. 80806, October 5, 1989.)
The Law
Every person has the right to travel and reside anywhere he chooses.
Section 6. The liberty of abode and of changing the same within the limits
prescribed bylaw shall not be impaired except upon lawful order of the
court. Neither shall the right to travel be impaired except in the interest of
national security, public safety, or public health, as may be provided by law.
Discussion of the Law
This constitutional provision guarantees: (a) freedom to choose and change
one's place of residence and dwelling place and (b) freedom to travel within or
outside the country.
The Law
However, these constitutional liberties are not absolute rights for they can
be regulated by a lawful order of the court. An order releasing a person accused of
a crime on bail is similar to a "lawful order of the court" as contemplated under the
above provision, and a hold departure order may be issued as this is a necessary
consequence of the function of the bail bond which is to secure the person's
appearance when needed.
Application of the Law
Case: Mr. Bondoc, president of the ABC Securities, Inc., has been charged with
estafa under Philippine courts. While ABC Securities, Inc. is now under
receivership as approved by the Securities and Exchange Commission, Mr.
Bondoc requested the court that he be allowed to leave for the United States which
is "relative to his
REVEF.W CONST}TUüON
business transactions and opportunities" since he already released on bail and his
bail bond has been approved by the Court. May the Court deny Mr. Bondoc's
request without his constitutional right to travel?
Legal Opinion: Yes, the Court may deny Mr. Bondoc's right to travel. A court has
the power to prohibit a person admitted to bail from leaving the Philippines. This is
a necessary consequence of the nature and function of a bail bond. Its object is to
relieve Mr. Bondoc of imprisonment and the state of the burden of keeping him,
pending the trial, and the same time, to put him as much under the power of the
court as if he were in custody of the proper officer, and to secure his appearance so
as to answer the call of the court and do what the law may require of him. The
condition imposed upon Mr. Bondoc to make himself available at all times
whenever the court requires his presence operates as a valid restriction on his right
to travel. (See Manotoc v.' The Court of Appeals, G.R. No. L-62100, May 30,
1986). The Law
Once again, the labor-intensive nature of the tourism industry elicits the
possibility of unions and associations being formed to protect the rights of
employees. While there is a provision in the constitution on this matter, a lengthier
discussion is covered by the chapter on Labor Law.
Section 8. The right of the people, including those employed in the public
and private sectors, to form unions, associations or societies for purposes
not contrary to law shall not be abridged.
Discussion of the Law

I OF THE AND 11
 Government employees are now given the right to form unions. However,
their right to strike is not included in the right to form unions. Unlike those
employed in the private sector, government employees do not have the
constitutional right to strike as a mandate under civil service rules and regulations
prohibiting them to strike. (See Social Security System Employees. Association
(SSSEA) et al. v. The Court of Appeals et al., G.R. No. 85279, July 28, 1989.)
Application of the Law
Case: Junie Bustillos, a room attendant, has been employed at a Quezon City hotel
for five years. In his late twenties, Junie was a hardworking and very idealistic
employee. He has seen many cases of abuse by management especially in the past
three years in the hotel. Approximately 70% of the employees feel low morale
because of these abuses and they would readily support any move to form a union.
Junie took the initiative in talking to some potential leaders who will form the core
group of a possible union. He believed that this was the only way they can protect
the rights of the hotel workers. Upon learning of Junie's plans, top management
gradually worked on a plan on how to get rid of Junie. After three months, Junie
was convicted of

I () AND
serious charges resulting in his dismissal from the hotel. Did the hotel management
do the right thing? Did the hotel management violate the law?
Legal Opinion: Yes, the hotel management violated the Labor Code of the
Philippines and the 1987 Constitution. By terminating Junie because of his initiative
to form a possible union constitutes unfair. labor practice in violation of Section 8,
Article Ill of the Philippine Constitution. This may be construed as union-busting.
In the case of Lopez Sugar Corporation v. Franco et al., G.R. No. 148195,

May 16, 2005, four (4) employees of Lopez Sugar Corporation formed a union and
became officers as such. Thereafter, these four (4) employees received notices
informing

them that they were included in the "special retirement program" for a supervisor
and middle-level managers; hence, their employment with the Corporation was to
be terminated. The Supreme Court ruled in favor of the four (4) employees and
further declared that it would not hesitate to strike down a redundancy program
structured by a corporation to downsize its personnel, solely for the purpose of
weakening the union leadership, thereby preventing it from securing reasonable
terms and conditions of employment in their collected bargaining agreement (CBA)
with the employer.

The Law
Tourism makes use of a lot of contracts, e.g., employment, engagements,
agencies, sales, franchise, property management, purchase, services, and the like.
Thus, it is important to study obligations and contracts.
Section 10. No law impairing the obligations of contracts shall be passed.
Discussion of the Law
Under the Civil Code, the contract constitutes the law of the parties unless it
violates some provisions of law or public policy. The parties themselves make the
law by which they shall be governed, and it is the business of the courts to see that
the parties to a legal cöntract comply with its terms. A law changing the terms of the
legal contract between parties, either in the time or mode of performance, or
imposes new conditions, or dispenses with those expressed, or authorizes for its
satisfaction something different from that provided in its terms is a law which
impairs the obligation of a contract, and is null and void. An interference with the
terms of a legal contract by legislation is unwarranted and illegal. 16

AND 13
 However, not all impairments of the contractual provisions violate the
Constitution. The Supreme Court has pronounced that a valid exercise of police
power of the state is superior to the obligations of contracts.
Police power is a prerogative enjoyed by the state and a limitation on liberty and
property by the bill of rights. It has been identified with the state authority to

16 Clemons v. Nolting, G.R. No. 17959, January 24, 1922.

REViE%•' or LAWS

enact legislation that may interfere in order to promote the general welfare. It is
the power to regulate the exercise of constitutional rights to promote health,
morals, peace, education, good order or safety and general welfare of the people.
17

Application of the Law

Case: The Philippine Airlines (PAL) and the Chamber of the Real Estate
Builders' Association (CREBA) filed a Petition to the Supreme Court questioning
the validity of R.A. No. 7716 (An Act Restructuring the Value-Added Tax
System Widening Its Tax Base and Enhancing Its Administration) because it
impairs obligations of contracts on existing sales on real property payable in
installments, franchise privileges, and exempt transactions such as the sale of
agricultural products, food items, petroleum, and medical and veterinary services.
Is the contention of PAL and CREBA
Legal Opinion: The contention of PAL and CREBA is incorrect. R.A. No. 7716
has been declared to be valid and has been held that contracts must be understood
as having been made in reference to the possible exercise police power of the
state, a rightful authority of the government and no obligation of contract can
extend to the defeat of that authority. (See Tolentino v. Secretary of Finance,
G.R. 115455, October 30, 1995.)

National Economy and Patrimony

The Law
It is important to be informed of some of the constitutional provisions on
National Economy and Patrimony because some are applicable to tourism.
Section 10. The Congress shall, upon recommendation of the economic
and planning agency, when the national interest dictates, reserve to
citizens of the Philippines or to corporations or associations at least sixty
per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments.
ASPECTS TOUR'SM
 In the grant ofrights, privileges and concessions covering national
economy and patrimony, the State shall give preference to qualified
Filipinos.
The State shall regulate and exercise authority over foreign investments
within its national jurisdiction and in accordance with its national goals and
priorities.

Discussion of the Law

The provision allowing the nationalization of certain businesses covering
national economy and patrimony has not been considered a new doctrine. In the
case

17 Philippine Legal Encyclopedia, Jose Agaton R. Sibal, p. 734.

12 IN ANO
Of chong v. Hernandez, No. L-7995, 101 Phil. 1155 (May 31, 1957),
Filipinization of business may be done without violating the equal protection
clause.
The patrimony of the nation that should be conserved and developed
refers not only to our rich natural resources but also to the cultural heritage of our
race. It also refers to our intelligence in arts, sciences, and letters. Therefore, we
should develop not only our lands, forests, mines, and other natural resources but
also the mental ability or faculty of our people. 4
In its plain and ordinary meaning, the term patrimony pertains to heritage.
When the Constitution speaks of national patrimony, it refers not only to the
natural resources of the Philippines, but also to the cultural heritage of the
Filipinos. 5
The term "qualified Filipinos" simply means that preference shall be
given to those citizens who can make a viable contribution to the common good,
because of credible competence and efficiency. It certainly does not mandate the
pampering and preferential treatment to Filipino citizens or organizations that are
incompetent or efficient, since such an indiscriminate preference would be
counterproductive and inimical to the common good. In the granting of economic
4Jose N. Nolledo, The New Constitution of the Philippines Annotated, 1990 ed., p. 72.
5Webster's Third New International Dictionary, 1986 ed., p. 1656, as cited in Manila Prince Hotel
v. GSIS, G.R. No. 122156, February 3, 1997.
20 Ibid., pp. 930-931.

REV}EW OF THE CONSTETETIOEN BUSINESS LAWS

AND 15
rights, privileges, and concessions, when a choice has to be made between a
"qualified foreigner" and a "qualified Filipino," the latter shall be chosen over the
_former.20 Application of the Law
Case: During a bid for the purchase of the majority shares in Manila Hotel, a
Malaysian corporation was the highest bidder. However, instead of awarding the
sale to the Malaysian corporation, the same was awarded to a Filipino
corporation. Is the awarding of the sale in favor of the Filipino corporation valid?
Legal Opinion: Yes, Article XII Section 10 of the 1987 Constitution explicitly
states that the granting of privileges involving national patrimony shall
preference to qualified Filipinos.
As held in the case of Manila Prince •Hotel v. Government Service
Insurance System, G.R. No. 122156, February 3, 1997:
"The Manila Hotel has become a landmark—a living testimonial
of Philippine heritage. While it was restrictively an American hotel when
it first opened in 1912, it immediately evolved to be truly Filipino.
Formerly a concourse for the elite, it has since then become the venue of
various significant events which have shaped Philippine history. It was
called the Cultural Center of the 1930s. It was the sight of the festivities
during the inauguration of the Philippine Commonwealth. Dubbed as the
Official Guest House of the Philippine Government, it plays host to
dignitaries and official visitors who are accorded the traditional
Philippine hospitality.
"The history of the hotel has been chronicled in the book The
Manila Hotel: The Heart and the Memory of a City. During World War
Il, the hotel was converted by the Japanese Military Administration into
military headquarters. When the American forces returned to recapture
Manila, the hotel was selected by the Japanese, together with Intramuros,
as the two (2) places for their final stand. Thereafter, in the 1950s and
1960s, the hotel became the center of the political activities, playing host
to almost every political convention. In 1970, the hotel reopened after a
renovation and reaped numerous international recognitions, an
acknowledgment of the Filipino talent and ingenuity. In 1986 the hotel
was the site of a failed coup d'etat where an aspirant for vice president
was proclaimed President of the Philippine Republic."
"For more than eight (8) decades, Manila Hotel bore witness to the
triumphs and failures, loves and frustrations of the Filipinos; its existence
is impressed with public interest; its own historicity associated with our

ASPECTS TOUR'SM
 struggle for sovereignty, independence and nationhood. Verily, Manila
Hotel has become part of our national economy and patrimony."
The Law

Many multinational corporations want to invest in the Philippine tourism,

travel, and hospitality industry. It is important to study to what extent and how
they can invest.
Section ll. No franchise, certificate, or any other form of
authorization of the operation of a public utility shall be granted except
to citizens of the Philippines, or to corporations or associations
organized under the laws of the Philippines or at least 60 per centum
of whose capital is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character for a longer period
than fifty years. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to amendment,
alteration or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing
body of any public utilities enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing of
such corporation association must be citizens of the Philippines.

14 E. EGAL IN AND HOSE'iTAIXi'Y

Discussion of the Law

The highlights of the above provision are as follows:
The first sentence provides that public utility franchise will be granted only
two citizens on the Philippines or to corporations at least sixty per centum of the
capital of which is owned by citizens.
The second sentence allows the legislature to impair the obligation of
franchise "when the common good" so requires.
The last sentence authorizes the participation of foreign investors to
participate as Board of Directors of these public utility enterprises, but shall be
limited to their proportionate share in the capital as mandated in the first
sentence. However, the executive and managing officers of such public utility
enterprise must be citizens of the Philippines.
The term "public utility" is defined under Commonwealth Act No. 146
Section 13 (b) which states:
AND 17
 "(b) The term "public service" includes every person that now or hereafter
may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional
or accidental, and done for general business purposes, any common carrier, x x x,
subway motor vehicle, either for freight or passenger, or both with or without
fixed route and whether may be its classification, freight or carrier service of any
class, express service, steamboat or steamship line, pontines, ferries, and water
craft, engaged in the transportation of passengers or freight or both, shipyard,
marine railways, marine repair shop, [warehouse] wharf or dock, x x x and other
similar public services: x x x."
Application of the Law
Case: On November 24, 1994, private respondent Grand Air applied for a
Certificate of Public Convenience and Necessity with the Civil Aeronautics Board
(CAB), which application was docketed as• CAB Case No. EP-12711. Accordingly,
CAB granted a temporary operating permit in favor of Grand Air allowing the same
to engage in scheduled domestic air transportation services, particularly the Manila
—Cebu, Manila—Davao, and converse routes. In this regard, Philippine Airlines,
Inc. (PAL) is now questioning the authority of CAB in issuing a temporary permit
on the ground that Grand Air does not possess a legislative franchise authorizing in
to engage in air transportation service within the Philippines or elsewhere. Such
franchise is, allegedly, a requisite for the insurance of a Certificate of Public
Convenience or Necessity by the respondent Board, as mandated under Section 11,
Article XII of the Constitution.
Does CAB have the authority to issue a Certificate of Public Convenience
and Necessity in favor of Grand Air even if no franchise has been issued yet to
the latter in accordance with Section I l, Article XII of the 1987 Constitution?
REV}EW OF THE PHILIPPINE CONSTITUTION BUSINESS LAWS

Legal Opinion: Yes, CAB has the authority to issue a Certificate of Public
Convenience. CAB has jurisdiction over Grand Air's application for a Temporary
Operating Permit. The Board is expressly authorized by R.A. No. 776 to issue a
temporary operating permit or Certificate of Public Convenience and Necessity,
and nothing contained in the said law negates the power to issue said permit
before the completion of the applicant's evidence. Indeed, the CAB's authority to
grant a temporary permit "upon its own initiative" strongly suggests the power to
exercise said authority, even before the presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite to the issuance of a
permit, the absence of the same does not affect the jurisdiction of the Board to
hear the application, but tolls only upon the ultimate issuance of the requested
ASPECTS TOUR'SM
 permit. The power to authorize and control the operation of a public utility is
admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation. The franchise is a
legislative grant, whether made directly by the legislature itself, or by any one of
its properly constituted instrumentalities. The grant, when made, binds the public,
and is, directly or indirectly, the act of the State. The trend of modern legislation
is to vest the Public Service Commissioner with the power to regulate and control
the operation of public services under reasonable rules and regulations, and as a
general rule, courts will not interfere with the exercise of the discretion when it is
just and reasonable and founded upon a legal right."21 The Law
The country takes pride in developing a skilled workforce ranging from
blue collar to white collar jobs, from managerial to entrepreneurial talents, from
scientist to artist. There is the reciprocity especially when certain agreements in
the World Trade Organization covering movement of people and services will be
implemented globally.
Section 14. The sustained development o/a reservoir of national
talents consisting of Filipino scientists, entrepreneurs, professionals,
managers, high-level technical manpower and skilled workers and craftsmen
in all fields shall be promoted by the State. The State shall encourage
appropriate technology and regulate its transfer for the national benefit. The
practice of all professions in the Philippines shall be limited to Filipino
citizens, save in cases prescribed by law.
Discussion of the Law
This constitutional provision mandates that the practice of a profession is
reserved exclusively to citizens of the Philippines. The Foreign Investment
Negative List specially provides that foreign investors are prohibited in engaging
in much undertaking. In addition, the State shall prioritize Filipino talents for
employment

21 Philippine Airlines Inc. v. Civil Aeronautics Board, G.R. No. 119528, March 26, 1997.

16 HOSPiTALiTY

AND 19
in the country. Aliens may be employed but must obtain a working visa from the
Bureau of Immigration and a working permit at the Department of Labor and
Employment (DOLE).
Application of the Law
Case: John Tan is looking for a chief executive officer who will manage his five-
star hotel in the Roxas Boulevard area. He is also looking for a legal counsel who
will take charge of legal matters of his hotel business. Discuss the qualification of
the people he wants to hire for his hotel business.
Legal Opinion: Mr. John Tan must get a Filipino citizen, to handle the legal
matters in managing his hotel business. The practice of law is a profession where
foreigners are not allowed to practice in the Philippines.
However, in choosing a chief executive officer, Mr. Tan may or may not
employ a Filipino citizen. It is true that priority should be given to Filipino citizens
in Mr. Tan's choice for a chief executive officer. However, this will hold true only
if there are enough qualified Filipinos in the country who can vie for the position.
In case there are no skilled Filipino citizens who will qualify for the position, Mr.
Tan may employ a foreigner or an alien provided the latter obtains a working visa
at the Bureau of Immigration and a working permit at DOLE.

Importance of Ethics. Doing good business — being ethical, being

transparent, being caring, implementing values in your business
makes a difference, and you make money at the same time. (Shari
Arison, Israel 3' wealthiest woman)

Obligations and Contracts

The Law
A person desiring to engage in a business in the tourism, travel, and
hospitality industry will meet certain obligations. Agreements arising from
contracts will have to be made, and potential breach from these agreements will be
encountered. Therefore, there is a need to study the fundamental principles
involving the Law on Obligations and Contracts.

Oh
Obligations
Article 1156. An obligation is a juridical necessity to give, to do or not to
do. Discussion of the Law
An obligation is a legal duty, however created, the violation of which may
become the basis of an action of law. 22

The Philippine Legal Encyclopedia, by Jose Agaton R. Sibal, 1986 Edition, p. 635.

17
 Every obligation has four definite elements, without which no obligation
can exist, to wit:
(1) an active subject, also known as the obligee or creditor, who has the
power to demand the prestation;
(2) a passive subject, also known as the debtor, who is bound to perform
the prestation;
(3) an object or prestation, which is an object or undertaking to give, to do,
or not to do; and
(4) the juridical or legal tie, the vinculum which binds the contracting
parties. The juridical tie or vinculum is based on the sources of
obligation arising from either the law or contract.
It is vital to identify the prestation in a certain obligation. Once the
prestation is identified, you can determine who the passive subject is whom the
active subject can demand fulfillment of the obligation.
The following are the obligations of the passive subject:
(1) Obligations to give a determine thing:
 (a) To deliver the thing which he has obligated himself to give. 67
(b) To take care of the thing with the proper diligence of a good
father Of a family.24
(c) To deliver all its accessories and accessions.8
(d) To pay damages in case of breach of obligation.910
(2) Obligations to do:

(a) If the debtor do what he is obliged to do, it will be done at

his expense.
(b) If the work is done in contravention of the tenor of the
obligation, it will be re-done at debtor's expense.
(c) If the work is poorly done, it will be re-done at debtor's
expense.27

6Article 1165, Civil Code of the Philippines.

7Article 1163, Civil Code of the Philippines.
8Article 1166, Civil Code of the Philippines.
9 Article 1 170, Civil Code of the Philippines. 27
Article 1167, Civil Code of the Philippines.

10 ASPECß IN TOUR ANO n

 The sources of liability (for damages)28 of a party in an obligation are as
follows:
(1) Fraud. The fraud is incidental fraud (dolo incidente) which is fraud
incident to the performance of an obligation. In fraud, there is an intent
to evade the normal fulfillment of the obligation and to cause damage.
(2) Negligence. The negligence referred here, in the case of contracts (i.e.,
common carrier) is culpa contractual, the lack of diligence, or careless.
Negligence consists in the omission of that diligence which is required
by the nature of the obligation and corresponds with the circumstances
of the persons, or the time and of the place.
Application of the Law
Case: Dr. Felipa Pablo, an associate professor in the University of the Philippines
and a research grantee of the Philippine Atomic Energy Agency, was invited to
take part at a meeting of the Department of Research and Isotopes of the Joint
FAO-IAEA Division of Atomic Energy in Food and Agriculture of the United
Nations in Ispra, Italy. To fulfill this engagement, Dr. Pablo booked passage with
Alitalia, an Italian airline company. She arrived in Milan on the day before the
meeting in accordance with the itinerary and time table set for her by Alitalia.
However, she was told by the Alitalia personnel in Milan that her luggage was
"delayed" in as much as the same x x x (was) in one of succeeding flights from
Rome to Milan."
Her luggage consisted oftwo (2) suitcases: one contained her clothing and
other personal items and the other, her scientific papers, slides, and other research
materials. But the other flights arriving from Rome did not have her baggage on
board.
Feeling desperate, she went to Rome to try to locate her bags herself. There,
she inquired about her suitcase in the domestic and international airports, and filled
out the forms prescribed by Alitalia for people in her predicament. However, her
baggage could not be found. Completely distraught and discouraged, she returned to
Manila without attending the meeting in Ispra, Italy.
As it turned out, Dr. Pablo's suitcase was, in fact, located and forwarded to
Ispra, Italy, but only on the day after her scheduled appearance and participation at
the UN meeting there. Of course, Dr. Pablo was no longer there to accept the
delivery; she was already on her way home to Manila. And for some reason, the
suitcases were not actually restored to Dr. Pablo by Alitalia until eleven (11)
months later.
Is Dr. Pablo entitled to damages for the negligence committed by Alitalia?
CHAPTER REV{EW CONSTITVTtON AND BUS}NESS LAWS
Legal Opinion: Yes, Prof, Pablo should be entitled to nominal damages. Apart
from this, there can be no doubt that Dr. Pablo underwent profound distress and
anxiety,

28 Refer to Articles 2199—2201 of the Civil Code of the Philippines.

tI OF THE PHILIPPINE 19

which gradually turned into panic and finally despair, from the time she
learned that her suitcases were missing up to the time when, having gone to
Rome, she finally realized that she would no longer be able to take part in the
conference. As she herself put it, she "was really shocked and distraught and
confused." Certainly, the compensation for the inquiry suffered by Dr. Pablo
cannot, under the circumstances, be restricted to that prescribed by the Warsaw
Convention for delay in the transport of baggage.11
Case: This is an action for damages for alleged breach of contract. Nicolas L.
Cuenca, then Commissioner for Public Highways of the Republic of the
Philippines, filed a case against Northwest Airlines, Inc. The facts reveal that
Mr. Cuenca boarded Northwest Airlines in Manila with a first-class ticket to
Tokyo. Upon arrival at Okinawa, Mr. Cuenca was transferred to the tourist
class compartment. Although he revealed that he was traveling in his official
capacity as an official delegate of the Republic to a conference in Tokyo, an
agent of Northwest Airlines rudely compelled him, in the presence of other
passengers, to move, over his objection, to the tourist class, under threat of
otherwise leaving him in Okinawa. In order to reach the conference on time, the
respondent had no choice but to obey. Is Mr. Cuenca entitled to damages for
culpa contractual?
Legal Opinion: Yes, Mr. Cuenca is entitled to nominal damages. At any rate,
considering the petitioner's agent had acted in a wanton, reckless, and
oppressive manner, said award may, also, be considered as one for exemplary
damages.12
(3) Delay (Mora). The debtor can be held liable for the delay or default
in the fulfillment of his obligation only after the creditor has made a
demand, judicial or extrajudicial, on the debtor, except:

11Alitalia v. Intermediate Appellate Court, G.R. No. 71929, December 4, 1990.

12 Northwest Airlines Inc. v. Cuenca, G.R. No. L-22425, August 31, 1965.
31 Article 1 170, Civil Code of the Philippines.

ASPECTS HOSPITAL.IIÄ'

CHAPTER | REVIEW CONSTIJVTION AND BUSINESS LAWS

 (a) When the law expressly provides that demand is not
necessary;
(b) When the contract expressly stipulates that demand is not
necessary;
(c) When time is of the essence; and
(d) When demand would be useless.
(4) Contravention of the tenor of the obligation. Performance in
contravention of the tenor or terms of the obligations means where
performance is contrary to what is agreed upon or stipulated thus
making the debtor liable for damages.31

Case: Mr. Rafael Carrascoso is a civil engineer who was a member of a group
of 48 Filipino pilgrims taken left Manila for Lourdes on March 30, 1958, Air
France, through its authorized agent, Philippine Airlines, Inc., issued to Mr.
Carrascoso a "first-class" round trip airplane ticket from Manila to Rome. From
Manila to Bangkok, Mr. Carrascoso traveled in first-class, but at Bangkok, the
manager of the Air France airline forced him to vacate the "first-class" seat that
he was occupying because there was a "white man," who the manager alleged,
had a "better right to the seat." When asked to vacate his first-class seat. Mr.
Carrascoso, as was to be expected, refused. A commotion ensued but Mr.
Carrascoso reluctantly gave his first-class seat in the plane. In its defense, Air
France alleged that although Mr. Carrascoso was issued a first-class ticket, it
was no guarantee that the passenger to whom the same had been issued would
be accommodated in the first-class compartment, for the passenger has yet to
make arrangements upon arrival at every station for the necessary firstclass
reservation. Is Mr. Carrascoso entitled to the first-class seat? Is Mr. Carrascoso
entitled to damages?
Legal Opinion: Mr. Carrascoso should have been entitled to the first-class seat
and must not have been forced by the airline manager to vacate his seat. There
was a contract to furnish Mr. Carrascoso a first-class passage. The reservation
for a first-class accommodation for him was confirmed. Hence, the said
contract was breached when Air France failed to furnish first-class
transportation. As a rule, a written document speaks a uniform language. If
only to achieve stability in the relations between the passenger and the air
carrier, adherence to the ticket so issued is desirable.
Lastly, passengers do not contract merely for transportation. They have
to be treated by the carrier's employees with kindness, respect, courtesy, and
26 LEGAL IN TOURISM AND
due consideration. They are entitled to be protected against personal
misconduct, injurious language, indignities, and abuses from such employees.
Any rude or discourteous conduct on the part of employees toward a passenger
gives the latter an action for damages against the carrier. There was bad faith
when the employee of Air France forced Mr. Carrascoso to leave his first-class
accommodation berth "after he was already seated" and to take a seat in the
tourist class, by reason of which he suffered inconvenience, embarrassment,
and humiliation, thereby causing him mental anguish, serious anxiety, wounded
feelings, and social humiliation, resulting in moral damages. In addition,
exemplary damages are well awarded. The Civil Code gives the Court ample
power to grant exemplary damages — in contracts and quasi-contracts. The
only condition is that the defendant should have '"acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner." The manner in which Mr.
Carrascoso was ejected from his first-class seat fits into his legal precept.13
The 14Law
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punishable by law; and
(5) Quasi-delicts.

Discussion of the Law

There are only two (2) sources of obligations, namely: (1) law; and
(2) contracts because obligations arising from quasi-contracts, crimes (No.4,
Article 1157, Civil Code of the Philippines) and quasi-delicts are really
imposed by law. (Leung Ben v. O'Brien, 38 Phil. 182).
A contract is a "meeting of the minds between two persons whereby one
binds himself, will respect to the other, to give something or to render some
service.
Quasi-contract refers to a lawful, and voluntary and unilateral act based
on the maxim that no one shall unjustly enrich himself at the expense of

13AirFrancev. Carrascoso, G.R. No. L-21438, September 28, 1966, 18 SCRA 155.

OF THE PHILIPPINE I
14Article 1305, Civil Code of the Philippines.

CHAPTER | REVIEW CONSTIJVTION AND BUSINESS LAWS

 another.15 The two common forms of quasi-contract are: (1) Solutio indebiti,
which is payment by mistake; and (2) Negotiorum gestio, which takes place
when a person without the consent of the owner, assumes the management of
an abandoned business.
Civil obligations arising from criminal offenses are governed: (1) by
the provision s of the Revised Penal Code (i.e., restitution, reparation of the
damage caused, indemnification of consequential damages; and (2) by the
provisions of the Civil Code on Damages (i.e., moral, exemplary, and nominal
damages).
Quasi-delict (also called culpa aquiliana) is any act or omission which
causes damage to another, there are being fault or negligence, and there being
no preexisting contractual relation between the parties.16Application of the
Law
Case: Anabel was crossing the street coming from a hotel to a nearby shopping
mall. She was accidentally hit by a hotel car driven by Leandro, a driver
employed by the hotel. Can Anabel sue the driver? Can she sue the hotel?
Legal Opinion: Yes, Anabel may sue the driver and the hotel for damages on the
ground of culpa aquiliana. The pedestrian may also sue the driver and the owner
of the hotel for damages for reckless imprudence arising from a crime under the
Revised Penal Code.
The Law
Classification of Obligations
(1) Primary classification of obligations under the Civil Code: (a)

Pure and conditional obligations (Articles 1 179—1192);

(b) Obligations with a period (Articles 1193—1198);

(c) Alternative (1 199—1205) and facultative obligations (Article
1206);
(d) Joint and solidary obligations (Articles 1207—1222);
Divisible and indivisible obligations (Articles 1223—1225); and
(f) Obligations with a penal clause (Articles 1226—1230).

15Refer to Article 2142, Civil Code of the Philippines.

16Philippine Legal Encyclopedia by Jose Agaton R. Sibal, Central Lawbook Publishing Co., Inc.,
p. 809.

ASPECTS HOSPITALITY

28 LEGAL IN TOURISM AND

 (2) Secondary classification ofobligations under the Civil Code: (a)

Unilateral and bilateral obligations (Articles 1169—1191);

(b) Real and personal obligations (Articles 1163—1168);

(c) Civil and natural obligations (Article 1423); and
(d) Legal, conventional, and penal obligations (Articles 1157,
1159, 1161).
Discussion of the Law
Apure obligation is one which is not subject to any condition and no
specific date is mentioned for its fulfillment and is, therefore, immediately
demandable. Example: Pat promises to pay Joy P 1,000.
A conditional obligation is one which consequences are subject in one
way or another to the fulfillment of a condition. Example: Carol promises to
pay PI ,000 if Darren remains to become an outstanding employee of the hotel
for the month of May.
An obligation with a period is one which consequences are subject in
one way or another to the expiration of the said period or term. 36 Example:
Alfredo (the owner of the hotel) promises to pay Britney (employee of the
hotel) P5,000 on or before December 30, 2007, as part of the staff incentive
program.
Joint obligations are those where, although there concur two or more
creditors and debtors, in one and the same obligation, there is no right to
demand nor duty on the part of each of the latter to render entire compliance of
the entire obligation.

36 Supra p. 639.

1 or
Solidary obligations are those in which concur several debtors or creditors or
both, and where each creditor has the right to demand, and each debtor is
bound to perform, in its entirely, the prestation constituting the object of the
obligation. The term "joint and several" used in contracts is applied to the
object of the obligation. The term "joint and several" used in contracts is
applied to liability in an obligation made by several obligors when the obligee
may at his •option hold one or all liable together. However, this situation arises

CHAPTER | REVIEW CONSTIJVTION AND BUSINESS LAWS

 only when the obligation expressly so states or when the law or nature of the
obligation requires solidarity." Application of the Law
Case: Mr. Carlos Bernardo owner of Caloy's Grill (a fine dining restaurant),
entered into a contract with Chona Romulo and Manny Santiago (proprietor of
CM Wine Company) with the following stipulation:
"In case of failure to deliver the agreed 200 bottles of Califomia red and
white wines on or before December 30, 2021 , Chona Romulo and Manny
Santiago shall be liable to Carlos Bernardo, joint and severally, for damages in
the total amount ofPI00,000."
CM Wine Company was not able to fulfill their obligation to Mr.
Bernardo. For three days that the wines were not delivered, many complaints
arose from dining customers for wines ordered that were out of stock. Can Mr.
Bernardo only hold Mr. Santiago liable for damages?
Legal Opinion: In this situation, Mr. Carlos Bernardo may at his option hold
either Chona Romulo or Manny Santiago, or both liable when filing a case in
court for damages incurred.
An obligation with a penal clause is an obligation which contains an
accessory obligation imposing upon the obligor added burdens or which
operates as a previously stipulated indemnity, for the purpose of securing the
performance of the principal obligation. It substitutes the indemnity for
damages and, therefore, it does away with proof of damages suffered in case of
breach of the obligation.38
Case: On January 30, 1911, a firm known as JR & Company, engaged in a
retail garment business, found itself in such difficult financial condition that its
creditors, Mr. Lambert and Mr. Fox, together with many others, agreed to take
over the business, incorporate it, and accept stocks therein in payment of their
respective credits. When this was done, Mr. Lambert and Mr. Fox became the
two largest stockholders in the new corporation called JR & Co., Incorporated.
A few days after the incorporation was completed, Mr. Lambert and Mr. Fox
entered into the following agreement.
"Whereas the undersigned are, respectively, owners of large amounts of
stocks in JR & Co., Inc.; and,

37 Article 1207, Civil Code of the Philippines.

38 Handbook on Obligations and Contracts, by Jose N. Nolledo, 1993, Revised Edition, p. 138.

xsrrcts HOSPITALITY

30 LEGAL IN TOURISM AND

 Whereas it is recognized that the success of the said corporation depends,
now and for at least one year net following, in the larger stockholders retaining
their respective interests in the business of the said corporation.
Therefore, the undersigned mutually and reciprocally agree not to sell,
transfer, or otherwise dispose of any part of their present holdings of stock in said
JR & Co., Inc., until after one year from the date hereof.
Either party violating this agreement shall pay the other sum of one thousand (P
1,000) pesos as liquidated damages, unless previous consent in writing to such
scale, transfer, or other disposition be obtained."
Notwithstanding this contract, Mr. Fox on October 19, 1911 sold his stock
in the said corporation to E. D. McCullough of the firm of E. C. McCullough & Co.
of Manila, a strong competitor of the said JR & Co., Inc. This sale was made by Mr.
Fox against the protest of Mr. Lambert and with the warning that he would be held
liable under the contract hereinabove set forth and in accordance with its terms.
Is Mr. Lambert entitled to the liquid damages in the amount of P 1,000?
Legal Opinion: Yes, Mr. Lambert is entitled to the liquidated damages in the
amount of P 1,000. In this jurisdiction, penalties provided in contracts of this
character are enforced. It is the rule that parties who are competent to contract may
make such agreements within the limitations of the law and public policy as they
desire, and that the courts will enforce them according to their terms (Civil Code,
Articles 1152, 1153, 1154, 1155; Fornow v. Hoffmeister, 6 Phil. Rep., 33; Palacios
v. Municipality of Cavite,
12 Phil. Rep., 140; Gsell v. Koch, 16 Phil. Rep., l). The only case recognized by
the Civil Code in which the court is authorized to intervene for the purpose of
reducing a penalty stipulated in the contract is when the principal obligation has
been partly or irregularly fulfilled and the court can see that the person demanding
the penalty has received the benefit of such part or irregular performance. In such
case, the court is authorized to reduce the penalty to the extent of the benefits
received by the party enforcing the penalty. In this jurisdiction, there is no
difference between a penalty and liquidated damages, so far as legal results are
concerned. Whatever difference exists between them as a matter of language, they
are treated the same legally. In either case, the party to whom payment is to be
made is entitled to recover the sum stipulated without the necessity of proving
damages. Indeed, one of the primary purposes in fixing a penalty or in liquidating
damages is to avoid such necessity.

| AND LAWS
 The suspension of the power to sell has a beneficial purpose, results in the
protection of the corporation as well as of the individual parties to the contract,
and is reasonable as to the length of time of the suspension.17
Modes of Extinguishing Obligations
The Law
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merge of the rights of the creditor and debtor;
(5) By compensation; and
(6) By novation.

Other causes of extinguishment of obligations such as annulment,

rescission, fulfillment of a resolutory condition, and prescription, are governed
elsewhere in this Code (11560.
Discussion of the Law
There are other causes of extinguishment of obligation which are not
expressly provided under the above provision. Death extinguishes obligations
which are purely personal in character, such as partnership and agency.
Obligations may also be extinguished by the happening of a fortuitous event18 or by
will of one of the parties as in some contracts such as partnership and agency.
Parties may stipulate any currency for payment of debts to extinguish
obligations. In the absence of any stipulation, payments must be made in the
currency which is the legal tender in the Philippines (the Philippine Peso).
Payment in checks (whether manager's or cashier's checks) will have the effect of
payment under Article 1231, Civil Code only when these are already encashed or
cleared by the collecting banks.19 Payment by way of credit cards is equivalent to
payment made by a third person (credit card company) who has no interest in the
fulfillment of the obligation, in which case, the payer shall have the rights of
reimbursement, acquires the rights of a creditor and may recover what has actually
paid.20

17Lambert v. Fox, G.R. No. 7991, January 29, 1914.

RiA'iEW OV PHILIPPINE CONSITIXMON

32 LEGAL IN TOURISM
 Fortuitous event, also known as force majeure or caso fortuito, are terms
with exempt an obligor from liability. These are extraordinary events not
foreseeable or avoidable, events that could not be (Article 1174, Civil Code of the
Philippines) foreseen, or which, though foreseen, were inevitable. It is, therefore,
not enough that the event could not have been foreseen or anticipated, as is
commonly believed, but it must be one impossible to foresee or to avoid.43
Fortuitous events may be produced by two general causes: (1) by nature,
such as earthquakes, storms, floods, epidemics, tsunami, etc. and (2) by the act of
man, such as armed invasion (or coup d 'etat), attack by bandits, governmental
prohibitions, robbery, etc. In order that acts of man may constitute fortuitous event,
it is necessary that they have the force of an imposition which the debtor could not
have resisted (3 Salvat 83-84). Thus, the outbreak of war which prevents
performance exempts a party from liability (PNB v. Court of Appeals, 94 SCRA
357). Fortuitous event includes unavoidable accidents, even if there has been an
intervention of human element, provided fault or negligence cannot be imputed to
the debtor" If the thing has been lost through robbery with violence, the debtor must
show that he could not resist the violence. If the thing is lost through theft, the
debtor is considered negligent in having placed the thing within reach of thieves
and not in a secure or safe place; hence, the debtor will be liable for damages.45

Application of the Law

Case: On November 6, 1968, Philippine Airlines (PAL) Fokker "Friendship"
PIC536 left Mactan for Manila. After the plane had taken off, Florencio O. Villarin,
a Senior NBI Agent who was also a passenger of the said plane, noticed a certain
"Zaldy," a suspect in the killing of Judge Valdez, seated at the front seat near the
door leading to the cockpit of the plane. Zaldy had used the name "Cardente" in his
plane ticket and had three companions on board the plane. Villarin then scribbled a
note addressed to the pilot of the plane requesting the latter to contact NBI duty
agents in Manila for the said agent to ask the director of the NBI to send about six
NBI agents to meet the plane because the suspect in the killing of Judge Valdez was
on board the plane. The said note was handed by Villarin to the stewardess who in
turn gave the same to the pilot. After receiving the note, which was about 15
minutes after takeoff, the pilot of the plane came out of the cockpit and sat beside
Villarin at the rear portion of the plane and explained that he could not send the
message because it would be heard by all ground aircraft stations. Villarin,
18Article 1 174, Civil Code of the Philippines.
19Refer to Article 1249, Civil Code of the Philippines.
20Article 1236, par. 2; Articles 1237, 1302, 1303, Civil Code of the Philippines.

ASPECTS Hosprmur-ry
REVIEW AND BUSINESS LAWS
 however, told the pilot of the danger of commission of violent acts on board the
plane by the notorious Zaldy and his three companions. While the pilot and Villarin
were talking, Zaldy and one of his companions walked to the rear and stood behind
them. The pilot then stood up and went back to the cockpit. Zaldy and his
companions returned to their seats. Soon thereafter an exchange of gunshots ensued
between Villarin and Zaldy and the latter's companions. Zaldy announced to the
passengers and the pilots

43 Philippine Legal Encyclopedia by Jose Agaton R. Sibal.

44 Civil Code of the Philippines, Vol. IV, by Arturo M. Tolentino, 1991 Edition, pp. 126—127.
45 Ibid., p. 337.

cEIA1'Tr:n 1 , OFTTIV I'HII_IPVINE CONSTITtMON 27

34 LEGAL IN TOURISM
 in the cockpit that it was a hijack. The hijackers divested the passengers of their
belongings. Upon landing at the Manila International Airport, Zaldy and his three
companions succeeded in escaping.
Norberto Quisumbing, Sr., one of the passengers of the plane, filed an
action against PAL to recover the value of jewelry, other valuables, and money
taken from him by four (4) armed robbers on board of the latter's airplane while on
a flight from Mactan to Manila, as well as moral and exemplary damages,
attorney's fees, and expenses of litigation. Such loss is a result of breach of PAL's
contractual obligation to carry him and his belongings and effects to the Manila
destination without loss or damage, and constitutes a serious dereliction of PAL's
legal duty to exercise extraordinary diligence in the vigilance over the same: In its
defense, PAL alleges that the robbery during the flight and after the aircraft was
forcibly landed at the Manila Airport did indeed constitute force majeure.
Is the incident on board the airplane Flight Fokker "Friendship" PIC-536
considered force majeure which exempts PAL from liability?
Legal Opinion: Yes, such hijacking constitutes force majeure. Hijackers do not
board an airplane through a blatant display of firepower and violent fury. The
objective of modern-day hijackers is to display the irresistible force amounting to
force majeure only when it is most effective and that is when the jetliner is winging
its way at Himalayan altitudes and ill-advised heroics by either crew or passenger
would send the multimillion peso airplane and the priceless lives of all its
occupants into certain death and destruction.
Philippine Airlines could not be faulted for want of diligence. The
mandatory use of the most sophisticated electronic detection devices and
magnetometers, the imposition of severe penalties, the development of screening
procedures, the compilation of hijacker behavioral profiles, the assignment of sky
marshals, and the weight of outrages world opinion may have minimized hijackings
but all these have proved ineffective against truly determined hijackers. World
experiences show that if a group of armed hijackers wants to take over a plane in
flight, they can elude the latest combined government and airline industry
measures. As our own experience in Zamboanga City illustrates, the use of force to
overcome hijackers, results in the death and injury of innocent passengers and crew
members. Philippine Airlines has faithfully complied with the requirements of
government agencies and adhered to the established procedures and precautions of
the airline industry at any particular time.
 Under the circumstances of the instant case, the acts of the airline and its
crew cannot be faulted as negligence. The hijackers had already shown their
willingness to kill one passenger who survived from gunshot wounds. The lives of
the rest of the passengers and crew were more important than their properties.
Cooperation i Asrtc-rs TOURISM ANT) HOSPITALITY

with the hijackers until they release their hostages at the runway end near the South
Superhighway was dictated by the circumstances.21
(Note: In Gacal v. Philippine Airlines, G.R. 55300, March 15, 1990, it was held
that PAL was not liable for the death and injuries of its passengers due to hijacking
of six (6) men who were allegedly members of the Moro National Liberation
Front. According to the Supreme Court: "Under normal circumstances, PAL might
have foreseen the skyjacking incident which could have been avoided had there
been a more thorough frisking of passengers and inspection of baggage as
authorized by R.A. No. 6235. But the incident in question occurred during Martial
Law where there was a military takeover of airport security including the frisking
of passengers and the inspection of their luggage preparatory to boarding domestic
and international flights. In fact, military takeover was specifically announced x x
x rendered it impossible for PAL to perform its obligation in a normal manner and
obviously it cannot be faulted with negligence in the performance of duty taken
over by Armed Forces of the Philippines to the exclusion of the former. )22

Contracts
The Law
Article 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the othet; to give something or to
render some service. (1254a)

21 Norberto Quisumbing, Sr., and Gunther Loeffer v. Court ofAppeals, G.R. No. 50076,
September 14, 1990.
22 Compare with the case of Fortune Express, Inc. v. Court ofAppeals, G.R. No. 119756, March 18,
1999 where a bus operator was liable for the death and injuries of its passengers due to hijacking for
failure to observe extraordinary diligence. 48 Article 13 1 8, Civil Code of the Philippines.

x OF THE 29
36 LEGAL ASPECTS IN AND
Discussion of the Law
The essential elements of a contract are as follows:
(1) Consent, which is manifested by the meeting of the minds of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance must be absolute;
(2) Object certain, which is the subject matter of the contract; and
(3) Cause of the obligation which is established.48
A contract of adhesion is defined as one in which almost all the provisions
have been drafted only by one party, usually a corporation or insurance company. The
only

participation of the other party is the signing of his signature or his adhesion. 23
Some writers believe that such contracts suppress the will of one of the
contracting parties, hence not a true contract. However, this is not always
juridically true. Normally, the party who adheres to it is in reality free to reject
entirely; if he adheres, then he gives his consent.
Characteristics of a Contract
(1) Mutuality of Contracts. It is validity and performance cannot be left to
the will of only one of the parties.24
(2) Autonomy of Contracts. Parties are free to stipulate terms and
provisions in a contract, as long as these and provisions are not
contrary to law, morals, good customs, public order, and public
policy.25

23Philippine Legal Encyclopedia, by Jose Agaton R. Sibal., p. 20.

24 0Article 1308, Civil Code ofthe Philippines.
25Article 1306, Civil Code of the Philippines.
CHAPTER I REV}EW AND BUS{NESS
 (3) Relativity of Contracts. Contracts are binding only the parties and their
successors-in-interest. Exception: Stipulation in favor of a third person
(stipulation pour autrui) as in a beneficiary Of an insurance
policy. 26
(4) Consensuality of Contracts. Contracts are perfected by mere consent,
and no form is prescribed by law for their validity. Exception: (a) real
contracts (such as pledge, chattel mortgage); and (b) contracts covered
under the Statute of Frauds.27
(5) Obligatory Force of Contracts. By the obligatory force of contracts, it
constitutes the law as between the parties who are compelled to
perform under the threat of being sued in the courts of law.28

Application of the Law

Case: Can a hotel evade liability for the loss of items left with it for safekeeping by
its guests, by having these guests execute written waivers holding the establishment
or its employees free from blame for such loss? Maurice McLoughlin, an Australian
businessman-philanthropist, sued Tropicana Copacobana Apartment Hotel
(Tropicana) for the loss of his American and Australian dollars deposited in the
safety deposit box of Tropicana. Mr. McLoughlin is also demanding for liquidating
damages, moral, and exemplary damages with attorney's fees. It appears that the
safety deposit box could only be opened through the use of two keys, one of which
is given to the registered guest, and the other remains in the possession of the
management of the hotel. When a registered guest wishes to open his safety deposit
box, he alone

could personally request the management who then would assign one of its
employees to accompany the guest and assist him in opening the safety deposit

26Article •131 1, Civil Code ofthe Philippines.

27Article 1315, Civil Code ofthe Philippines.
28Article 1159, Civil Code of the Philippines.
38 LEGAL ASPECTS IN AND
box With the two keys. In its defense, Tropicana denies liability, relying on the
conditions for renting the safety deposit box as signed by Mr. McLoughlin, to wit:
"Undertaking for the Use of Safety Deposit Box,
"2. To release and hold free and blameless Tropicana Apartment from

any liability arising from any loss in contents and/or use of the said deposit box for
any cause whatsoever, including but not limited to the presentation or use thereof
by any other person should the key be loss "
"4. To return the key and execute the release in favor of Tropicana
Apartment Hotel upon giving up the use of the box.
Is Mr. McLoughlin entitled to his claims despite the written waiver which he
signed in favor of Tropicana Copacobana Apartment Hotel?
Legal Opinion: Yes, Mr. McLoughlin is entitled to all his claims despite the written
waiver which he signed in favor of Tropicana. The evidence reyeals that the two
keys are required to open the safety deposit boxes of Tropicana. One key is
assigned to the guest while the other remains in the possession of the management.
If the guest desires to open his safety deposit box, he must request the management
for the other key to open the same. In other words, the guest alone cannot open the
safety deposit box without the assistance of the management or its employees. In
addition, access to the safety deposit box should be denied if the one requesting for
the opening of the safety deposit box is a stranger. Thus, in case of loss of any
item deposited in the safety deposit box, it is inevitable to conclude that the
management had at least a hand in the consummation of the taking, unless the
reason for the loss is force majeure. Noteworthy is the fact that the employees of
Tropicana had custody of the master key of the management when the loss took
place. Yet the management failed to notify Mr. McLoughlin of the incident and
waited for him to discover the taking before it disclosed the matter to him.
Therefore, Tropicana should be held responsible for the damage suffered by Mr.
McLoughlin by reason of the negligence of its employees.
Under Article 1170 of the New Civil Code, those who, in the performance
of their obligations are guilty of negligence, are liable for damages. As to who
shall bear the burden of paying damages. Article 2180, paragraph (4) of the same
Code provides the owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion of their functions.
Also, if an employee is found negligent, it is presumed that the employer was
CHAPTER I REV}EW AND BUS{NESS
negligent in selecting and/or supervising him for it is hard for the victim to prove
the negligence of such employer. Thus, given the fact that the loss of Mr.
McLoughlin's money

OF ?HILiPPtNE LAWS . 3 1

40 LEGAL ASPECTS IN AND

was consummated through the negligence of Tropicana's employees, both the
assisting employees and Tropicana, should be held solidarily liable pursuant to
Article 2193.
The Undertaking for the Use of Safety Deposit Box executed by Mr.
McLoughlin is tainted with nullity. Article 2003 of the Civil Code is controlling,
thus:
"Article. 2003. The hotelkeeper cannot free himself from
responsibility by posting notices to the effect that he is not liable for the
articles brought by the guest. Any stipulation between the hotelkeeper and the
guest whereby the responsibility of as setforth in Articles 1998 to 2001. is
suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in this case. The
hotel business like the common carrier's business is imbued will public interest.
Catering to the public, hotelkeepers are bound to provide not only lodging for hotel
guests but also security to their persons and belongings. The twin duty constitutes
the essence of the business. The law in turn does not allow such duty to be negated
or diluted by any contrary stipulation is so-called "undertakings" that ordinarily
appear in prepared forms imposed by hotelkeepers on guests for their signature. 55
Classification of Contracts
(1) According to their relation to other contracts:

(a) Preparatory — or those which have for their object the

establishment of a condition in law which is necessary as a
preliminary step toward the celebration of another subsequent
contracts. Examples: partnership, agency, common carrier,
insurance (b) Principal — or those which can subsist
independently from other contracts and whose purpose can be
fulfilled by themselves, Examples: sale, lease, common carrier,
insurance
(c) Accessory — or those which can exist only as a consequence of, or
in relation with, another prior contract. Examples: pledge,
mortgage
(2) According to their perfection:

(a) Consensual— or those which are perfected by the mere

agreement of the parties. Examples: sale, lease

CHAPTEIU I AND BUSINESS 41

 55 YHT Realty Corporation v. Erlinda Lainez and Anicia Payam, G.R. No. 126780,
February 17, 2005.
(b) Real — or those which require not only the consent of the parties
for their perfection, but also the delivery of the object by one
party to the other. Examples: commodatum, deposit, pledge
(3) According to their form:

(a) Common or informal— or those which require no particular

form. Example: loan
(b) Special or formal — or those which require some particular form.
Examples: donation, chattel mortgage

(4) According to their purpose:

(a) Transfer of ownership. Example: sale

(b) Conveyance of use. Example: commodatum

(c) Rendition of services. Examples: agency, lease of services,
labor
(5) According to their subject matter:

(a) Things. Examples: sale, deposit, pledge

(b) Services. Examples: agency, lease of services, labor
(6) According to the nature of the vinculum which they produce:

(a) Unilateral— or those which give rise to an obligation for only

one of the parties. Examples: commodatum, gratuitous deposit
(b) Bilateral — or those which give rise to reciprocal obligations
for both parties. Examples: sale, lease
(7) According to their cause:

(a) Onerous — or those in which each of the parties aspires to

procure for himself a benefit through the giving of an equivalent
or compensation. Examples: sale, insurance, common carrier

42 LEGAL ASPECTS IN TOURISM.AND

 (b) Gratuitous — or those in which one of the parties proposes to
give to the other a benefit without any equivalent or
compensation.
Example: commodatum
(8) According to the risks involved:

(a) Commutative — or. those where each of the parties acquires

equivalent of his prestation and such equivalent is pecuniarily
appreciable and already determined from the moment of the
celebration of the contract. Example: lease

CHAPTEIU I AND BUSINESS 43

 (b) Aleatory — or those where each of the parties has to his account
the acquisition of an equivalent of his prestation, but such
equivalent, although pecuniarily appreciable, is not yet determined
at the moment of the celebration of the contract, since it depends
upon the happening of an uncertain event, thus charging the
parties with the risk of loss or gain. Example: insurance
(9) According to their names or norms regulating them:

(a) Nominate — or those which have their own individuality and are
regulated by special provisions of law. Examples: sale, lease,
common carrier, insurance, deposit, agency
(b) Innominate — or those which lack individuality and are not
regulated by special provision of law. In the Roman Law, the
innominate contracts were classified into four groups: do ut des
(I give and you give), do ut facias (I give and you do), facio ut
facias (I do and you do), and facio ut des (I do and you do). 56

Forming Business Enterprises. For any partnership to work, the

element of trust is essential and is more important than the resources
or skills that partner actually into the business. For corporations, good
governance and transparency are essential because of public trust.
(Professor Frank Cavico, Nova Southeastern University)

In a high-level industry like the tourism sector, it is imperative that one

strictly complies with legal requirements in order to operate as a legitimate business.
Start-up operations must have a strong foundation, and in order to have a strong
foundation, you must start with a strong business organization. Forming a
partnership or a corporation is a better choice in forming business organizations in
order to enter a competitive industry, like the tourism industry. This section •of this
chapter will present an overview of a partnership and a corporation as a business
organization.
The Law on Partnership is governed by the Civil Code of the Philippines,
while the Law on Corporation is governed by Batas Pambansa Blg. 68,
Corporation Code of the Philippines.
Law on Partnership
The Law

44 LEGAL ASPECTS IN TOURISM.AND

 Article 1767. By the contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common
fund, with the intention of dividing the profits among themselves.

56 Civil Code of the Philippines, Vol. IV, by Arturo Tolentino, 1991 Edition, Central Book Supply, Inc.

HOSPHA1iTY
Discussion of the Law
A partnership is an association of two or more persons to carry on as co-
owners of a business for profit. The definition does not include religious
associations, conjugal partnerships, and others of a similar nature because a
partnership as defined by law refers only to associations the purpose of which is to
obtain profits to be distributed among the partners. A partnership contract is based
on trust and confidence. Hence, the fiduciary relation in a partnership stems from
the principle of delectus personae, where in no one can become a partner in a
partnership without the consent of all the partners. The essential requisites of a
partnership are:
(1) An agreement to contribute money, property, industry to a common fund.
This is complied with if:
(a) each one of the partners brings or is obliged to bring something to the
partnership and
(b) that which is brought becomes common property.
(2) Intent to divide the profits among themselves. This is complied with if:

(a) partnership is established to obtain profits;

(b) profit must be common to all parties; and
(c) profit or loss must be divided among the partners.

Advantages of Forming a Partnership

1. Easy to form
2. Improved growth possibilities
3. Freedom from bureaucracy

Disadvantages of Forming a Partnership

1. Instability
2. Difficulty in obtaining large sums of capital
3. Firm is tied to the acts and judgment one of partner as agent
CHAPTER 45
Classification of Partnerships
(1) According to subject matter:

(a) Universal partnership — a partnership where all of the partners

contribute all of their properties to the common fund and speaks
of no particular purpose or subject matter, as long as the purpose
in forming a partnership is to obtain profits and is not contrary to
law, morals, public order and public policy. Nowadays, seldom
1 | REVIEW OF THE BVS\NE$SLAWS

if none do you experience business establishments forming a

universal partnership.
(b) Particular partnership — a particular partnership has for its object
determinate things, their use or fruits, or a specific undertaking,
or the exercise of a profession or vocation. 57
(2) According to liability:
(a) General partnership — composed of general partners where
liabilities extend to their personal properties.
(b) Limited partnership — (usually attaches the word "Ltd" or
"Limited" at the end of the company name), one formed by two
or more persons having as members one or more general
partners and one or more limited partners, where the liability of
the latter to third persons is limited to their capital contribution. 58

(3) According to the duration:

(a) Partnership for a fixed term — is one in which the term of its
existence has been agreed upon expressly (as when there is a
definite period) or impliedly (as when a particular enterprise or
transaction is undertaken). The expiration of the term thus fixed
or the accomplishment ofthe particular undertaking specified
will cause the automatic dissolution of the partnership.59
Forms of Partnership
A partnership can be in any form, even if not recorded at the Office of the
Securities and Exchange Commission except:
(1) when it is stipulated;
(2) when immovable property or real rights are contributed, in which case
there must be a public instrument to which is attached an inventory of
46 ASPECTS TOURISM AND
 the immovable properties and signed by the parties, otherwise the
partnership is void. 60
(3) In case of limited partnership, the parties must:
(a) sign and swear to a certificate, which shall state, among others the
name of the partnership adding the word "Limited," and the character
of the business;

57 Article 1783, Civil Code of the Philippines.

58 Article 1843, Civil Code ofthe Philippines.
59 Article 1785, Civil Code of the Philippines.
60 Articles 1771, 1773, Civil Code of the Philippines.

LEG". {N

CHAPTER 47
 (b) file for record the certificate in the Office of the Securities and
Exchange Commission.61
Failure to comply with the foregoing formal requirements will only make
the partnership a General Partnership. Obligations of the Partners
(1) Where contribution is money or property. If a partner promises to
continue money during the celebration of the contract and he fails to do
so, he shall pay the interest and damages from the time he should have
complied without need of any demand. 62 If a partner promises to
contribute specific determinate things, he must: (a) preserve the
property; (b) deliver the fruits from the time of agreement; (c) warrant
against eviction and hidden effects; (d) transfer ownership on delivery
to the partnership; (e) pay damages for the delay without necessity of
demand; and (f) bear the risk of loss before delivery.
(2) Where contribution is industry. An industrial partner (a partner who
merely contributed industry or services to the common fund) cannot
engage in business for himself, unless the partnership expressly permits
him to do so; and if he should fail to do so, the capitalist partners
may either exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation of this provision, with
a right to damages in either case.63
(3) Obligation of the capitalist partner. A capitalist partner (a partner who
contributed money and property to the common fund) is prohibited
from engaging in a business in competition with the partnership, unless
there is stipulation to the contrary, otherwise all profits of such partner
belong to the partnership and all losses shall be for his account.64
(4) Responsibility between partnership and partner. The partnership shall
be responsible to every partner for the amounts he may have disbursed
on behalf of the partnership. It shall also answer to each partner for the
obligations he may have contributed in good faith in the interest of the
partnership business and for the risk in consequence of its
management.65

61 Article 1844, Civil Code ofthe Philippines.

62 Article 1788, Civil Code ofthe Philippines.

I AND LAWS 48
63 Article 1789, Civil Code ofthe Philippines.
64 Article 1908, Civil Code pfthe Philippines.
65 Article 1796, Civil Code of the Philippines.

REVLWOF CONST}TÜTION

I AND LAWS 49
 On the other hand, the partner is liable to the partnership: (a) for interest
and damages from the time of conversion for any sum of money which he may
have taken from the partnership coffers and converted to his own use; (b) for
damages suffered by the partnership through his fault; (c) for any benefit derived
by him without the consent of the other partners from any transaction connected
with formation conduct, or liquidation of the partnership or from any use by him
of its property. 66
(5) Sharing the profit and loss among partners. The distribution of profits
and losses shall be in conformity with the agreement. If only the share
in the profits is agreed upon, the share in the losses shall be in the same
proportion. 67 A stipulation which excludes one or more partners from
any share in the profits or losses is void, 68 but an industrial partner shall
not be liable for losses. 69 In the absence Of stipulation, the share in the
profits and losses shall be in proportion to their respective capital
contribution, except the industrial partner who shall receive a share of
the profits as may be just equitable under the circumstances. 70

The designation of losses and profits cannot be entrusted to one of the

partners but may be left to the third person whose designation is valid unless
manifested Inequitable. However, it cannot be impugned by a partner who has
begun to execute the same or who fails to impugn within three months from
knowledge.71
(6) Property rights of a partner. A partner cannot assign his right with
respect to the specific partnership property for the partner's individual
debts or for legal support. However, a partner can sign his share in the
profits to a third person.72 The right to participate in the management is
governed by stipulation of the partners; if none, all of the partners
participate in the management. The powers of the managing, partner
appointed in the Articles of Partnership cannot be revoked despite
opposition, except by partners representing controlling interest and
provided there is a just and lawful cause.73 However, powers of the
managing partner appointed after the formation of the partnership can
be revoked anytime.74 If two or more partners are appointed managing
partners, each one may separately execute all acts of administration but
if opposed, the majority among

66 Article 1807, Civil Code of the Philippines.

67 Article 1797, par. 1 Civil Code of the Philippines.
68 Article 1799, Civil Code of the Philippines. 69 Article 1797, par. 2, Civil Code of the
Philippines.

50 ASPECTS AND
 70 Ibid.
71 Article 1798, Civil Code of the Philippines.
72 Article 1810, Civil Code of the Philippines.
73 Article 1800, par. 1, Civil Code of the Philippines. 74 Article 1800, par. p, Civil Code of the
Philippines.

LEGAL IN 'VOURZSM HOSPITALITY

the managing partners shall prevail; if there is no majority, the partners

owning, controlling interest will decide.29
(7) Liability of individual partners to third persons. All partners, including the
industrial partner, are liable pro rata with all their properties for contracts
with third persons provided: (a) they were entered into in the name and for
the account of the partnership; (b) under its signature; (c) by persons
authorized to act for the partnership; (d) the partnership assets are already
exhausted. 30

All partners are liable solidarily with the partnership" for: (a) wrongful acts
and omissions causing loss to a non-partner 31 and (b) conversion or
misappropriation of funds belonging to a stranger received in the usual course of
business by partnership.
(8) Liability of the limited partner. A limited partner is liable as a general:
(a) when he allows his surname to appear in the partnership name 32 and
(b) when he takes part in the control of the business. 33 In this case, he
shall have all the rights and powers and be subject to all the restrictions
of a general partner except that as to the other partners, he shall be
preferred as to the return in his contribution and share in the profits. 81

Application of the Law

Case: Sometime in June 1986, Fernando Sandoval and Naomi Reyes were
introduced to each other by Mely Ziobal regarding a lending business venture
proposed by Naomi. It was verbally agreed that Fernando would act as a financer
while Naomi and Mely would take charge of solicitation of members and collection
29Article 1801, Civil Code of the Philippines.
30 Article 1816, Civil Code of the Philippines. 77 Article
1824, Civil Code of the Philippines.
31Article 1822, Civil Code ofthe Philippines.
32Article 1846, par. 2, Civil Code of the Philippines.
33 Article 1948, Civil Code of the Philippines. 81
Article 1853, Civil Code of the Philippines.

i REVEEW OF THE PHILIPPINE CONS"TVVION BUSINESS

CHAPTER I AND LAWS 51
of loan payments. The venture was launched on June 13, 1986, with the
understanding that Fernando would receive 70% of the profits while Naomi and
Mely would earn 15% each. In July 1986, Naomi introduced Cesar Santos to
Fernando. Cesar Santos, as chief financial officer of Discovery Hotel and Suites,
Inc. sought short-term loans for the members of the corporation. In this regard,
Fernando Sandoval and Cesar Santos executed an agreement providing funds for the
members of Discovery Hotel and Suites. Under the agreement, Discovery Hotel
and Suites, Inc. represented by Cesar Santos, was entitled to P 1.31 commission per
thousand paid daily to
Fernando Sandoval. Naomi kept the books as representatives of Fernando Sandoval in
doing business for Discovery Hotel and Suites, Inc. Fernando Sandoval and Naomi
Reyes later discovered that their partner Mely engaged in the same lending business
in competition with their partnership. Mely was thereby expelled from the
partnership.
(1) Who are the partners in the lending business venture? How are
they classified?
(2) Were Fernando and Naomi correct in expelling Mely from the lending
business venture?

Legal Opinion:
1) The partners in the lending business venture are: (a) Fernando Sandoval,
a capitalist partner who acted as a financier of the partnership; (b) Naomi
Reyes, an individual partner who contributed services by taking charge
in the solicitation of members and collection of loan payments; and (c)
Mely Ziobal, also an industrial partner who contributed services by
taking charge in the solicitation of members and collection of loan
payments.82
2) Yes, Fernando and Naomi were correct in expelling Mely from the
partnership. An industrial partner like Mely (a partner who merely
contributed industry or services to the common fund) cannot engage in
business for herself, otherwise the capitalist partners (i.e., Fernando) may
exclude her from the firm.83

Dissolution and Winding Up of a Partnership

The Law
Article 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:

ASPECTS AND
 (a) By the termination of the definite term or particular undertaking
specified in the agreement;
(b) By the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;
(c) By the express will of all the partners who have not assigned
their interest or suffered them to be charged for their separate
debts,

82 See Fernando Santos v. Spouses Arsenio Reyes and Nieves Reyes, G.R. No. 135813, October
25, 2001.
83 Article 1789, Civil Code of the Philippines.

LEGAL TOURISM
either before or after the termination of any specified term or
particular undertaking; and
(d) By the expulsion of any partner for the •business bona fide in
accordance with such power conferred by the agreement
between the partners.
(2) In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
(3) By any event which makes its unlawful for the business of the partnership to
be carried on or of the members to carry it on in partnership;
(4) When a specific thing, a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing,
when the partner who contributed it having reserved the ownership thereof,
has only transferred to the partnership the use or enjoyment of the same; but
the partnership shall not be dissolved by the loss of the thing when it occurs
after the partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner of the partnership;
(7) By the civil interdiction of any partner; and
(8) By decree of court under the following article. (1700a and 1701a)
Article 1831. On application by or for a partner; the court shall decree a
dissolution whenever:

CHAPTER I AND LAWS 53

(1) A partner has been declared insane in any judicial proceeding or is
shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of
the partnership contract;
(3) A partner has been guilty of such conduct as trends to affect prejudicially
by the carrying on of the business;
(4) A partner willfully or persistently commits breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
(5) The business of the partnership can be only be carried on at a loss; and
(6) Other circumstances render dissolution equitable.

T REVEEW OF THE CONSuTVü0N

ASPECTS AND
 O! the application of the purchase of a partner 's interest under Articles 1813 Or
1814:
(1) After the termination of the specific term or particular undertaking
and
(2) At any time the partnership was a partnership at will when the interest
was assigned or when the charging order was issued. (n)
Discussion of the Law
In case of a limited partnership, the same is dissolved: (1) in case of
retirement, death, insolvency, insanity or civil interdiction of a general partner; 34
(2) when asked for by a limited partner under the provisions of Article 1857, as
when he rightfully but unsuccessfully demands the return of his contribution, or as
when the limited partner would otherwise be entitled to the return of his
contribution but there are remaining liabilities of the partnership which have not
been paid or the partnership property is insufficient for their payment.
In a limited partnership, the retirement, death, insolvency, insanity or civil
interdiction of a general partner dissolves the partnership unless the business shall
be continued by the remaining general partners. 35 In such a case, an amendment of
the certificate of limited partnership shall be executed and recorded at the Securities
and Exchange Commission. 36 On the other hand, the death of all the limited the
partners shall dissolve the partnership unless a substituted partner will be admitted
to all the rights of a limited partner who has died or has assigned his interest in the
partnership,37 in such a case an amendment in the certificate must also be executed
for the inclusion of the substituted limited partner which must be recorded in
writing at the Securities and Exchange Commission. 3839 Take note that the
amendment of the certificate of limited partnership must comply substantially with
requirements set forth in Article 1844 as well as Article 1843 of the Civil Code of
the Philippines.
"Civil interdiction" is defined as an accessory penalty for the commission of
an offense, which deprives the offender during the time of his sentence of the rights
34Article 1860, Civil Code of the Philippines.
35Article 1860, Civil Code of the Philippines.
36Article 1865, Civil Code of the Philippines.
37Article 1859, par. 6, Civil Code of the Philippines.
38 Article 1865, Civil Code of the Philippines. 89
Article 34, Revised Penal Code.

39 IN TOEIQSM
AND
 of parental authority, or guardianship, either as to the person or property of any
ward, of marital authority, of the right to manage his property and of the right to
dispose of such property by any act or any conveyance inter vivos. 89
"Insolvency" is defined as a financial condition in which one is unable to meet
his obligations as they mature in the ordinary course of business or in which
one's liabilities exceed his assets at any given time. 90
Examples of misconduct under No. 3 of Article 1831 of the Civil Code of
the Philippines include addiction to alcohol or drug abuse. Examples of other
circumstances with render dissolution equitable under No. 6 of Article 1831 of the
Civil Code of the Philippines are abandonment of the business, fraud in the
management of the business, refusal without justifiable cause to render accounting
of partnership affairs, etc." Application of the Law
Case: On July 25, 1984, LJ Villa, Carmen Jose, and Jess Jose formed a
partnership with a capital of P 750,000 for the operation of a restaurant and
catering business under the name "Aqua Food House and Catering Services."
Ms. Villa was appointed general manager and Carmen Jose as operations
manager. Donald Ramses joined as a partner in the business on September 5,
1984. His capital contribution was P250,000. After Jess Jose withdrew from the
partnership on January 15, 1987, his capital contribution of P250,000 was
refunded to him in cash by agreement of the partners. On February 14, 1987, the
restaurant was closed down without the knowledge of Donald Ramses. Upon the
closure of the restaurant, Donald Ramses was demanding for the return of his
capital contribution of P250,000. When was the partnership dissolved? It is
possible for Donald Ramses to be entitled for the amount of P250,000 which is
the return of his capital contribution?
Legal Opinion: The partnership was dissolved on February 14, 1987 when the
restaurant was closed, assuming that LJ Villa and Carmen Jose acted in good faith
in closing down the restaurant. It appears that the partnership that was formed is a
partnership at will since no definite term was stated in the contract of partnership.
Hence, the partnership was dissolved on the basis of Article 1830 letter (b) of
the Civil Code of the Philippines.
On the other hand, Donald Ramses cannot be entitled for the amount of
P250,000. Well settled is the rule that a share in a partnership can be returned only
after the completion of the latter's dissolution, liquidation, and winding up of the
business. Since it is the partnership that must refund the shares of the partners, the
amount to be refunded is necessarily limited to its total resources. In other words,
it can only pay out what it has in its coffers, which consists of all its assets.
However, before the partners can be paid their shares, the creditors of the
partnership must be first be compensated. After all the creditors have been paid,
whatever.is left of

90 Barron's Legal Guides Law Dictionary, 5th Edition.

91 The Law on Partnerships and Private Corporations, by Hector S. de Leon, 1997 Edition, p. 109.

i or
the partnership assets becomes available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to Mr.
Ramses? shares in the partnership cannot be determined until all the partnership
assets will have been liquidated, in other words, sold and converted to cash and
all partnership creditors, if any, paid.92
Order of Liquidation for a General Partnership
The Law
Article 1839. In settling accounts between the partners after
dissolution, the following rules shall be observed subject to any
agreement in the contrary:

(2) The liabilities of the partnership shall rank in order of payment,

as follows:
(a) Those owing to creditors other than the partners;
(b) Those owing to partners other than for capital and profit;
(c) Those owing to partners in respect of capital; and (d)
Those owing to partners in respect of profits.
Discussion of the Law
Take note that the liquidation process under the above provision applies
to a general partnership. There is a different process for the liquidation of a
limited partnership.
Application of the Law
Case: Angela, Boni, and Christine formed ABC Company contributing the
following: (a) Angela = P50,000; (b) Boni = P20,000; and (c) Christine P 10,000.
The partnership is indebted to the following: (a) Xeres P60,000; Yangco =
CHAPTER I LAWS 57
P20,000; and Christine (partner of ABC Company) PI 0,000. Gross capital upon
dissolution is P250,000. In case of liquidation, how much should Xeres recover?
In case of liquidation, how much should Yangco recover? In case of liquidation,
how much should Christine (a partner of ABC Company) recover? Explain in
detail the order of liquidation.

92 Luzviminda J. Villareal etal. v. Donaldo Efren C. Ramirez, et al., G.R. No. 144214, July 14, 2003.

44 ASPECTS AND ilOS1*iTALiTY

Legal Opinion:
Gross Capital P250,OOO

Those owing to creditors

Xeres P60,OOO
Yangco P20,OOO P80 000
PI 70,000
Those owing to partners
other than capital and profit
Christine mo,ooo PIO 000
P160,ooo
Those owing to partners with
respect to
Their capital
Angela P50,OOO
Boni P20,OOO
Christine PIO,OOO P80 000
P
8
0
,
O
O
O

Those owing to the partners with

respect to profits
A
ngel
a -
5/8
ofP8
0,O
OO
P50,
OO
O
Boni
- 2/8
CHAPTER I REVVEW AND BUSINESS LAWS 59
 of
P80,
OO
O
P20,
OO
O
Christine- 1/8 ofP80,OOO
PIO 000
P
8
0
,
O
O
O

Answers: Xeres may recover a total

amount of P60,000. Yangco may
recover a total amount of P20,000.
Christine may recover a total amount
ofP30,000. Order of Liquidation for a
Limited Partnership
The Law
Article 1863. In settling accounts
after dissolution the liabilities of the
partnership shall be entitled to payment in
the following order:
(1) Those creditors, in the order of
priority as provided by law,
except those to limited
partners on account of their
contributions, and to general
partners;
(2) Those to limited partners in
respect to their share of the
profits and other compensation
by way of income on their
contributions;

60
 (3) Those to limited partners in
respect to the capital of their
contributions;
(4) Those to general partners other
than for capital contribution;

i
PHILIPPINE

(5) Those to general partners in

respect to profits; and
(6) Those to general partners in
respect to capital.
Discussion of the Law
The said provision expressly
provides for priority in the
distribution of assets after dissolution
of a limited partnership. Those due to
creditors under No. I Article are the
outside creditors, including those
owing to the limited partners.
In the absence of any statement
in the certificate as to the share in the
profits for which each partner shall
receive, a limited partner's share in the
profits shall be in proportion to the
amount of the partners' respective
capital contribution. This proportional
sharing takes place where the
partnership assets are insufficient to
pay each of the partners' claims.
Application of the Law
Case: Angela, Boni, and Christine
formed Gen-Y Partnership Ltd.
contributing P65,000 each. Angela and
Boni are general partners, while
Christine is a limited partner. The gross
capital upon dissolution is P300,000 and
the liabilities are as follows: (a) Winona
CHAPTER I REVVEW AND BUSINESS LAWS 61
 = P60,000; (b) Xtian = P30,000; (c)
Christine = (limited partner) P20,000;
and (d) Angela = (general partner) P
10,000.
How much should Boni get in
his return of capital only? How much
should Angela get? How much should
Christine get with respect to the
profits? Liquidate the partnership
observing the order of preference.
Answers: Boni is entitled to
get P57,500 for his return of capital.
Angela should get a total amount of
P57,500. Christine cannot get any
share in the profits because the
amount of liabilities is more than the
claims of the partners.
Legal Opinion:
Step 1 : Determine if there ore
remaining profits.
Gross Capital
•P300,OOO.OO Liabilities:

PI 10 000.00
(Winona, Xtian & Christine)
P190,OOO.OO
Less: Capital Contribution (P65,000
P195 000.00

Profits -P5,OOO.OO
Step 2: Liquidate the
partnership.
Gross Capital

62
Outside Creditors

W
in
o
na
(
O
ut
si
de
C
re
di
to
r)
P
6
0,
0
0
0
X
ti
an
(
O
ut

CHAPTER I REVVEW AND BUSINESS LAWS 63

 si
de
C
re
di
to
r)

P
3
0,
O
O
O
ASPF.C"ES IN TOI.!VUSM AND HOSPITALITY

Christine (Limited Partner) P20,000

Return of Capital of Limited Partner

Christine

Other Creditors
Angela (General Partner)

Return of Capital of General Partner

Angela P57,500
Boni P57,500
Law on Corporation
The Law
Sec 2. Corporation defined. — A
corporation is an artificial being created by
operation of law, having the right of
64
succession and the powers, attributes and
properties expressly authorized by law or
incident to its existence.
Discussion of the Law
In the Philippines, the law which
governs the creation of private
corporations is Batas Pambansa Blg. 68,
known as the Corporation Code of the
Philippines, and amended by R.A.&No.
11232.
"Right of Succession" means that a
corporation has the capacity to exist
regardless of the death, withdrawal,
insolvency, or incapacity of the individual
stockholders and regardless of the transfer
of interest or shares of stock.
The powers of all corporations are
limited to those mentioned in their charters
or in the general acts which they are created.
Kinds of Corporation
(1) Stock Corporation — one which
has a capital stock divided into
shares and is authorized to
distribute to the holders of such
shares/dividends or allotments of
the surplus profits (i.e., retained
earnings) on the basis of the
shares held.93 A stock
corporation is organized for
profit. The governing body of a
stock corporation is usually the
Board of Directors.
(2) Non-stock Corporation one
where no part of its income is
distributable as dividends to its
members, trustees, or officer,
subject to the provisions

CHAPTER I REVVEW AND BUSINESS LAWS 65

 93 Section 3, Corporation Code of the Philip
amended by R.A. 11232.
)

66
 of the Code on dissolution. A non-stock corporation is one not
organized for profit. The governing body is usually the Board of Trustees.
(3) Corporation De Jure — a corporation organized in accordance with the
requirements of law.
(4) De Facto Corporation — a corporation where there exists a flaw in its
incorporation.

(5) Public Corporation — one formed or organized for the government of a

portion of the State. It is created by its own charter for the exercise of a
public function. Examples: barangay, city, municipality
(6) Private Corporation — one formed for some private purpose, aim, or end.
It is created by incorporation under the general corporation law. This
includes a government-owned and controlled corporation with an
original charter and quasi-public corporation, a private corporation
performing public functions.
(7) Corporation Sole — one organized for the purpose of administering and
managing, as trustee, the affairs, property, and temporalities of any
religious denomination, sect, or church. In this -corporation, there is only
one incorporator.
(8) Eleemosynary Corporation — one organized for a charitable purpose.
(9) Domestic Corporation — a corporation formed, organized, and existing
under Philippine laws.
(10) Foreign Corporation — a corporation formed, organized or existing under
any laws other than those of the Philippines and whose laws allow
Filipino citizens and corporations to do business in their own country or
state.

One Person Corporation

Under Republic Act 11232, also known as the Revised Corporation Code of
the Philippines, a corporation may be formed by only one person, partnership.
corporation or association but not more than 15 in number, provided that if
corporation is to be formed by natural persons, such natural persons must be of legal
age. A corporation shall not have a minimum capital stock and shall be given a
perpetual existence, unless the articles of incorporation provide otherwise.
Advantages of a Corporate Organization
(1) Strong separate juridical personality
67 TOURISM
 (2) Limited liability to inventors

94 R.A. 11232.

EEC*AL •e;PEC'rs [N AND HOSPITALITY

(3) Free transferability of units of ownership

(4) Centralized management through the Board of Directors
(5) Professionalism
(6) Easier to sell small amounts of stock to raise capital
Disadvantages of a Corporate Organization
(1) Extensive government regulation
(2) Double taxation
(3) Activities are limited by charter and various laws

Distinction Between a Partnership and a Corporation

(1) A partnership is created by the agreement of the parties, while a
corporation is created by law (B.P.68).
(2) In a partnership, the liability of the partners (except limited partners)
extends to their personal properties, while the liability of the
stockholders in a corporation is limited only to the extent of the shares
subscribed by thém.
(3) In a partnership, when the management is not agreed upon, every
partner is an agent of the partnership, while the power to do business
and manage the affairs of the corporation is vested in the board of
directors or trustees.
(4) A partnership commences to acquire juridical personality from the
moment of the execution of the contract of partnership; while a
corporation commences its corporate existence only from the date of
the issuance of the certificate of incorporation by the Securities and
Exchange Commission (SEC).
(5) A partnership may be organized by only two persons; while a
corporation may be formed singly or jointly but not more than 15
incorporators A partnership has no right of succession; while a
corporation has such right.
(6) In a partnership, a partner cannot transfer his interest in the partnership
without the consent of all the partners because the partnership is based
68 LEGAL TOURISM
 on the principle of delectus personae; while in a stock corporation, a
stockholder has the right to transfer his shares without the prior
consent of the other stockholders.
(7) A partnership is established for any period of time stipulated by the
partners while a corporation may have perpetual existence.
(8) A partnership may be dissolved at any time by the will of any or all of
the partners; while a corporation can only be dissolved with the
consent of the state.

Steps in the Creation and Organization of a Corporation

(1) Promotion;
(2) Incorporation (Section 10, R.A. 11232, Revised Corporation Code of
the Philippines); and
(3) Formal organization and commencement of the business operations.

Steps in Incorporation
(1) Drafting and execution of the articles of incorporation by the
incorporators. Stock corporations shall not be required to have a
minimum capital stock, except as otherwise specifically provided by
law.
(2) Submission of intended corporate name to the SEC for verification.
(3) Filing with the SEC of the articles of incorporation together with the
Bylaws, duly certified by a majority of directors or trustees and
countersigned by the secretary of the corporation, shall be filed with
the Commission and attached to the original articles of incorporation.
The By-laws may be adopted and filed prior to incorporations; in
such case, such By-laws shall be approved and signed by all
incorporators and submitted to the Commission, together with the
articles of incorporation.
(4) Commission determines if the submitted documents and information
are fully compliant with the requirements of the Revised Corporation
Code, other relevant laws, rules and regulations.
(5) Payment of the filing fee; and
(6) The issuance by SEC of the certificate of incorporation.

I REViEW AND BUSINESS 69

 Contents of the Articles of Incorporation40
(1) The name of the corporation. No corporate name shall be allowed by the
Commission if it is not distinguishable from that already reserved or
registered for the use of another corporation, or if such name is already
protected by law, or when its use is contrary to existing law, rules and
regulations.
(2) The specific purpose or purposes for which the corporation was
incorporated
(3) The place where the principal office of the corporation is located, which
must be within the Philippines.
(4) The term for which the corporation is to exist. If the corporation has not
elected perpetual existence.

40See Section 14, Corporation Code ofthe Philippines, as amended by R.A. 11232.

IN HOSPiTAL1+,'
70 LEGAL TOURISM
(5) The names, nationalities and residences of the incorporators. An
incorporator is defined as one who institutes the steps necessary to form a
corporation, and is an original member of it. Qualifications of an
incorporator are as follows:

(a) A natural person, partnership or corporation;

(b) May be formed singly or jointly but not more than
15 incorporators;
(c) Natural persons who are licensed to practice a profession, and
partnerships or associations organized for the purpose of practicing
a profession, shall not be allowed to organize as corporation unless
otherwise provided under special laws.
(d) Incorporators who are natural persons must be of legal age; and
(e) Must own at least one (l) share of the capital stock of the
corporation.
(6) The number of directors which shall not be more than 15.
(7) The names, nationalities and residences of the incorporating board of
directors until the first regular directors or trustees are duly elected and
qualified. Section 26 of the Revised Corporation Code provides for the
grounds for disqualification of a board of director.
(8) The amount of its authorized capital stock, number of shares into which it
is divided, the par value of each, names, nationalities, and residence
addresses of the original subscribers, amount subscribed and paid by each
on the subscription, and a statement that some or all of the shares are
without par value, if applicable.
(9) Such other matters consistent with law and which the incorporators may
deem necessary and convenient. An arbitration agreement may be
provided in the articles of incorporation pursuant to Section 181 of the
Code.

Role of Agents. Agents should ideally work for the best interest of the
client. Because of the trust given them, agents initiate action,
administer, and collect on behalf of the client. (Elizabeth Weintraub,
Top Realtor of Sacramento, California, USA)

AND 71
 In the tourism industry, it is important to acquire knowledge on the different
provisions involving sales, agency, and credit transactions as there are many
transactions among players in the industry that apply these laws found in the Civil
Code of the Philippines.
CHAP'FER* I RiiV\EW OF EAWS

Law of Sales
In the view of tourism, travel, and hospitality industry, agreements arising
from the contracts will have to be made, and potential breach from these
agreements will be encountered. A contract of sale is one of the usual contracts
being encountered by the industry concerned. This will give an overview of the
different sales transactions which may be encountered, including the remedies of
the parties concerned.
The Law
Article 1458. By the contract of sale, one of the contracting parties
obligates himself to transfer ownership of and to deliver a determinate thing, and
other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Discussion of the Law
Characteristics of a Contract of Sale
(1) Consensual — A contract of sale is perfected by mere consent. No
form is prescribed for the perfection in a contract of sale, except in the
following instances:
(a) Those covered under the Statute of Frauds which must appear in
writing otherwise, the sale is considered unenforceable (i.e.,
Sale of real property or any interest therein; and Sale of
chattels or goods for a price not less than P500) 41
(b) Sale of real property made through an agent, in which case, the
agent's authority must be in writing; otherwise, the agency and
sale made through an agent is void. 42
(2) Bilateral — because it gives the rise to reciprocal obligations.
(3) Principal — because it can stand by itself without need of another
contract.
(4) Onerous — because the consideration for each party is the delivery of
the thing or the payment of the price.
41Article 1403 (2), Civil Code of the Philippines.
42Article 1874, Civil Code of the Philippines.
72 LEGAL ASPECTS TOURISM
 (5) Commutative — because what the vendor (seller) delivers is
considered equivalent of the price paid by venders (buyer).
(6) Nominate — because it has a designated name under the Civil Code of
the Philippines which is "sale."
(7) Transmissive of ownership — because the vendor transfers ownership
of the subject matter to the vendee.43

Requisites of a Contract of Sale

(1) Consent — Consent is manifested as the meeting of the offer (which must
be certain) and the acceptance (which must be absolute) upon the thing
and the cause which are to constitute the contract."
The following are disqualified to enter into a contract:
(a) Husband and Wife 100 — A sale between husband and wife in violation
of Article 1940 is inexistent and void from the beginning because such
contract is expressly prohibited by law. 101
(b) The following persons cannot acquire by purchase even at public
auction or judicial auction, either in person or through the mediation of
another:
The guardian, the property of the person or persons who may be under
his guardianship;

Agents, the property whose administration or sale or may have

been entrusted to them, unless the consent of the principal has
been given;
[iii] Executors and administrators, the property of the estate under
administration;
Public officers and employees, the property of the State or any of
the subdivision thereof, or any government-owned or controlled
corporation, or institution, the administration of which has been
entrusted to them; x x x;
Justices, judges, prosecuting attorneys, checks of superior and
inferior courts, and other officers and employees connected with the

43Philippine Legal Encyclopedia, by Jose Agaton Sibal, 1986 Edition, p. 907.

AND LAWS 73
 administration of justice, the property and rights in litigation or levied
upon on execution before the court within whose jurisdiction or
territory they exercise their respective function x x x; and Any
others especially disqualified by law. 102

Contracts entered in violation of the above shall render the contracts void
by reason of public policy103 and because such contracts are also expressly
prohibited by 104

99 Article 1319, Civil Code of the Philippines. 100

Article 1490, Civil Code of the Philippines. 101
Article 1409 (7).
102 Article 1491, Civil Code of the Philippines.
103 Refer to Rubias v. Batiller, May 29, 1973, 51 SCRA 120. 104
Article 1409 (7).

CHAVVERI I REVIEW OFTHEPHILIPP}NE CONSn3VTION BUS}NESS

74 LEGAL ASPECTS TOURISM

Application of the Law
Case: On January 4, 1979, Ronald Coloma sold his hotel in favor of Spouses Leo and
Vanessa Uy. A deed of sale was executed but Spouses Uy named Johny Uy (their
unborn son) as the buyer in the contract of sale. Accordingly, Johny Uy was named
as the buyer in the deed of sale by virtue of a Chinese custom naming children as the
heir of their parents' properties. It was only on March 1, 1980 that Johnny Uy was
born. Is the contract of sale valid?
Legal Opinion: It was held that the contract of sale is void for being simulated and
fictitious. Johnny Uy was not even conceived yet at the time of the alleged sale,
hence had no legal personality to be named as a buyer in the said deed of sale.
Neither could he have given his consent thereto. The contract of sale is perfected at
the moment there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract.
Unemancipated minors, insane or demented persons, and deaf-mutes who do not
know how to read and write cannot validly give consent to contracts. In the instant
case, Johnny Uy could not have validly given his consent to the contract of sale, as
he was not even conceived yet at the time of its alleged perfection. Therefore, for
lack of consent of one of the contracting parties, the deed of sale is null and void. 44
(2) Object or Subject Matter — The requisites are as follows: (a) it must be
existing45 or possible; (b) it must be licit; 46 and (c) it must be determinate.
In a contract of sale, the thing and the price are the subject matter. The
price must be understood to be in money or its equivalent.
(3) Cause of Consideration —It represents the why of the contracts, the
essential reason which moves the contracting parties to enter into the
contract. For the seller, the consideration is the price certain in money or
its equivalent. For the buyer, the consideration is the thing in a contract of
sale. 4748
Application of the Law
Case: Mr. Danilo Santos bought 10 boxes of Fundador Brandy at a price of P 10,000
pesos per box from his supplier, Mr. John Smith, proprietor of Exquisite Wines &
Brandy, Inc. Determine the requisites of such contract of sale.

44Pepito S. Pua et al v. The Hon. Court ofAppeals et al., G.R. No. 134992, November 20, 2000.

LEGAI. ASPECTS
Legal Opinion: The consent refers to the meeting of minds as to when Mr. John
Smith (the seller) offered Mr. Danilo Santos to sell 10 boxes of Fundador Brandy

45Article 1462, Civil Code of the Philippines.

46 Article 1459, Civil Code ofthe Philippines. 108 Article
1460, Civil Code of the Philippines.
47, Gonzales et al v. Trinidad et al., G.R. No. 45965, April 29, 1939.

48 •rouus•3M HOSPITAiXVY

LEGAI. ASPECTS
at a price of P 10,000 per box and when Mr. Danilo Santos agreed to buy the said
10 boxes of Fundador Brandy at the price of P 10,000 per box. The object or
subject matter to the 10 boxes of Fundador Brandy and the price of P 10,000 per
box. As to the buyer, the cause is the 10 boxes of Fundador Brandy. Effect of Loss
of the Object in a Contract of Sale The Law
Article 1480. Any injury to or benefit from the thing sold, after the contract
has been perfected, from the moment of the protection of the contract to the time of
delivery, shall be governed by Articles x x x 1262.
Article 1262. An obligation which consists in the delivery of determinate
thing shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
Article 1496. The ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any number of the ways specified in
Articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee. (n) Discussion of the Law
(1) If the thing is lost before perfection of the contract. The contract is
considered inexistent, therefore the loss is borne by the seller based on
the principle of res perit domino (it is the owner of the thing who bears
the consequences of the loss).
(2) If the thing is lost at the time of the perfection of the contract. The
contract shall be considered without any effect. The legal effect is the
same as the object is lost before perfection of the contract of sale.
(3) If the thing is lost after delivery. The buyer bears the risk of loss since
delivery transfers ownership, following the principle of res perit
domino.
(4) If the thing is lost after perfection but before delivery. The seller bears
risk of loss since there is no delivery yet, hence, no transfer of
ownership to the buyer. This is considered just and equitable, being
more in conformity with the principle of resperit domino. In this case,
the buyer may demand the return of the price, in case payment has been
made. The reciprocal nature of a contract of sale dictates that when
there is an obligation to deliver a determined object, there is also
correlative obligation to pay the price. Therefore, once the obligation to
deliver is extinguished, the correlative obligation to pay the price is also
extinguished. this rule will apply even if the thing is lost through a
fortuitous event or even without the fault of the debtor.

AND LAWS 77
 CHAPTER | OFTHE CONSTI'}VTEON BUSINESS

Application of the Law

Case: On September 14, 1979, spouse Bernal purchased from Union Motor
Corporation a Cimarron Jeepney, possibly to be used for city tours, for thirty-seven
thousand seven hundred fifty-eight pesos and sixty centavos (P37,758.60) to be paid
in installment. For this purpose, spouses Bernal execute a promissory note and a
deed of chattel mortgage in favor of Union Motor Corporation. Meanwhile, Union
Motor Corporation entered into a contract of assignment of the promissory note and
chattel mortgage with Jardine-Manila Finance, Inc. In this regard, the parties agreed
that spouse Bernal would pay the amount of the promissory note to Jardine Manila
Finance, Inc., the latter being the assignee of Union Motor Corporation. To
effectuate the sale as well as the assignment to the promissory note and chattel
mortgage, spouses Bernal were required to sign a notice of assignment, a deed of
assignment, sales invoice, a registration certificate, an affidavit, and a disclosure
statement. A down payment worth ten thousand thirty-seven pesos (P 10,037) was
made by spouses Bernal although the jeepney has not yet been physically possessed
by them. Under the facts given, who bears the risk of loss? Are the spouses Bernal
still entitled to recover the down payment in case the jeepney can no longer be
physically possessed by them?
Legal Opinion: It is the seller (Union Motor Corporation) who bears the risk of loss
following the principle of re permit domino. The registration certificate, receipt, and
sales invoice were merely signed as part of the processing and for the approval of
the application to buy the subject motor vehicle. The documents were not therefore
an acknowledgment by the spouses of the physical acquisition of the subject motor
vehicle but merely a requirement of Union Motor Corporation so that the said
subject motor vehicle would be delivered to the buyers.
The registration certificate signed by spouses Bernal does not conclusively
prove that constructive delivery was made not that ownerships been transferred. In
all forms of delivery, it is necessary that the act of delivery,. whether constructive
or actual, should be coupled with the intention of delivering the thing. The. act,
without the intention, is insufficient. Union Motor Corporation should therefore
bear the loss of the subject motor. Hence, spouses Bernal may be entitled to
recover the down payment in case the jeepney can no longer be delivered. 49
Sale of Personal Property Payable in Installment

49Union Motor Corporation v. The Court ofAppeals, G.R. No. 117187, July 20, 2001.

IN TOURISM AND
78 LEGAL ASPECTS
 It is possible that in buying personal properties used for public
transportation or, and delivery of goods (i.e., buses, cruise ships, FX, and delivery
trucks), this provision will be useful for the contracting parties in case of sale of
personal properties payable in installment.
The Law
Article 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation should the vendee fail to pay;
(2) Cåncel the sale, should the vendee's failure to pay cover two or more
installments; and
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more

installment. In this case, he shall, have no further action against the

purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (1454-A-a)

Discussion of the Law

In order for the said provision to apply, the following requisites must concur:
(1) Contract must be sale (absolute sale, not a contract to sell or a contract
of loan or a pacto de retro transaction where redemption is effected in
installment).
(2) What is sold is personal property (not real property).
(3) The sale must be on an installment plan (it must contain at least three
installments). If the sale is for cash or on straight terms (here after an
initial payment, the balance is paid in its totality at the time specified),
Article 1484 does not apply.
Application of the Law
Case: on April 17, 1980, PAMECA Wood Treatment Plant, Inc. (PAMECA)
obtained a loan of US$267,881.67, or the equivalent of P20,000 from the
Development Bank of the Philippines (DBP). By virtue of this loan, petitioner
PAMECA, through its President, petitioner Herminio C. Teves, executed a
promissory note for the said amount, promising to pay the loan by installment. As
security for the said loan, a chattel mortgage was also executed over PAMECA's
properties in Dumaguete City, consisting of inventories, furniture, and equipment,
to cover the whole value of the loan. On January 18, 1984, and upon petitioner
REViEW AND LAWS 79
 PAMECA's failure to pay, DBP extrajudicially forecloses the chattel mortgage,
and as sole bidder in the public auction, purchased the foreclosed properties for a
sum of P322,350. On June 29, 1984, DBP filed a complaint for the collection of
the balance of P4,366,332.46 with Branch 132 of the Regional Trial Court of
Makati City against PAMECA, and Herminio Teves as a solidary debtor of
PAMECA under the promissory note. Can DBP recover the balance against
PAMECA and Herminio Teves despite the prohibition under Article 1484 (3) of
the Civil Code of the Philippines?

CHAPTER | OF THE CONSTITVT(ON

Legal Opinion: Yes, DBP can recover the balance under Act No. 1508 (Chattel
Mortgage Law). It appears from the facts that what was entered is a chattel
mortgage, a conditional sale of personal property as security for the payment of the
debt, or for the performance of some other obligations specified therein. We
cannot apply by analogy Article 1484 of the Civil Code to the instant case, the said
article applies clearly and solely to the sale of personal property the price of which
is payable in installments. Although Article 1484, paragraph (3) expressly bars any
further action against the purchaser to recover an unpaid balance of the price,
where the vendor opts to foreclose the chattel mortgage on the thing sold, should
the vendee's failure to pay covers two or more installments, this provision is
specifically applicable to a sale on installments. 111
Case: On July 15, 1963, Ruperto G. Cruz purchased in installment from the Far
East Motor Corporation, one (1) unit of Isuzu Diesel Bus for P44,616.24,
Philippine currency, payable installments of P 1,487.20 per month for thirty (30)
months, beginning October 22, 1963, with 12% interest per annum, until fully
paid. As evidence of said indebtedness, plaintiff Cruz executed and delivered to
the Far East Motor Corporation a negotiable promissory note in the sum
ofP44,616.24. To secure the payment of the promissory note, Cruz executed in
favor of the seller Far East Motor Corporation, a chattel mortgage over the
aforesaid motor vehicle. As no down payment was made by Cruz (the seller), Far
East Motor Corporation required Cruz an additional security for his obligation
besides the chattel mortgage, of which Cruz agreed. The additional security was in
the form of a real estate mortgage involving a parcel of land together with the
building and improvements thereon, in San Miguel, Bulacan. On the same date of
July 15, 1963, the Far East Motor Corporation indorsed the promissory note and
assigned all its rights and interest in the Deed of Chattel Mortgage and in the Deed
of Real Estate Mortgage to Filipinas Investment and Finance Corporation, with
due notice of such assignment to Ruperto Cruz. Mr. Cruz defaulted in the payment

80 LEGAL ASPECTS
of the promissory note as he made no payment on any of the installments
stipulated in the promissory note, except for the payment ofP500.
In this regard, Filipinas Investment and Finance Corporation took steps to
foreclose the chattel mortgage on the bus. The proceeds of the sale of the bus after
the foreclosure of the chattel mortgage were not sufficient, hence, Filipinas
Investment and Finance Corporation filed another action for the foreclosure of the
real estate mortgage. Can Filipinas Investment and Finance Corporation recover
the unpaid balance?
Legal Opinion: No, Filipinas Investment and Finance Corporation cannot recover
the unpaid balance for this will be in violation of Article 1484 (3), Civil Code of
the

111 PAMECA Wood Treatment Plant, Inc. v. Herminio g. Teves et al., G.R. No. 106435, July 14,
1999.

'TOURISM HOSPITALITY

REViEW AND LAWS 81

Philippines. This provision prevents mortgages from seizing the mortgaged
property, buying it at foreclosure sale for a low price, and then bringing suit against
the mortgage for a deficiency judgment. The prohibition does not only apply to a
purchaser but also to a guarantor (such as Filipinas Investment and Finance
Corporation). 112 Double Sale
Caution should be practiced by real estate developers engaged in the hotel
industry, especially on real property located in potential yet unexplored provinces.
The principles on double sale will be useful in case an issue on a sale ofreal
property to different vendees shall be brought before the courts.
The Law
Article 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person Who may have first taken
possession in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to who in good
faith was first in the possession; and in the absence thereof, to the person who
presents the oldest title, provided there is good faith. (1473) Discussion of the Law
The above provision pertains to same property which has been sold to
different buyers or vendees. In case an Immovable property covered under the
Torrens Title is sold to different vendees, the one who is the first registrant in good
faith at the Registry of Deeds where the property is located shall be preferred.
Application of the Law
Case: Rizal, Anselmo, Gregorio, Filomeno, and Domingo, all surnamed Madriarca
(hereafter the Madriarca brothers), were the registered owners of Lot No. 7036-A
situated in San Mateo, Isabela under TCT No. T-8121 issued by the Register of
Deeds of Isabela in September 1956. On August 15, 1957, Rizal Madriarca sold a
portion of his share of Lot No. 7036-A to Aleja Giron (hereafter Giron) by virtue of
a Deed of Sale, to which his brothers Anselmo, Gregorio, Filomeno and Domingo
offered no objection as evidenced by their Joint Affdavit dated August 14, 1957.
The deed of sale was not registered with the Office of the Register of deeds of
Isabela. However, Giron declared the property for taxation purposes in her name in
March 1964. In Deed ofSale dated June 15, 1976, the Madrid brothers conveyed all
their rights and interests over Lot No. 7036-A (including the supposedly share of

112 Ruperto Cruz et al. v. Filipinas Investment and Finance Corporation, G.R. No. L-24772, May 27,
1968.

I REVIEW AND 82
 OFTHE ?HiUPP€NE BU$(NES$LAWS

Rizal Madriarca which was already sold to Giron) to Paciano Marquez (hereafter,
Marquez), which the former confirmed on February 28, 1983. The deed of sale
favor of Marquez was registered with the Office of the Register of Deeds of
Isabela on March 2, 1982.
Who has a better right with respect to the share of Rizal Madrid which was
sold to different vendees, namely: Giron and Marquez?
Legal Opinion: If Paciano Marquez was in good faith and was not aware of the
prior sale, he has a better right to the land than Aleja Giron. This is explicitly
supported by the law on double sales of immovable property in Article 1544 of the
Civil Code. According to the law; the ownership of the land shall belong to the
person who in good faith recorded the sale in the Registry of Property. 50Pacto de
Retro Sale (Conventional Redemption) The Law
Article 1602. Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation to comply with
the provisions of Article 1616 and other stipulation which may have been agreed
upon. (1507)
Discussion of the Law
As between an absolute sale and sale with right to repurchase, no difference
exists, except that in the latter, the ownership of the purchaser is subject to the
resolutory condition that the vendor exercises his right to repurchase within the
time agreed upon.
The vendor a retro has no right over the thing pending the redemption. He
may, however, register the property in his name, with an express statement of the
purchaser's right thereto.
The vendee a retro immediately acquires title and possession of the
property sold, subject only to the vendor's right of redemption. The vendee, who
acquires the ownership of, the property, may dispose of the same as any other
owner, he may therefore, alienate, make dispositions mortis causa or inter vivos,
mortgage or encumber the same, without any other limitations than those imposed
upon all owners. Although the right of the vendee is strictly without limitation, it is
subject to a resolutory condition; hence, all acts of disposition pending the condition
are, as revocable as, his right.
50 Consolidated Rural Bank (Cagayan Valley) Inc. v. The Hon. Court ofAppeals, G.R. No. 132161,
January 17, 2005.

E..EQA% IOURÅSM
I REVIEW OF AND LAWS 83
 The vendee a retro who takes possession of the property sold under a contract of
sale with pacto de retro, is under the obligation to take care of the thing sold during
the period of the right to repurchase as a good father of a family who would take
care of his own property.
Period of redemption shall be four years from the date of the contract, in the
absence of any express agreement. Should there be an agreement, the period for
redemption cannot exceed 10 years. Application of the Law
Case: Mr. John Reilly Barrameda is an owner of the real property where his fiv
estar hotel was also erected. By reason of his dire need of money, he sold his real
property together with the five-star hotel to Don Jayson Zamora. By this reason,
Mr. Barrameda executed a contract of sale ofhis real property, together with the
hotel, but with the right to repurchase. However, no period for the redemption of
the property is specified in the agreement. Until when should Mr. Barrameda have
the privilege to redeem his property from Mr. Zamora?
Legal Opinion: Mr. Barrameda may redeem his property within a period of four
years from the date of the contract, in the absence of any agreement. 114 Obligation
of the Vendor
The Law
Article 1495. The vendor is bound to transfer the ownership of and deliver,
as well as warrant the thing which is the object of the sale.
Article 1496. The ownership of the thing sold is acquired by the vendee from
the moment it is delivered to him x x x.
Article 1497. The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee (1462a).
Discussion of the Law
Under the above provisions, the obligations of the vendor are: (1) to deliver
the thing; (2) to transfer ownership of the thing; and (3) to warrant against eviction
and against hidden defects.
Delivery is not only a necessary condition for the enjoyment of the thing, but is a
mode of acquiring dominion and determines the transmission of ownership, the
birth of a real right. The fact that the price of the property delivered has not yet
been paid in full is not an obstacle to the acquisition of the ownership thereof by
the vendee, if such condition has not been stipulated in the contract (as in a
contract to sell).115

84
114 Article 1606, Civil Code ofthe Philippines.
115 Civil Code of the Philippines Vol. V, by Arturo Tolentino, 1992 Edition, pp. 50—51.

'EHE CONSTVIUT}ON BUSINESS

I REVIEW OF AND LAWS 85

 When goods are delivered to the buyer "on sale or return" to give the
buyer an option to return the goods instead of paying the price, the ownership
passes to the buyer on delivery, but he may revest the ownership in the seller by
returning or tendering the goods within the time fixed in the contract, or if no time
has been fixed, within a reasonable time. When goods are delivered to the buyer
"on approval" or "on trial" or other similar terms, the ownership passes to the
buyer (I) when he signifies his approval or acceptance to the seller or does any
other act adopting the transaction; (2) if he does not signify his approval or
acceptance to the seller, but retains the goods without giving notice of rejection on
the expiration of time as fixed for the goods, or on the expiration of a reasonable
time when no time has been fixed. 51
In COD agreement (cash on delivery) the risk should be borne on the buyer
upon delivery of the thing sold or the beneficial interest has been transferred to
him. Under an ordinary CIF (Cost, Insurance and Freight) agreement, delivery to
the buyer is complete upon the delivery of the goods to the carrier and tender of
the shipping and other documents required by the contract and the insurance
policy taken in the buyer's behalf. The parties may however agree by making the
buyer's obligation depend only upon arrival and inspection of the goods, in which
case, the risk is thrown upon the seller until arrival at the port of destination.
FOB (free on board) is a commercial term that signifies a contractual
agreement between a buyer and a seller to have the subject of a sale delivered to a
designated place, usually either the "place of shipment" or the "place destination,"
without expense to the buyer. "FOB shipping point" requires the seller to bear the
expense and the risk of putting the subject of the sale into the possession of the
carrier, but the duty to pay the transportation charges from the FOB point is on the
buyer. Where the shipment is "FOB destination point," the seller is required to bear
the transport until the buyer's point of destination. 52 If no designation in the FOB
agreement is specified, it is understood that the seller's factory shall be the place of
delivery.
Warranty in Case of Eviction
A warranty in case of eviction is an implied warranty In contracts of sale, by
virtue of which if the vendee is deprived of the whole or a part of the thing
purchased by final judgment based on a right prior to the sale or an act imputable

51Article 1502, Civil Code of the Philippines.

52 Barron's Legal Dictionary, 5th Edition, p. 217. 118
Article 1548, Civil Code of the Philippines.

IN
86 ASPECTS AND
to the vendor, such a vendor shall answer for the eviction even though nothing has
been said in the contract on the subject. 118
The requisites of eviction are (1) vendee is deprived of the thing purchased
wholly or partially; (2) deprivation is by final judgment; (3) deprivation is based
on a right prior to the sale or an act imputable to the vendor; and (4) vendor was
summoned in the suit for eviction of the vendee.
Liability for eviction includes: (1) return of the value at the time of eviction;
(2) return of income or fruits that the buyer had to surrender; (3) costs of the suit;
(4) expenses of the contract; and (5) damages in case the vendor acted in bad
faith. Warranty Against Hidden Defects (Redhibitory)
A defect is considered redhibitory if it is hidden, unknown to the buyer,
existing prior to the sale at least in origin, and which renders the thing unfit for
the use intended.
The vendee may elect between withdrawing from the contract (accion
redhibitorial) and demanding a proportionate reduction of the price (accion quanti
minoris) with damages in either case. 53 Generally, the period of prescription is six
months. 54 However, in redhibitory actions against on the faults or defects of
animals, the period is forty days. 121 The period must be counted from the date of
delivery to the vendee.
Obligation of the Vendee
The Law
Article 1582. The vendee is bound to accept delivery and pay the price of
the thing sold at the time and place stipulated in the contract.
Discussion of the Law
Actions for Breach of Contract of Sale
Extrajudicial remedies:
(1) Of the buyer:

(a) The buyer need not pay unless there is delivery.

(b) The buyer may reject improper deliveries.

53Article 1567, Civil Code of the Philippines.

54 Article 1571, Civil Code of the Philippines. 121
Article 1577, Civil Code of the Philippines.

CHAI"TEIU PH}UPPINE BUS(NESS

I REVIEW OF AND LAWS 87

 (c) The buyer may suspend payment if he is disturbed in the
possession or ownership of the thing or has reasonable grounds
to fear such disturbance.
(2) Of the seller:

(a) Vendor is not bound to deliver the thing sold if the vendee has
not paid the price.
(b) Installment sales (Recto and Maceda Law)
Judicial remedies:
(1) Of the buyer:
(a) Damages for breach of contract
(2) Of the seller:
(a) Recovery of the price
(b) Damages in case of bad faith
Application of the Law
Case: Nenita's Seafood Mart is a supplier of fresh seafood products of Taal
Vista Hotel in Tagaytay. The purchasing manager of the hotel ordered 100 kilos
of tiger prawns, 60 kilos of lapu-lapu, 40 kilos of Pacific lobster, 120 kilos of
Oysters, and 80 kilos of milkfish. The firm delivered substandard seafood items
on the agreed date of delivery. The contract between the hotel and the firm
clearly states that it must deliver high quality seafood products to the hotel at all
times. Can the hotel reject the deliveries? If the hotel is forced to accept the
deliveries as commitment has been made on the menu for banquet functions
scheduled for the next day, can the hotel recover damages (i.e., in the form of a
discount)?
Legal Opinion: Yes, the hotel may, as one of the remedies, reject improper
deliveries. If the hotel can no longer change the menu for a banquet
commitment, and is forced to accept the seafood products, damages may be
sought. Alternatively, discount on the price may be sought.

Law on Agency
The hotel, as part of the tourism industry, cannot do away with agencies
which will facilitate various transactions in dealing with third persons. Hence,
there is a need to understand the operation of agencies working on behalf of the
principal belonging to the hotel, tourism, and hospitality industry.

88 ASPECTS AND
 The Law
Article 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of another, with
the consent or authority of the latter (1709a).
Discussion of the Law
A contract of agency is a relation in which one person, the agent, acts on
behalf of another with the authority of the latter, the principal. It is a "fiduciary"
relation which results from the manifestation of consent by one person that
another shall act on the former's behalf and subject to his control, with consent
by the other so to act. The acts of the agent will be binding on his principal. 55

55Barron's Law Dictionary, by Steven H. Gifis, Fifth Edition, p. 19.

LEGAL IN TOURISM HOSPITALITY

I REVIEW OF AND LAWS 89

 The essential elements of agency are: (1) there is consent, express or
implied; (2) the object is the execution of a juridical act in relation to the third
person; (3) the agent acts as a representative and not for himself; and (4) the
agent acts within the scope of his authority.
An agency is distinguished from the lease of work or services 111 that
the basis of agency is representation, while in the lease of work or services (such
as architect, construction building worker, painter, physician, professor,
employees, and house helpers) the basis is employment. The most distinctive
feature of any agency relationship is the agent's power to bring about business
relationship between his principal and third persons. The agent is destined to
execute juridical acts (creation, modification, or extinction of relation with third
parties). Lease of serVices contemplates only material (non-juridical) acts.
Application of the Law
Case: In May 1991, Estela L. Crisostomo (Estela) contracted the services of
Caravan Travel and Tours International, Inc. (Caravan Travel) to arrange and
facilitate her booking, ticketing, and accommodation in a tour dubbed "Jewels of
Europe." The package tour was pegged at P74,322.70. Estela was given a 5%
discount on the amount, which included airfare, and the booking fee was also
waived because Estela's niece, Meriam Menor, was Caravan Travel's ticketing
manager.
Pursuant to said contract, Meriam went to her aunt's residence on June 12,
1991—a Wednesday to deliver petitioner's travel documents and plane tickets.
Estela, in turn, gave Meriam the full payment for the package tour. Meriam then
told her to be at the Ninoy Aquino International Airport (NAIA) two hours
before her flight on board British Airways.
Without checking her travel documents, Estela went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her journey from
Manila to Hong Kong. To Estela's dismay, she discovered that the flight she was
supposed to take had already departed the previous day. She learned that her
plane ticket was for the flight scheduled on June 14, 1991. Thus, she called up
Meriam to complain.
Subsequently, Meriam prevailed upon Estela to take another tour—the
"British Pageant." For this tour package, Estela was asked anew to pay US$785
or P20,881 (at the then prevailing exchange rate of P26.60). She gave Caravan
Travel through Meriam US$300 or P7,980 as partial payment and commenced
the trip in July 1991.

REVIEW OF AND LAWS 90

 Upon Estela's return from Europe, she demanded from Caravan Travel
the reimbursement of P61 ,421.70, representing the difference between the sum
she paid for "Jewels of Europe" and the amount she owed from the latter for the
"British

123 Rallos v. Felix Go Chan & Sons Realty Corporation, 81 SCRA 251.

CHAPTER 3 | THE CONSTItUüON BUS(NßS

Pageant" tour. Despite several demands, Caravan Travel refused to reimburse
the amount, contending that the same was non-refundable. Estela was, thus,
constrained to file a complaint against respondent for breach of contract of
carriage and damages.
Is Caravan Travel and Tours International, Inc. a common carrier? What
is the nature of the business of travel agencies such as Caravan Travel and
Tours International, Inc.?
Legal Opinion: By definition, a contract of carriage or transportation is one
whereby a certain person or association of persons obligate themselves to
transport persons, things, or news from one place to another for a fixed price.
Such person or association of persons are regarded as carriers and are classified
as private or special carriers and common or public carriers. A common carrier
is defined under Article 1732 of the Civil Code as persons, corporations, firms
or associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation, offering their services to
the public. It is obvious from the above definition that Caravan Travel and Tours
International, Inc. is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier.
Caravan Travel did not undertake to transport Estela from one place to another
since its covenant with its customers is simply to make travel arrangement on
their behalf. Caravan Travel 's services as a travel agency include procuring
tickets and facilitating travel permits or visas as well as booking
customers for tours. While Estela concededly bought her plane ticket through the
effort of Caravan Travel, this does not mean that the latter ipso facto is a
common carrier. At most, Caravan Travel acted merely as an agent of the
airline, with whom Estela ultimately contracted for her carriage to Europe. 124
Case: On September 18, 1981, Daniel Chiok (Chiok) purchased from China
Airlines, Ltd. (CAL for brevity) an airline passenger ticket for air transportation
covering Manila-Taipei-Hong Kong-Manila. The said ticket was exclusively
endorsable to Philippine Airlines, Ltd. (PAL).
I REVIEW OF AND 91
 Subsequently, on November 21, 1981, Chiok took his trip from Manila
to Taipei using the CAL ticket. When he arrived in Taipei, he went to the CAL
office and confirmed his Hong Kong to Manila trip on board PAL Flight No.
PR311. The CAL office confirmed his flight status as OK.
When Chiok reached Hong Kong, he went to the PAL office and sought
to reconfirm his flight back to Manila. The PAL office confirmed his return trip
on board Flight No. PR311 and attached his own sticker. On November 24,
1981,

124 Estela L. Crisostomo v. Court ofAppeals and Caravan Travel & Tours International, Inc.,
G.R. No. 138334, August 25, 2003.

1.EGAI. {N

Chiok proceeded to Hong Kong International Airport for his return trip to
Manila. However, upon reaching the PAL counter, Chiok saw a poster stating
that PAL Flight No. PR311 was canceled because of a typhoon in Manila. He
was then informed that all the confirmed ticket holders of PAL Flight No.
PR311 were automatically booked for its next flight, which was to leave the
next day. He then informed PAL personnel that, being the founding director of
the Philippine Polysterene Paper Corporation, he had to reach Manila on
November 25, 1981 because of a business option which he had to execute on
the said date.
On November 25, 1981, Chiok went to the airport. Carmen Chan
(hereafter referred to as Carmen), PAL's terminal supervisor, informed Chiok
that his name did not appear in PAL's computer list of passengers and therefore
could not be permitted to board PAL Flight No. PR307.
Meanwhile, Chiok requested Carmen to put into writing the alleged
reason why he was not allowed to take his flight. The latter then wrote the
following, to wit: "PAL staff Carmen Chan Chkd with WC Kenny at 1005H No
such name in computer for 311/24 and 307/25Nov." Carmen sought to
recover his luggage but found only two (2) which were placed at the of the
passenger line. Realizing that his new Samsonite luggage was missing,
which .contained cosmetics worth Chiok complained to Carmen.
Thereafter, Chiok proceed to PAL's Hong Kong office and confronted
PAL's reservation officer, Carie Chao (hereafter referred to as Chao), who
previously confirmed his flight back to Manila. Chao told Chiok that his name

92 ASPECTS AND
was on the list and pointed to the latter his computer number listed on the PAL
confirmation sticker attached to his plane ticket, which number was "R/MN62."
Chiok then decided to use another CAL ticket and asked Chao if this
ticket could be used to book him for the said flight. The latter, once again,
booked and confirmed Chiok's trip, this time on board PAL Flight No. PR311
scheduled to depart that evening. Later, Chiok went to the PAL check-in
computer and it was Carmen who attended to him. At this juncture, Chiok had
already placed his travel documents, including his clutch bag, on top of the
PAL check-in counter.
Thereafter, Carmen directed PAL personnel to transfer counters. In the
ensuing commotion, Chiok lost his clutch bag containing the following, to wit:
(a) $2,000; (b) HK$2,000; (c) Taipei $8,000; (d) P2,000; (e) a three-piece set of
gold (18 karats) Cross pens valued at P3,500; (f) a Cartier watch worth about
P7,500; (g) a tie clip with a garnet birthstone and diamond worth P I ,800; and
(h) a [pair of] Christian Dior reading glasses. Subsequently, he was placed on
stand-by and at around 7:30 p.m.* PAL personnel informed him that he could
now check-in.
Consequently, Chiok filed a complaint on November 9, 1982 for damages
against PAL and CAL. In its defense, CAL does not admit liability because it
merely
CHAPnR THE Pi-VILIPBNE CONST}TÜTION BVSINE$SLAWS

acted as an issuing agent for the ticket covering the Hong Kong-Manila leg of
Chiok's journey.
What is the nature of liability of China Airlines (CAL)?
Legal Opinion: A common carrier has a peculiar relationship with and an
exacting responsibility to its passengers. For reasons of public interest and
policy, the ticket issuing airline (CAL) acts as principal in a contract of carriage
and is thus liable for the acts and the omissions of any errant carrier (i.e., PAL)
to which it may have endorsed any sector of the entire continuous trip. It is
significant to note that the contract of air transportation was between CAL and
Chiok, with the former endorsing to PAL the Hong Kong-to-Manila segment of
the journey. Such contract of carriage has always been treated in this
jurisdiction as a single operation. This jurisprudential rule is supported by the
Warsaw Convention, to which the Philippines is a party, and by the existing
practices of the International Air Transport Association (IATA). In American
Airlines v. Court of Appeals, [384 Phil. 227, March 9, 2000], it was ruled that

I REVIEW OF AND 93
 under a general pool partnership agreement, the ticket-issuing airline is the
principal in a contract of carriage, while the endorsee-airline is the agent.
It was further ruled that "members of the IATA are under a general pool
partnership agreement wherein they act as agent of each other in the issuance of
tickets to contracted passengers to boost ticket sales worldwide and at the same
time provide passengers easy access to airlines which are otherwise inaccessible
in some parts of the world."
Likewise, as the principal in the contract of carriage, the petitioner in
British Airways v. Court of Appeals, [285 SCRA 450, January 29, 1998] was
held liable, even when the breach of contract had occurred, not on its own flight,
but on that of another airline. The decision followed the ruling in Lufthansa
German Airlines v. Court of Appeals, [283 SCRA 290, November 24, 1994] in
which it was held that the obligation of the ticket-issuing airline remained and
did not cease, regardless of the fact that another airline had undertaken to carry
the passenger to one of their destinations. 56
The Concept of an Independent Contractor
It has been a practice that the hotel and hospitality industry would enter
into contracts with cooperatives and associations engaged in the business of
providing messengerial/janitorial services and/or security services to augment
expenses for the payment of wages to employees. The principle of independent
contracting with these cooperatives and associations is worthy of study, since an
independent contractor shall be primarily and directly liable for the wages and
other labor benefits of its own employees.

56China Airlines v. Daniel Chiok, G.R. No. 152122, July 30, 2003.

LEGAL HOSPITALf€Y
94 ASPECTS AND
 An association or cooperative qualities to be an independent contractor
if it has been contracted to do the work according to its own methods and without
being subject to the control of the employer, except only as to the results of the
work and provided the following requisites concur:
i) The contractor has substantial capital or investment which relates to the
job, work or service to be performed and the employees recruited, supplied
or placed by such contractor are performing activities which are not
directly related to the main business of the principal; or
The contractor exercises the right to control over the performance of the
work of the contractual employees.

"Substantial capital or investment" refers to capital stocks and

subscribed capitalization in the case of corporations, tools, equipment,
implements, machinery and work premises, actually and directly used by the
performance or completion of the job, work or service contracted out.
The "right to control" shall refer to the right reserved to the person for
whom the services of the contractual workers are performed, to determine not
only the end to be achieved, but also the manner and means to be used in
reaching that end. 57
Failure to quality as an independent contractor makes the association or
cooperative merely a labor-only contractor. In such a case, the
association/cooperative or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
In legitimate labor contracting, the law creates an employer-employee
relationship for a limited purpose (i.e., to ensure that the employees are paid
their wages). The principal employer becomes jointly and severally liable with
the job contractor, only for the payment of the employees' wages whenever the
contractor fails to pay the same. Other than that, the principal employer is not
responsible for any claim made by the employees.
In labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose to prevent a circumvention of labor
laws. The contractor is considered merely an agent of the principal employer
and the latter is responsible to the employees of the labor-only contractor as if
such employees had been directly employed by the principal employer. 58

57 Sec. 5, Rule VIll-A, Book Ill ofthe Omnibus Rules Implementing the Labor•Code, as
amended by Department Order No. 18.
58San Miguel Corporation v. Prospero A. Aballa et al., G.R. No. 149011, June 28, 2005.
I REVEEW 95
Liability of the Principal and the Agent
The Law
Article 1883. If an agent act in his own name, the principal has no
right of action against the persons with whom the agent has contracted;
neither had such person against the principal.
In such case the agent is the one directly bound in favor of the person
with whom he has contracted, as if the transaction were his own, except the
contract involved things belonging to the principal.
Discussion of the Law
When an agent transacts business in his own name, it shall not be
necessary for him to state the name of the principal, and he shall be directly
liable, as if the business were for his own account to the persons with whom he
transacts the same. Moreover, an agent is personally liable for acts beyond the
scope of his authority, and for acts in violation of the terms of the written
authority. When it is clear that the agent only in behalf of a disclosed principal,
the agent cannot be held personally liable on the contract entered into in such
manner.
Law on Credit Transactions
Companies in the tounsm industry face debts; hence, it vital to know
various ways of handling debts in relation to third persons and credit
transactions emanating within their respective firms.
The Law
Article 1933. By a contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a commodatum, or
money or other consumable thing, upon the condition that the same amount of
the same kind and quality shall be paid, in which case the contract is. simply
called loan or mutuum.
Commodatum is essentially gratuitous. Simple loan may be gratuitous or
with a stipulation to pay interest, Discussion of the Law
Commodatum is a loan for use wherein the property lent must be
returned. Commodatum is essentially gratuitous. For example, when Mr. Smith,
a visiting tourist borrowed the house of Dr. Magno, and Mr. Smith was allowed
its free use, Dr. Magno became a bailor in commodatum and Mr. Smith, the
bailee.

CONSTiTU(10N
TOURISM AND
 Simple loan or mutuum is simply the delivery of sum of money to
another under a contract to return at some future time an equivalent amount with
or without

an additional sum agreed upon for its use. 128 It is a transaction wherein the
owner of the property, called the lender, allows another party, the borrower, to
the property. The borrower customarily promises to return the property after a
specified period with payment for its use, called interest. The documentation of
the promise is called a promissory note when the property is cash.
The credit of an individual means his ability to borrow money by virtue of
the confidence and trust reposed by a lender that he will pay what he may promise.
The concession of a "credit" necessarily involves the granting of "loans" up to the
limit of the amount fixed in the credit.
Simple Loan or Mutuum
The Law
Article 1956. No interest shall be due unless it has been expressly
stipulated in writing.
Discussion of the Law

(1) In a contract of loan, if a particular rate of interest has been expressly

stipulated by the parties, such stipulated interest shall be applied. If
the exact rate of interest is not mentioned, the legal rate shall be
payable (which is 12% per annum under Sec. 1 of the Usury Law).
(2) It is only in contracts of loan, with or without security, that the
interest may be stipulated and demanded.
(3) The debtor in delay is also liable to pay legal interest by way of
indemnity for damages, which legal interest may be agreed upon,
and in the absence of any stipulation, the legal interest shall be 12%
per annum. 130
(4) In all cases, interest due shall earn legal from the time it is judicially
demanded although the obligation may be silent upon this point. By
virtue of Central Bank Circular No. 416 dated July 29, 1974 and No.
905 dated December 10, 1982, the legal rate has been increased from
6% to 12% per annum.

Application of the Law

I REVIEW AND LAWS

Case: Under a written contract of loan, Mr. Erwan Salumbides obliged himself
to pay Bank of the Philippine Islands the sum of P 10,000 at 18% interest per
year. 131 If Mr. Salumbides incurs delay in payment, will he be obliged to pay
interest?

128 Barron's Law Dictionary, by Steven H. Gifis, Fifth Edition, p. 301.

129 Barron 's Financial Guides, Dictionary of Finance and Investment Terms.
130 Article 2209, Civil Code of the Philippines (as amended by Central Bank Circular No. 416 dated
July 29, 1974 and No. 905 dated December 10, 1982). 131 Article 1956, Civil Code of the
Philippines.

OF 71

TOURISM AND
 Legal Opinion: In case Mr. Salumbides incurs delay, he is liable to pay the interest
agreed upon by way of indemnity for damages (if any) aside from the use of the
money (which is 18%). 59 If nothing was mentioned about the payment of interest
for the use of money, no interest is due. In case Mr. Salumbides incurs delay, he is
liable to pay interest at the legal rate of 12% per annum from the date of delay. 133 If
the interest was judicially demanded (by way of filing a complaint in court), the
interest due as mentioned in the above shall earn legal interest (12% per annum)
from the time interest has been due until payment is made. 60Nature of the Banks
Deposits
It is clear from Article 1980 of the Civil Code of the Philippines that fixed
savings and current deposits of money in banks and similar institutions shall be
governed by the provisions of the Civil Code concerning simple loan (mutuum).
Hence, a debtor-creditor relationship exists between a bank and a depositor. That
is why compensation may take place where a bank may validly debit the account
of its depositors who are indebted to the bank byway of loan. Real Estate
Mortgage and Chattel Mortgage
Valuable properties in the form of movable and immovable properties may be
used as collaterals in order to obtain a contract of loan. Hence, it is important to
understand basic principles of Real Estate Mortgage and Chattel Mortgage, the usual
contracts being utilized in order to obtain loans, especially from banking and other
financial institutions.
A real estate mortgage is an accessory contract whereby the debtor
guarantees the performance of the principal obligation by subjecting real property
or real rights as security in case of nonperformance of such obligations within the
period agreed upon.
The essential requisites of a contract of a real estate mortgage are as
follows:
(1) It must be constituted to secure the performance of the principal
obligation.
(2) The mortgage must be the absolute owner of the property mortgaged.
(3) The mortgagor should have the free disposal of the property mortgaged,
and in the absence thereof, he should be legally authorized for the
purpose.

59 Article 2209, Civil Code ofthe Philippines. 133

Ibid.
60Article 2212, Civil Code of the Philippines.

LEGAL IN Hosprrm..rry
99 ASPECTS TOüRiSM AND
 (4) When the principal obligation becomes due, the property mortgaged
may be alienated for the payment of such obligation.
(5) The subject matter of the contract must be immovable property or

alienable real rights upon immovables. 61

By a chattel mortgage, personal property is recorded in the Chattel

Mortgage Register as a security for the performance of an obligation. If the
movable, instead of being recorded, is delivered to the creditor or a third person,
the contract is a

pledge, not a chattel mortgage. 62 In case there is an efficiency in such a way that
the proceeds of the sale are not enough to pay the principal obligation during
foreclosure proceedings, the creditor may file a separate case for the recovery of
the deficiency. However, this will not apply in case the principal contract that was
entered is a sale of personal property payable in installment (Recto law) not a
contract of loan.
A chattel mortgage and a real estate mortgage may be distinguished in the
following ways:
(1) In a chattel mortgage, the subject matter is a personal property, whereas
in a real estate mortgage, the subject matter is a real property.
(2) In a chattel mortgage, the requirement of registration is essential for the
validity of the contract; in a real estate mortgage, the requirement of
registration is merely for the purpose of binding third persons.

(3) The procedure for foreclosure of a chattel mortgage is different from the

procedure for foreclosure of a real estate mortgage.

Pactum Commissorium
The Law
Article 2088. The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and
void. (1859a)
Discussion of the Law

61Articles 2085, 2087, 2124, Civil Code ofthe Philippines.

62Article 2140, Civil Code of the Philippines.
100 ASPECTS TOURISM
 Pactum Commisorium is defined as a stipulation giving power to the
creditor to automatically appropriate the thing given as security, if the principal
obligation is not fulfilled without any formality, such as foreclosure proceeding
and public sale. 63
Application of the Law
Case: Don Juan borrowed PI , 500,000 from the Bank of the Philippine Island
(BPI) in order to start his restaurant business. Don Juan executed a chattel
mortgage with his BMW car valued at P2.5M as the security for the debt. It was
expressly stipulated of the contract that if Don Juan cannot pay his debt when it
matures, 'the debt of

73
P 1,500,000 shall be considered as full payment of the BMW car without further
action." In case Don Juan was unable to pay the loan, can BPI appropriate the car
based on the stipulation?
Legal Opinion: No, BPI cannot appropriate the thing. Such stipulation constitutes
pactum commissorium which is expressly prohibited under the law. 138
Case: Don Juan borrowed PI ,500,000 from Bank of the Philippine Island (BPI) to
start his restaurant business. Don Juan executed a chattel mortgage with his BMW
car valued at P2.5M as the security for the debt. It was expressly stipulated in the
contract that if Don Juan cannot pay his debt when it matures, "Don Juan shall
execute a deed of the absolute sale of the car in favor of BPI." In case Don Juan
was unable to pay the loan, can BPI appropriate the thing based on the stipulation?
Legal Opinion: Yes, such stipulation is valid. There is no automatic transmission of
the right of ownership over the thing which is given by way of chattel mortgage,
but merely promise to constitute as assignment of property. What is prohibited by
law is the automatic transmission of the right of ownership over the thing which is
given by way of mortgage.

Guide Questions
As part of your comprehensive review, try to answer the following questions:
1. How would you define law?

63Philippine Legal Encyclopedia, by Jose Agaton Sibal, 1986 Edition, p. 664.

CHAPTER REV(EW AND LAWS
 2. What are the different kinds of law according to scope? What about
according to purpose?
3. What is general or public law? Give examples. 4. What is special or private
law? Give examples.
5. What is tourism law? Why is it Important?
6. Where can tourism law be applied? Give some examples.
7. What are the various sources of tourism law?
8. If our society did not have any law, what could possibly happen? Identify
some possible scenarios of a Jawless society.
9. If the tourism industry did not have any tourism law, what could possibly
happen to the industry? Identify some possible scenarios in the industry
without tourism law.
10. What is the Philippine Constitution?
I l. How important is the right to travel? What happens when a person's right to
travel is suspended or curtailed?
12. Why is "due process" and the "equal protection" clause important in the
tourism industry?
138 Article 2088, Civil Code ofthe Philippines.

HOSPITALITY

13. What is your understanding of the principle of "hold departure order" as a

deprivation of the right of a person to travel?
14. What is the strike? What is the rationale why government employees, though
they may be allowed to form unions, are prohibited to conduct strikes?
15. Is it valid to employ foreigners as general managers of deluxe or five-star
hotels in relation to Section 14, Article XII of the 1987 Constitution?
16. Can restaurants and clubs have fashion shows wherein models wear very
revealing attires?
17. What are the advantages and disadvantages of having a union?
18. Is the right to travel of Filipinos absolute? What are the exceptions?
19. What are the different kinds of obligations?
20. What is the difference between fraud and negligence?
21. Enumerate how an obligation may be extinguished.
22. Are insurance contracts considered contracts ofadhesion? Discuss their
validity. 23. Discuss the current security measures undertaken by airline companies
in order to prevent or minimize hijacking incidents. Discuss its relevance and

102 ASPECTS TOURISM

applicability in relation to the Supreme Court decision in Norberto Quisumbing, Sr.
and Gunther Loemer v. Court of Appeals, G.R. 50076, September 14, 1990. 64
24. What is aforce majeure? What is a fortuitous event? Give examples.
25. Is a coup d'etat considered force majeure? Discuss its legal implications to the
hotel industry which might be used as headquarters in case of military takeover.
26. Differentiate pure obligation from conditional obligation.
27. Differentiate joint obligation from solidary obligation.
28. What are the main characteristics of an obligation with a penal clause?
29. What are the characteristics of a contract? Give an example of each type of
contract.
30. What is the concept of partnership?
31. How does a partnership differ from a corporation?
32. What are the different kinds of partnership?
33. What are the advantages of a partnership? What are the disadvantages of a
partnership?
34. What are the advantages of a corporation? What are the disadvantages of a
corporation?
35. What are the formalities in forming a partnership?
36. What is the concept of a corporation? What are the different kinds of
corporation?

64 You may refer to the Supreme Court Decisions on People ofthe Philippines v. Hedishi Suzuki,
G.R. No. 120670, October 23, 2003, and People of the Philippines v. Susan Canton, G.R. No.
148825, December 27, 2002.

I BUSINESS 75
CHAPTER REV(EW AND LAWS
 37. Explain the trust fund doctrine with respect to the liability of a corporation
to third persons.
38. What are the formalities required in forming a corporation?
39. What is the main function of a board of directors in a stock corporation?
40. What is the difference between a general partnership and a limited
partnership?
41. What are the contents of the Articles of Incorporation?
42. What are the usual contents of a corporation's by-laws?
43. Explain the process of dissolving a partnership and a corporation.
44. What is the concept of a contract of sale?
45. What are the characteristics of a contract of sale?
46. What are the essential requisites of a contract of sale?
47. Discuss the rule in case of sale of personal property payable in installment.
48. Discuss the concept ofpacto de retro sales.
49. What is the contract of agency? What is its most distinctive feature?
50. Discuss the liability of the principal and agent in a contract of agency.
51. Discuss the concepts of a contract of simple loan (mutuum) and pactum
commissorium?
52. What is a real estate mortgage? Distinguish a real estate mortgage from a
chattel mortgage.
53. What is commodatum?
54. Distinguish legitimate labor contracting from labor-only contracting.
55. What are the actions to a breach of contract sales?
56. When is a defect considered redhibitory?
57. What does "right to control" mean?
58. What is a legal independent contractor?

Class Activities
Insights of an Eyewitness
Try to recall a local festival, family
picnic, tourist-oriented event you either
or witnessed participated in during the last
Enumerate
three years.
as many possible situations as you can that
could have potentially led to the violation of a law. What
precautions are necessary in such instances. Express your
insights on the importance of tourism laws. Write a 80- to
100-word brief anecdote of 3 your findings. Post your
article with some photos of the event on social media.
104 ASPECTS
 IN TOVIUSM ANE)
Lawyer! Lawyer!
Interview a lawyer on the following questions: travel,
Where can contracts be handy and useful in the tourism, and hospitality industry?
Can contracts really be enforced in this industry? Is having a contract in all
agreements and business advisable? deals
What are the advantages of having contracts? How
expensive or affordable are the services of drafting a
contract? lawyers in
Present your group 's findings in class (three students per
team).

Rediscovering
Organize a
Museum,Ayala Museum,
or province. Discuss the
in a group sharing session.
How did Filipinos travel through the years?
What were the reasons Filipinos travel?
Why did foreigners come to our shores?
$
What places in the country have you visited? After seeing the museum displays, what places 1
in the country would you like to visit?

Surf That Firm

Form teams with 3 to 4 to the website of a tourism-oriented members each. Go
restaurant, airline, transportation tour agency, event organizer, museum, park,
company (hotel,
etc.). Answer the following questions: company, travel and
What type of company is it? (Sole partnership, or corporation) Does it havegallery, theme
any affiliates or sister Who are the owners or Board of company?
Who are key officers? proprietorship,

companies?
Directors of the

xI OF BUSINESS

CHAPTER REV(EW AND LAWS

 Case Studies
Robert and Janice
Robert Hegarty and Janice Monterey, both
teachers who met in Ho Chi Minh (formerly Saigon),
Vietnam, fell in love and got married later in Lucban,
Quezon. Robert's mom and brother flew from
Scotland to Manila and drove to Lucena City, where
Janice hails, days prior to the date of the wedding.
Some of the work colleagues of Robert and Janice in
Vietnam arrived for the wedding, too. Brainstorm on
potential problems that might ariseprior.to and during
the couple 's unique Scottish-Filipino wedding rites.
Suggest measures to prevent such untoward incidents.
Divide the class into six teams and elect a
spokesperson,

Amsterdam Blues
Rico Marquez, a Filipino executive, travelled
to Amsterdam, Holland to attend a 3-day conference
sponsored by his Cebu-based firm. At NAIA Terminal l,
prior to boarding, an immigration officer harassed him
by falsely accusing him of a fabricated offense. Upon
reaching Schiphol Airport, he noted that his check-in
luggage was mistakenly sent to another destination and
it will take 24 hours to have it delivered to his hotel. In
both incidents, can Rico exercise his rights as a traveler?
Divide the class into six teams and discuss. Explain
your answer.

Internet Research
All Eyes on Imelda Marcos
In the 1990s, there was a debate on whether former First Lady Imelda Marcos, who
had pending cases before the Sandiganbayan at that time, be allowed to travel abroad or not for
medical reasons. Go to any search engine and surf on the topic "Imelda Marcos Medical
Treatment" to know more about the details of this issue as it was extensively covered by the
media. In your opinion, what was the right thing to do? Cite some laws that will justify your
answer. What was the verdict of the court? Do you agree? What was the basis of the court's
decision? Discuss your findings in class.

106 ASPECTS
IN TOÜR.iS&t A NO HOSPITAL'TY

CHAPTER REV(EW AND LAWS

 CHAPTER 2
THE TOURISM PUBLIC SECTOR
Role of Government. Loyalty to the nation all the time, loyalty to the government
when it deserves it.
(Mark Twain, American novelist)

The Case of the Overpriced Airport

The Ninoy Aquino International Airport Terminal 3 was constructed by a
Japanese contractor Takenaka and opened last March 2007. However, the airport
facility which was meant to address the capacity problem of NAIA Terminals 1
and 2 was besieged with two major problems. First, the alleged overpricing of the
NAIA Terminal 3 by $140 million has led to a cabinet-level probe. Takenaka
priced the project at $275 million. Fraport AG, one of the corporate outfits of the
Philippine International Air Terminal Company (PIATCO) consortium, which got
the contract claimed that it invested $425 million in the said project. The award
was later nullified by the Supreme Court due to the various changes in the
concession contracts which the High Tribunal declared as disadvantageous to the
government. Following the High Court's ruling, the government took over the
NAIA 3 facility, claiming that the project was tainted with massive corruption on
top of violations of Philippine laws such as the anti-dummy law. The second
problem of NAIA 3 was the substandard construction reflected by the rapid
deterioration of someparts of the said terminal.

Questions
What lessons have we learned from this
case?
How can the Philippine government prevent a
repeat of this incident?
What charges may be filed against public
officials linked to this scandal?
Is it possible to allow a scandal-
riddled project to open and operate

108 LEGAL
 Mile the decision of the court is still
pending?

79
Learning Objectives
Identify the various government agencies involved in the development and promotion of the
tourism industry as well as their functions
Describe the relationships of these agencies with one another
Explain the possibility of public service as a career in the industry

It was during the year 1973 when the Philippine government realized that there is
a need to realign government efforts toward trade promotion and tourism
development for greater effectiveness; hence, the need for the government's
Immediate and priority attention. This gave rise to Presidential Decree No. 189
(May 11, 1973) creating the Department of Tourism which was enacted to make
the tourism industry a positive instrument toward accelerated national
development through which more people from other countries may visit and better
appreciate the country and through which the Filipinos themselves may learn more
about the natural beauty, history, and culture of the Philippines and, thus, develop
greater pride in and commitment to the nation. 65
This chapter deals with various government agencies directly or indirectly
involved in the promotion of tourism in our country.
The Law
Department of Tourism
The Department of Tourism (DOT) was created by virtue of Presidential
Decree No. 189. It is the primary policymaking, planning programming,
coordinating and administrative entity of the executive branch of the government
in the development of the tourism industry, both domestic and international. 141 The
DOT has the following major functions:
(a) Supervises all activities of the government which concern tourism;

65 Section 1, P.D. 189. Section

2, P.D. 189.

ge;rr.crs ANE)
 (b) Effects the removal of unnecessary barriers to travel; the integration
and simplification of travel regulations; as well as their efficient, fair
and courteous enforcement to assure expeditious and hospitable
reception of all visitors;
(c) Formulates an integrated program of promotion and publicity
designated to attract and induce people abroad to viS1t the Philippines,
patronize things which are Philippine-made, and to enhance the prestige
of the Filipino people and the Republic;
(d) Reviews all tourism projects which involve loans from government
financial institutions before said institutions may take action on them,
and approve all tourism projects and firms applying for tax incentives
under the Export Incentives Act, as amended by Presidential Decree
No. 92, before the Board of Investments may take action on them;
(e) Represents the Government in all conferences and meetings concerning
tourism; and travel and discharge such responsibilities of the
Government as may arise from treaties, agreements and other
commitments on tourism and travel, to which it is a signatory;
(f) Accredits travel agents, tour operators, and tour guides;
Classifies and accredits hotels, resorts, inns, motels, hotels, restaurants and
other related facilities and services which cater to foreign and domestic tourists
and in addition, formulates suitable standards to ensure that the highest possible
standards are met, reasonable fees and charges are made and that services are
given with honesty, courtesy, and effciency; and
(h) Performs such other functions as may be provided by law. 142

Discussion of the Law

The power to regulate, license, and supervise tour operators and
accommodation facilities has now been devolved to the local government units. 143
However, it must be noted that the "power to regulate" does not include the "power
to prohibit operation of these establishments" without due process of the law. The
word "regulate," as used in subsection (1), Section 2444 of the Administrative
Code, means and includes the power to control, to govern, and to restrain; but
"regulate" should not be construed as synonymous with "suppress" or "prohibit.
"144 Application of the Law
Case: The Malate Tourist Development Corporation (MTDC), a corporation
engaged in the business of operating hotels, motels, hostels, and lodging houses,

110 LEGAL
built and opened Victoria Court Malate which was licensed as a motel although
duly accredited with the DOT as a hotel. On March 30, 1993, an ordinance was
passed prohibiting the establishment or operation of business providing certain
forms pf amusement, entertainment, services and facilities in the Ermita-Malate
Area where women are used as tools for entertainment and which tend to disturb
and affect the social and moral welfare of the community. On June 28, 1993,
MTDC questioned the validity

142 Section 4, P.D. 189, as amended by the Local Government Code of 1991.
143 Section 458 (a) 4 (iv) [12] of the Local Government Code of 1991.
144 City of Manila, Hon. Alfredo S. Lim et al. v. Hon. Perfecto A.S. Laguio, Jr. et al., G.R. No. 118127,
April 12, 2005.

1 THE TOURISM SECTOR 81

of the Ordinance and prayed that the same insofar as it includes motels and inns as
among its prohibited establishments, be declared invalid and unconstitutional. In its
defense, the City of Manila alleged that such Ordinance is a valid exercise of the
police power of the state as it has the "power to regulate" such establishments as
mandated under the Local Government Code of 1991. How will you rule on the
issues?
Legal Opinion: The Ordinance should be declared unconstitutional and invalid.
The "power to regulate" means the power to control, to govern, and to restrain
places of exhibition and amusement; but the "power to regulate" should not be
construed as synonymous with the "power to suppress" or "power to prohibit." The
police power granted to local government units must always be exercised with
utmost observance of the rights of the people to due process and equal protection
of the law. Such power cannot be exercised whimsically, arbitrarily, or
despotically. 145 The Law
By virtue of the enactment of the Tourism Act of 2009, 146
certain tourism public
sectors have been reorganized and renamed.
The DOT, under this law, is reorganized and given considerable sources of
funding to achieve its designated mandated and functions, which includes
increasing tourist access. Certain areas are to be designated as Tourism Enterprise
Zones (TEZ) and incentives are given to covered tourism enterprises. 147
The Philippine Tourism Authority (PTA) is hereby reorganized as the
Tourism Infrastructure and Enterprise Zone Authority (TIEZA).
The Philippine Conventions and Visitors Corporation (PCVC) is hereby
reorganized as the Tourism Promotions Board (TPB), as hereinafter provided.
 The Bureaus for Domestic and International Tourism Promotions, and the
Office of Tourism Information of the Department, are hereby absorbed into the
Tourism Promotions Board. 148
Discussion of the Law
Some of its highlights are as follows:
Under said law. The DOT shall be the primary planning, programming,
coordinating, implementing, and regulatory government agency in the
development and promotion of the tourism industry, both domestic and
international, in coordination with attached agencies and other government
instrumentalities. 149

145 City of Manila, Hon. Alfredo S. Lim et al. y. Hon. Perfecto A.S. Laguio, Jr. et al., supra.
Republic Act 9593, May 12, 2009.
147 Tourism Act of 2009, Visit Pilipinas. Accessed February 2014.
http://visitpilipinas.com/tourismact-of-2009-ra-9593-a-primer/.
148 Section 25, RA 9593. 149
Section 5, RA 9593.

TN AND

112 LEGAL
 The TIEZA shall be attached to the DOT for purposes of program and
policy coordination. Accordingly, the TIEZA shall be body corporate which shall
designate, regulate and supervise the TEZs, as well as develop, manage and
supervise tourism infrastructure projects in the country. It shall supervise and
regulate the cultural, economic and environmentally sustainable development of
TEZs toward the primary objective of encouraging, investments therein. It shall
ensure strict compliance of the TEZ operator with the approved development plan.
Pursuant thereto, the TIEZA shall have the power to impose penalties for failure or
refusal of the tourism enterprises to comply with the approved development plan,
which shall also be considered a violation of the terms of accreditation. 66 The
TIEZA remains to be the principal agency responsible for the timely, effective and
efficient collection of travel taxes. The amounts collected by the TIEZA shall be
distributed as follows:

(a) - TIEZA•,
(b) 40% — CHED Higher Education Development Fund; and
(c) 10% — National Commission and Arts (NCAA). 67
The TPB shall formulate and implement an integrated domestic and
international promotions and marketing program for the DOT. 68 The TPB shall be
responsible for marketing and promoting the Philippines domestically and
internationally as a major global tourism destination, highlighting the uniqueness
and assisting the development of its tourism products and services, with the end in
view of increasing tourist anivals and tourism investment. Specifically, it shall
market the Philippines as a major convention destination in Asia. To this end, it
shall take charge of attracting, promoting, facilitating, and servicing large-scale
events, international fairs and conventions, congresses, sports competitions,
expositions, and the like. It shall also ensure the regular advertisement abroad of
the country's major tourism destinations and other tourism products, not limited to
TEZs. It may also provide incentives to travel agencies abroad which are able to
draw tourists and tourism investments to the country. 69
The Intramuros Administration, the National Parks Development
Committee and the Nayong Pilipino Foundation shall continue to be attached to the
DOT and shall operate under their respective charters. They may be authorized to

66Section 64, RA 9593.

67Section 66, Implementing Rules and Regulations ofRA 9593, November 10, 2009.
68Section 45, RA 9593.
69Section 46, RA 9593.
113
operate TEZs, under the supervision of the TIEZA, within their respective
jurisdictions. 70
The Duty Free Philippines Corporation (DFPC) shall have exclusive
authority to operate and/or franchise out the operation of stores and shops that shall
sell, among others, duty and tax-free merchandise, goods and articles in
international airports and seaports, other ports of entry throughout the country and
in TEZs. Any geographic area where a TEZ may be established shall conform with
the following general criteria to ensure that they will not proliferate in a manner
that diminishes their strategic economic and developmental value to the national
economy: (a) The area is capable of being defined into one contiguous territory; (b)
It has historical and cultural significance, environmental beauty, or existing or
potential integrated leisure facilities within its bounds or reasonable distances
from it; (c) It has; or it may have, strategic access through transportation
infrastructure, and reasonable connection within utilities infrastructure systems; (d)
It is sufficient in size, such that it may be further utilized for bringing in new
investments in tourism establishments and services; and (e) It is in a strategic
location such as to catalyze the socioeconomic development of neighboring
communities. 155
Application of the Law
Case: Fairmont Hotel Makati opened its doors to the public in December 2012. 71
The deluxe property, the latest addition to the international hotel chain, boasts of
280 elegantly appointed guestrooms. Five food and beverage outlets, a state-of-
theart spa and techno gym , and meeting and conference facilities. The hotel is
part of Ayala Land Hotels and Resorts which has recently developed Anvaya
Cove, acquired El Nido Resorts, and opened Seda Hotels.
Is it possible to open the said property and not be accredited by the DOT?
Can it be applied as a tourism enterprise zone?
Legal Opinion: Under the new law, the Tourism Act of 2009, all primary tourism
establishments must mandatorily be accredited by the DOT before they could
operate and offer products and services to the public. Thus, the business
70Section 29, RA 9593.

CHAPTER 2 | TOUIUSM SECTOR

71Fairmont Hotel. Accessed February 2014. www.fairmont.com.

ASPECTS AND HOSPITALITY

114 LEGAL TOURISM
development manager of Fairmont Hotel Makati should apply for the said
accreditation 6 months prior to its target opening to allow sufficient time for
documentation process and inspection visits by DOT officials. Moreover,
Fairmont Hotel Makati may not qualify as a tourism enterprise zone because it
does not meet the minimum requirements set by the Tourism Infrastructure and
Enterprise Zone Authority (TIEZA).
The Law
Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
The former Philippine Tourism Authority has now been renamed and
converted into the Tourism Infrastructure and Enterprise Zone Authority (TIEZA).

155 Section 71, Implementing Rules and Regulations of RA 9593, November 10, 2009.
Its main thrusts include maximizing revenue-generating to achieve national and
organizational goals and objectives; upgrading management information systems
to improve operational competence; implementing approved reorganization plan of
PTA as TIEZA; effective managing of all Tourism Enterprise Zones around the
country; developing and managing tourism infrastructures in areas having strong
tourism potentials; hastening privatization of disposable operating and non-
operating properties; and continuously improving personnel efficiency and
competency through relevant personnel development programs.
Presidential Decree 564 (October 2, 1974) was enacted revising the charter
of the Philippine Tourism Authority (PTA) which was originally created under
Presidential Decree No. 189 dated May 11, 1973. Strengthening the PTA was
needed in order to be in a better position to effectively unify and integrate related
activities and services of both government and private entities pertaining to tourism
development projects.
Travel tax collection is PTA's main source of income. Travel tax is a levy
imposed by the government on individuals (citizens of the Philippines, permanent
resident aliens who have stayed in the country for more than a year) who are
leaving the country irrespective of the place where the air ticket is issued as
provided for P.D. 1183 as amended by P.D. 1205, Batas Pambansa Blg. 38, and
E.O. 283 on travel tax. of travel taxes are coursed thru the Bureau of Internal
Revenue. 72Discussion of the Law
The mandate of the TIEZA under R.A. No. 9593 includes the following:
(a) To designate, regulate, and supervise tourism enterprise zones
established under R.A. 9593;
72Philippine Tourism Authority. Accessed December 2007. www.pta.gov.ph.
1 115
 (b) To develop, manage, and supervise tourism infrastructure projects
nationwide;
(c) To provide technical and financial assistance to qualified tourism
projects, investors and proponents (both government and private);
(d) To generate revenues to fund both national and corporate development
needs and/or undertakings; and
To exercise PTA functions under P.D. 564.

A Tourism Enterprise Zone is defined as follows: 73

Any entity duly incorporated under the Corporation Code and other
relevant laws, or any LGU or any other instrumentality of government in the
pursuit of their mandate may qualify as an applicant for the designation of an area
as a TEZ.
TEZs can be any geographical area in the country that conforms to the
following criteria:
(a) The area is capable of being into one contiguous territory;
(b) It has historical and cultural significance, environmental beauty, or
exercising or potential integrated leisure facilities within its bound or
reasonable distance from it;
(c) It has, or it may have, strategic access through transportation
infrastructure, and reasonable connection with utilities infrastructure
systems;
(d) It must be at least five (5) hectares and sufficient in size, such that it
may be further utilized for bringing in new investments in tourism
establishments and services;
(e) It is in a strategic location such as to stimulate the sustainable
socioeconomic development of neighboring communities; and
(f) The area must be situated where controls can easily be established to
curtail illegal activities.

Based on the particular purpose stated in the applicant's development plan,

the TEZs to be created shall be classified as follows:

73Tourism Infrastructure and Enterprise Zone Authority. Accessed February 2014. www.tieza.com.ph.

CHAP THETOUIUSMPUBLYC SECTOR

116 LEGAL TOURISM
 (a) Cultural Heritage Tourism Zone — areas that will allow the tourist to
experience the places, artifacts, and activities that authentically
represent the stories of the people living in the area, past or present.
The area may include, but will not be limited to:
(1) Cultural landscapes;
(2) historic sites, areas, and precincts;
(3) Ruins, archaeological and maritime sites;
(4) Sites associated with industrial, scientific and agricultural
heritage;
(5) Collections that house or collectively promote objects of
heritage significance;
(6) Historic places and areas, including villages, small towns, cities
and parts of larger urban areas with significant cultural and
heritage assets; and
(7) Museums Art Galleries, Cultural Centers, Art & Crafts Shops,
and Antique Shops, and Cultural Sites.
(b) Health and Wellness Tourism Zone — areas that will allow visitors to
avail of quality but affordable mainstream, traditional, or alternative
healthcare services for treatment of illnesses and health problems in
order to maintain one's health and well-being.
ASPEC?S IN HOSPIT:UXPI'
The area may include, but will not be limited to enterprises that are, or
offer:
(1) Medical and Allied Services;
(2) Spas;
(3) Health Farms;
(4) Counseling and Rehabilitation Services; and
(5) Traditional Filipino Touch Therapy.
(c) Eco-Tourism Zone — areas that will allow visitors to experience a form of
suitable tourism within a given natural and/or cultural area where
community participation, conversation and management of biodiversity,
respect for culture and indigenous knowledge systems and practices,
environmental education, and ethics as well as economic benefits are

1 117
 fostered and pursued for the enrichment of host communities and
satisfaction of visitors.
The area may include, but will not be limited to:

(1) Sites of scenic or rural beauty;

(2) Areas for observing wildlife;
(3) Areas for low impact activities such as camping, trekking, climbing,
spelunking, diving, surfing, and other similar activities; and
(4) Sites for observing and interacting with traditional or indigenous
practices in relation to the environment.
(d) General Leisure Tourism Zone — areas that may offer recreational facilities
that will have high visitor density. The area may include, but will not be
limited to:
(1) Golf Parks/Resorts;
(2) Theme Parks and Amusement Centers;
(3) Convention and Meeting Centers;
(4) Sports Complexes/Resorts;
(5) Event Centers/Resorts;
(6) Department Stores/Restaurants/Shops; and
(7) Zoos.
(e) Mixed-use Tourism Zone — areas that will allow a combination of some or all
of the features of the aforementioned zones within one area.
CHAPTER2 TOURISM PUBOCSECTOR

Retirement communities and facilities duly accredited by the Philippine

Retirement Authority may be located in General Leisure Tourism Zones, Health
and Wellness Tourism Zones, and Mixed-use Tourism Zones.
In accordance with the Tourism Act of 2009 or R.A. No. 9593, TIEZA
started to accept applications for designation of Tourism Enterprise Zone (TEZs)
and registration of existing accommodation establishments which will undertake
substantial expansion. The TIEZA Guidelines for Designation and Supervision of
Tourism Enterprise Zone and Administration of Incentives under R.A. No. 9593
which took effect on August 1, 2011 :
Schedule of Fees

TEZ Operator Filing Fee P200,OOO

118 LEGAL TOURISM

 Publication Fee PIOO,OOO

Registered Tourism RTE (New) 0.1% of the Capital Investment

Enterprise but not to exceed P200,000
RTE (Existing) 0.1% of the Capital Investment
but not to exceed P 100,000

Publication Fee PIO,OOO

The detailed steps in applying for TEZ are as follows:

Tourism Infrastructure and Enterprise Zone Authority
(TIEZA)
HOW TO APPLY FOR TOURISM ZONE DESIGNATION
Where to get Application Forms:
Download at http://www.tieza.com.ph.
Get copy at Room 602 Office of the Corporate Secretary.

Step 1: Submit Application Form, and Pre-Qualification Documents at the

Office of the Corporate Secretary.
Step 2: Get Authority to Accept Payment from the Office of the Corporate
Secretary
Step 3: Pay Filing Fee at the Treasury Division.

Step 4: Present Official Receipt to the Office of the Corporate Secretary.

Step 5: Wait for TEZ to Secretariat to issue Notice to Proceed Application.

IN AND HosprTAi.m•

1 119
 It is also good to know that the previous PTA had the following general powers:
(a) To implement policies and programs of the DOT pertaining to the
development, promotion, and supervision of tourism projects in the
Philippines;

(b) To promote the development into integrated resort complexes of selected

and well-defined geographic areas with potential tourism value.
Known otherwise as "tourist zones;"
(c) To extend all forms of assistance to private enterprise in undertaking tourism
projects;
(d) To undertake for its own account or in joint venture with the private sector
the operation and maintenance of essential tourist facilities which private
enterprise alone is not prepared or willing to undertake;
(e) To assure availability of land at reasonable prices or rental rates for private
investors in hotels and other tourist facilities; and

(f) To coordinate, assist and implement tourism-related plans or operations of local

governments, governmental agencies, public corporation, and where clearly
necessary and feasible, those of private entities so as to make possible the
accelerated and balanced growth and development of tourism in the
Philippines which is responsive to the needs of targeted travel markets here
and abroad.

By virtue of R.A. No. 11262 which was signed into law on April 10, 2019, the
TIEZA will have the sole and exclusive jurisdiction to grant incentives to tourism
enterprise zone (TEZs) until December 31, 2029. 74 Some of these incentives include the
following:
1. Fiscal incentives
a. Income tax holiday
b. Exempted from payment of all national and local taxes
c. 5% on gross income
d. Exemption from customs duties

74R.A. 11262.

PUBLIC

1 TUE SECTOR 120

 2. Non-fiscal incentives
a. Employment of foreign nationals for the following positions: executive,
supervisor, technical and adviser/consultant positions
b. Special Investor's Resident Visa (SIRV) and Working Visas
C. Buildings and lands in a TEZ may be leased to foreign investors for 50
years and renewable of no more than 25 years. 75 This is also known
as the Investor's Lease Act of R.A. No. 7652.
Application of the Law
Case: The heirs of Juancho Ardona are challenging the constitutionality of
Presidential Decree No. 564, the Revised Charter of the Philippine Tourism Authority,
and Proclamation No. 2052 declaring the barangays of Sibugay, Malubog, Bagbag, and
Sirao including he proposed Lusaran Dam in Cebu City and in the municipalities ofArgao
and Dalaguete in the province of Cebu as tourist zones. The heirs of Mr. Ardona are also
seeking relief in order to restrain the PTA from enforcing the expropriation of their lands
which have been declared as tourist zone under Proclamation No. 2052. The heirs of Mr.
Ardona are claiming that the property in question has been previously declared a land
reform area, hence the implementation of the social justice provision of the Constitution on
agrarian reform is paramount to the right of the State to expropriate the lands. Is the claim
of the heirs of Juancho Ardona valid?
Legal Opinion: No. It has been ruled that expropriating 282 hectares of land to establish
a resort complex and declaring certain municipalities in the province in Cebu as tourist
zones is a valid exercise of eminent domain by the PTA notwithstanding the claim that
certificates of land transfer and emancipation had already been issued. The Constitution
does not preclude nor limit the exercise of the power of eminent domain for such
purposes like tourism and other development programs. Tourism is also part of the
declared national objectives of the framers of the Constitution as it is covered in general
terms such as social justice, local autonomy, conversation and development of the
national patrimony, public interest, and general welfare, among others.76The Law
Intramuros Administration
For four hundred years, Intramuros has been a priceless heritage of the past for
the City of Manila and a major historical landmark of the Philippines. In order to
preserve and enhance the historical value of Intramuros, a national historical
consciousness program demands its restoration, development and maintenance, and for

75 R.A. 7652.
76Heirs ofArdona v. Reyes, G.R. No. 60549, October 26, 1983, 125 SCRA221.
ASPECTS

CHAPTER THE SEC"VOR 121

this purpose. Hence, Presidential Decree No. 1616 (April 10, 1979) created the
Intramuros Administration to be charged with such vital role and responsibility.
Intramuros Administration (IA) shall be responsible for the orderly restoration
and development of Intramuros as a monument to the Hispanic period of the Philippine
history. It shall also ensure that the general appearance of Intramuros shall conform to
Philippine-Spanish architecture of the 16th to the 19th century. 162
The IA has the following functions:
(a) Formulates, coordinates, and/or executes policies on the implementation of
all programs, projects and activities of the government affecting or relating
to Intramuros.
(b) Enters into contracts with any private persons or entity or any government
agency, either domestic or foreign, whenever necessary for the effective
discharge of its functions and responsibilities under such terms and
conditions as it may deem proper and reasonable;
(c) Acquires through sale, expropriation, or other means, holds real and personal
property as it may deem necessary or convenient in the successful
prosecution of its work, and leases, mortgages, sells, alienates, or otherwise
disposes of such personal and real property;
(d) Receives, takes, and holds by bequest, device, donation, gift, purchase or
lease, from foreign or domestic sources, either absolutely or in trust for any
of its purposes, any asset, grant or property, real or personal, subject to such
limitations as are provided in existing laws and regulations; to convey such
assets, grant or property; invest and reinvest the same and deal with and
expand its assets and income in such manner as will best promote its
objectives;
(e) Initiates, plans, undertakes, and supervises the restoration, upkeep and
maintenance ofthe Intramuros Walls, including the ravelins, moat, Sunken
Garden and public places or areas, plazas, streets and other government
owned or managed properties situated within Intramuros; and
(O Prepares, adopts, revises, and enforce such rules and regulations, implementing
guidelines and standards as are necessary for the effective regulation of the
land use and development activities in Intramuros of both the government
and private entities and for the implementation of the Intramuros Plan,
including, but not limited to development rules and regulations pertaining to
the following:

122 LEGAL TOURISM

 (1) Land use allocation, use of buildings, their height, dimensions,
architectural style and designs and other specification of the building
construction to be undertaken therein;
(2) Traffic management, street usage and other related matters;

162 Section 1, P.D. 1616.

2| TOUR(SM PUBLIC

CHAPTER THE SEC"VOR 123

 (3) Size and character of display signs, advertising billboards, ant
other external signs and advertisements in buildings, in open
spaces lots or roads; and
(4) Supervision and control of all activities involving archaeological
diggings, excavations and exploration within Intramuros
including the use, disposition, registration and maintenance
archaeological findings and discoveries.
Expropriates properties within Intramuros;
(h) Sponsors, conducts, or otherwise assists and support festivals and cultural
activities in Intramuros, and charges and collects admission fees to th: restored
gates and other attractions operated by the Administration;
(i) Gives grants, contributions, and donations for the restoration, repair
maintenance of historic structures in Intramuros, including San
Agus Church, and lot of structures outside of Intramuros which are of
similar nature and character as those which existed in Intramuros, for the
conduct of historical, architectural, archaeological and other research,
and for other purpose in furtherance of its objectives; and
(j) Prescribes and collects reasonable amounts to be charged as filing fees,
inspection fees, permit fees, and other administrative or service fees
necessary for the effective enforcement of its laws and regulatory measures
to be used and disbursed by it in the manner determined by it to promote its
objectives.
Discussion of the Law
The Intramuros Administration has been one government agency that has
been in the news on many occasions due to the call for development and the
need to preserve a historical place which is the entire Intramuros itself. A
number of business enterprises have attempted to provide a more modern look
to Intramuros, increase business activities which added to the pollution of
Intramuros, and demolish some old structures. But Intramuros Administration
has been quite strict at times especially when civil society exerts the needed
pressure.
Application of the Law
Case: Mr. Robert San Jose wishes to put up an P85-million sports complex
within the vicinity of the Intramuros area. What advice will you give?
Legal Opinion: Mr. San Jose must first secure an approval at the Intramuros
Administration for the architectural design of the building of which he is
124 LEGAL IN TOURISM
about

163 Section 4, PD. 1616.

ASPECTS AND

to erect before he plans to put up his building within the Intramuros Area. 164
Otherwise, Mr. San Jose cannot be allowed to erect his building within the
Intramuros.
Other Government Agencies
National Parks Development Committee (NPDC)
The National Parks Development Committee was created originally as
an Executive Committee on January 14, 1963, for the development of the
Quezon Memorial, Luneta, and other national parks. It was later designated as
the National Parks Development Committee (NPDC). Despite an attempt to
transfer it to the Bureau of Forest Development, Department of Natural
Resources, the NPDC has remained under the Office of the President. National
Historical Institute (NHI)
Presidential Decree No. 260 dated August 1, 1973 has declared certain
sites, churches and places as national shrines, monuments, and/or landmarks,
and place their preservation, restoration and/or reconstruction under the
supervision and control of the National Historical Institute (NHI) in
collaboration with the DOT. Hence, the NHI was given the right to declare
historical and cultural sites and edifices as national shrines, monuments and/or
landmarks. By virtue of Presidential Decree No. 1 dated September 24, 1972,
the NHI has been given the authority for the preservation, restoration, and/or
reconstruction of several
historic sites and buildings. 165All monetary contributions and donations to the
archives of the NHI are tax exempt and deductible from the taxable income of
the donor. 166
Today, the NHI continues to be the lead government agency where
matters of history and culture are concerned. It continues to conceive
programs and projects for the public's appreciation of history, educating the
Filipino masses on the lessons of the past and perpetuating the memory of our
illustrious heroes. Aside from commemorating historical events and
personages, conducting research and publishing scholarly works, the Institute
also maintains historical sites all over the country and is engaged in the
presentation of these sites as well as the relics and memorabilia found in these
places. It maintains a conversation center manned by personnel well-trained
CHAPTER THE SEC"VOR 125
 for the job and also provides training services and technical assistance to both
government and private sectors. 167

164 Section 3 (e), P.D. 1616, as amended by P.D. 1748.

165 P.D. 1505.
166 Section 1, P.D. 373, January 9, 1974.
167 National Historical Institute. Accessed February 2014. www. nhi.gov.ph.

ZI 1%UBLiC

National Commission for Culture and the Arts (NCCA)

R.A. No.7356 has been enacted in order to create the mandate of the
National Commission for Culture and the Arts. Its functions are as follows:
a. Formulates policies for the development of culture and the arts;
b. Coordinates and implements the overall policies and program of
attached agencies on the development of culture and arts as stated
under Executive Order No. 80;
C. Administers the National Endowment Fund for Culture and the Arts;
d. Encourages artistic creation within of artistic freedom;
e. Develops and promotes the Filipino national culture and arts; and
Preserves Filipino cultural heritage.

By virtue of the R.A. No.8492, the National Museum has now been
detached from the National Commission for Culture and the Arts and has now
been placed solely for budgetary purposes under the Office of the President.
The primary purpose of the National Museum is to acquire documents,
preserve, exhibit, and foster scholarly study and appreciation of works of art
specimen and cultural and historical artifacts.
Tourism Promotions Board (TPB) 77
The Tourism Promotions Board (TPB) is an agency attached to the
DOT, tasked with promoting the country as an ideal tourism, convention and
incentive travel destination. It provides comprehensive information, assistance
and guidance to meeting planners and incentives travel organizers who seek
an idea venue for their meetings and incentives groups.

77PCVC now renamed as Tourism Promotions Board under RA 9593.

ASPÉc•rs AND Hoserratrry

126 LEGAL IN TOURISM
Bangko Sentral ng Pilipinas (BSP)
Presidential Decree No. 520 issued on July 23, 1974 empowers the
Bangko Sentral ng Pilipinas (formerly Central Bank of the Philippines) to
organize a corporation which will manage and administer the Philippine
International Convention Center.
National Economic Development Authority (NEDA)
The National Economic Development Authority (NEDA) is the country's
independent economic development and planning agency. It is headed by the
President as chairman of the NEDA board with the secretary of
Socioeconomic Planning, concurrently NEDA Director-General, as vice-
chairman. All Cabinet members, as well as the Central Bank governor, are
members of the NEDA Board. The NEDA was created in pursuance of the
goals of promoting the economic and social development and stability of the
country. The NEDA may, in the discharge of its duties and functions, call
upon any private person or representative of the private sector for such views
or advice as may be pertinent to any matter under its consideration.78
Anti-Money Laundering Council
The Anti-Money Laundering Council (AMLC) is the agency of the
Government of the Philippines that is tasked to implement the provisions of
R.A, No. 9160, also known as the "Anti-Money Laundering Act of2001 "
(AMLA), as amended, and R.A. No. 10168, also known as the "Terrorism
Financing Prevention and Suppression Act of 2012" (TFPSA). It serves as the
Philippines' central anti-money laundering/counterterrorism financing
(AML/CTF) authority. As such, it functions as the AML/CTF regulator and
supervisor, financial intelligence unit, and primary law enforcement agency of
the Philippines against money laundering and terrorist financing. 79Philippine
Amusement and Gaming Corporation (PAGCOR)
PAGCOR is a government-owned and controlled corporation existing
under
Presidential Decree No. 1869 issued on July 11, 1983 by President Ferdinand
Marcos. Pertinent provisions of said enabling law read:
Section 1. Declaration of Policy. It is hereby declared to be the
policy of the State to centralize and integrate all games of chance not

78NEDA. The LawPhil Project. Accessed February 2014. www.lawphil.net.

79 Anti-Money LaunderingAct of2001. Anti-Money Laundering Council. Accessed February
2014. www.amlc.gov.ph.
CHAPTER THE SEC"VOR 127
 heretofore authorized by existing franchises or permitted by law in order
to attain the following objectives:

(b) To establish and operate clubs and casinos, for amusement and
recreation, including sports gaming pools (basketball, football,
lotteries, etc.) and such forms of amusement and creation
including games of chance, which may be allowed by law
within the territorial jurisdiction of the Philippines and which
will: x x x (3) minimize, if not totally eradicate, the evils,
malpractices and corruptions that are normally prevalent in the
conduct and operation of gambling clubs and casinos without
direct government involvement.
PAGCOR is granted for a period of twenty-five (25) years, renewable
for another twenty-five (25) years, the rights privileges and authority to
operate and maintain gambling casinos, clubs, and other recreation or
amusement places, sports, gaming pools (i.e., basketball, football, lotteries,
etc.) whether on land or sea, within the territorial jurisdiction of the Republic
of the Philippines. 8081

80Senator Robert Jaworski v. PAGCOR et al., G.R. No. 144463, January 14, 2004.

81 •l TOUR{SM PUBLIC

128 LEGAL IN TOURISM

Department of Environment and Natural Resources (DENR)
As provided under Section 4 of Executive Order 192, the DENR is
mandated to be the primary government agency responsible for the conversation,
management, development, and proper use of the country's environment and natural
resources, including those in reservations, watershed areas and lands of the public
domain, as well as the licensing, utilization, and regulation of all natural resources
as may be provided by law in order to ensure equitable sharing of the benefits
derived therefrom for the welfare of the present and future generations of Filipinos.
The DENR's mission is to be the dynamic force behind people's initiatives
in the protection, conversation, development, and management of the environment
through strategic alliance and partnership relevant policies and programs, and
appropriate information technology toward sustainable development.
The powers and functions of the DENR, per Section of 5 of E.O. 192, are as
follows:
(a) Advises the President on the. enactment of laws relative to the development,
use, regulation, and conservation of the country's natural resources and
the control of pollution;
(b) Formulates, implements, and supervises the government's policies, plans and
programs pertaining to the management, conservation, development, use
and replenishment of the country's natural resources;
(c) Promulgates rules and regulations in accordance with law governing the
exploration, development, conversation, extraction, disposition, use and
such other commercial activities tending to cause the depletion and
degradation of our natural resources;
(d) Exercises supervision and control over forest lands, alienable and disposable
lands, and mineral resources and impose appropriate payments, fees,
charges, rentals and any such form of levy and collect such revenues for
the exploration, development, utilization or gathering of such resources;
Undertakes exploration, assessment, classification and inventory of the
country's natural resources using ground surveys, remote sensing and
complementary technologies;
(f) Promotes proper and mutual consultation with the private sector involving
natural resources development, use and conservation;
Undertakes geological surveys of the whole country including its territorial
waters;

CHAPTER THE 129

 E..EGAL ASPECTS ND HOSPITAUT%r

(h) Establishes policies and implements programs for the:

(1) Accelerated inventory, surveys and classification of lands, forest and
mineral resources using appropriate technology, to be able to come up
with a more accurate assessment of resource quality and quantity;
(2) Equitable distribution of natural resources through the judicious
administration, regulation, utilization, development and expansion of natural
resource-based industries;
(3) Promotion, development and expansion of natural resource-based
industries;
(4) Preservation of cultural and natural heritage through wildlife
conservation and segregation of national parks and other protected
areas;
(5) Maintenance of a wholesome natural environment by enforcing environmental
protection laws; and
(6) Encouragement of greater people's participation and private initiative in
natural resource management.
Promulgates rules and regulations necessary to:

(1) Accelerate cadastral and emancipation patent surveys, land use

planning and public land titling;
(2) Harness forest-resources in a sustainable manner, to assist rural
development, support forest-based industries, and provide raw
materials to meet increasing demands, at the same time keeping
adequate reserves for environmental stability; and
(3) Expedite mineral resources surveys, promote the production of
metallic and non-metallic minerals, and encourage mineral
marketing.
(j) Regulates the development, disposition, extraction, exploration and use of
the country's forestland and mineral resources;
(k) Assumes responsibility for the assessment, development, protection, conservation,
licensing and regulation as provided for by the law, where applicable, of all natural
resources; the regulation and monitoring of service contractors, licensees, lessees,
and permittees for the extraction, exploration, development and utilization of
natural resource products; the implementation of programs and measures with the
end in view of promoting close

130 IN TOURISM
 2| 'IOCRESM spa-ort

collaboration between the govenment and the private sector; the

effective and efficient classification and sub-classification and lands of
the public domain; and the enforcement of natural resources laws, rules
and regulations;
Promulgates rules, regulations and guidelines on the issuance of co-
production, joint venture or production sharing agreements, license,
permits, concessions, leases and such other privileges and arrangement
concerning the development, exploration and utilization of country's
natural resources and shall continue to oversee, supervise and police our
natural resources; to cancel or cause to cancel such privileges and
arrangements upon failure, non-compliance or violations of any
regulations, orders, and for all other causes which are in furtherance of
the conversation of natural resources and supportive if the national
interest.
(m) Exercises exclusive jurisdiction on the management and disposition of
all lands of the public domain and shall continue to be the sole agency
responsible for the classification, sub-classification, surveying and titling
of lands in consultation with appropriate agencies;
(n) Implements measures for the regulations and supervision of the
processing of forest products, grading and inspection of lumber and other
forest products and monitoring of the movement of timber and other
forest products;
(o) Promulgates rules and regulations for the control of water, air and land
pollution; promulgate ambient and effluent standards for water and air
quality including the allowable levels of other pollutants and radiations;
(p) Promulgates policies, rules and regulations for the conservation of the
country's genetic resources and biological diversity, and endangered
habitats which will be presented to the Cabinet for the President's
approval.
(q) Promulgates an integrated, multi-sectoral, and multi-disciplinary
National Conservation Strategy, which will be presented to the Cabinet
for President's approval; and
(r) Exercises other powers and functions and perform such other acts as may
be necessary, proper or incidental to the attainment of its mandates and
objectives.

CHAPTER THE 131

 Under R.A. No.9147 or known as the Wildlife Resources Conservation and
Production Act (July 30, 2001), the DENR shall have jurisdiction over all terrestrial

172 Section 4, Executive Order No. 192.

LEGAL Aspec'rs AND

132 IN TOURISM
 plant and animal species, all turtles and tortoise and wetland species, including but not
limited to crocodiles, waterbirds, and all amphibians and dugong. The Department of
Agriculture (DA), on the other hand, shall have jurisdiction over all declared aquatic
critical habitats, all aquatic resources including but not limited to all fishes, aquatic
plants, invertebrates and all marine mammals, except dugong. 173 For the

implementation of international agreement on international trade in endangered species

of wild fauna and fora, the management authorities for terrestrial and aquatic resources
shall be the Protected Areas and Wildlife Bureau (PAWB) of
the DENR and the Bureau of Fisheries and Aquatic Resources (BFAR) of the DA,
respectively. 174
Department of Labor and Employment (DOLE)
The following are the functions of the Department of Labor and Employment
(DOLE):
(a) Enforces social and labors legislation to protect the working class and
regulate the relations between the worker and his employers;
(b) Formulates and recommends policies, plans, and programs for manpower
development, training, allocation, and utilization;
(c) Recommends legislation to enhance the material, social and intellectual
Improvement of the nation's labor force;
(d) Protects and promotes the interest of every citizen desiring to work locally

or overseas by securing for him the most equitable terms and conditions of
employment, and by providing social and welfare services;
Regulates the employment of aliens, including the enforcement of registration or
work permit system for such aliens;

(f) Formulates general guidelines concerning wage income policy;

(g) Recommends necessary adjustments in wage structures with the view to
developing a wage system that is consistent with national economic and
social development plans;
(h) Provides for safe, decent, humane, and improved working conditions and
environment for all workers, particularly women and young workers; (i)

1 •THE TOURISM
 Maintains a harmonious, equitable, and stable labor relations system that is
supportive of the national economic policies and programs.
(j) Upholds the rights of workers and employers to organize and promote free
collective bargaining as the foundation of the labor relations system; and

173 Section 4, R.A. 9147. 174 Section

19, R.A. 9147.

CHAf03iR2 ?VßLiCSECTOR 99

(k) Provides and ensures the fair and expeditious settlement and disposition of labor
and industrial disputes through collective bargaining, grievance machinery,
conciliation, mediation, voluntary arbitration, compulsory arbitration as may
be provided by law, and other modes that may be voluntarily agreed upon
by the parties concerned.

Department of Public Works and Highways (DPWH)

The DPWH functions as the engineering and construction arm of the
government tasked to continuously develop its technology for the purpose of ensuring
the safety of all infrastructure facilities and securing for all public works and highways
the highest efficiency and quality in construction. The DPWH is currently responsible
for the planning, design, construction, and maintenance of infrastructure, especially the
national highways, flood control and water resources development system, and other
public works in accordance with the national development objectives. The work of the
DPWH is very important especially in providing land access to tourist destinations,
sites, and service facilities.
Department of Transportation and Communication (DOTC)
The DOTC is the primary policy, planning, programming, coordinating,
implementing, regulating, and administrative entity of the executive branch of the
government in the promotion, development and regulation of dependable and coordinated
networks of transportation and communications systems, as well as the fast, safe, effcient
and reliable postal, transportation and communications services. The following are the
attached agencies of the DOTC:
Land Transportation Office (LTO). The LTO is the proper agency which controls the
registration and operation of motor vehicles and the licensing of owners, dealers,
conductors, drivers, and similar matters.
Land Transportation Franchising and Regulatory Board (LTFRB). The LTFRB is the
agency which issues, amends, revises, suspends or cancels Certificates of Public
Convenience or permits authorizing the operation of public land transportation services
provided by motorized vehicles, and to prescribe the appropriate terms and conditions.
175

Maritime Industry Authority (MARINA). The MARINA integrates the development,

promotion, and regulation of the maritime industry in the country. It was originally
placed under the Office of the President.
Air Transportation Office (ATO). The ATO is primarily charged with the technical and
operational phases of civil aviation matters. Its primary function is to establish and
enforce rules and regulations for the inspections and registration of all aircraft

175 Sec. 5, Executive Order 202, June 19, 1987.

1()() 'IOURESM AND HOSPITALITY

owned and operated in the Philippines and all air facilities. It also in charge in the
operation and maintenance of national airports, air navigation, and other similar
facilities. 82
Civil Aeronautics Board (CAB). The CAB regulates the economic aspect of air
transportation and has general supervision and regulation of and jurisdiction and control
over air carriers as well as their property, property rights, equipment, facilities, and
franchise. 831t also has the power to issue, deny, amend, revise, alter, modify, cancel,
suspend, or revoke any temporary permit or Certificate of Public Convenience and
Necessity.
Light Rail TransitAuthority (LRTA). This is a corporate bodywhich shall be primarily
responsible for the construction, operation, maintenance, and/or lease of light rail
transit system in the Philippines, giving due regard to the reasonable requirements of
the public transportation system of the country.84
Metro Rail Transit Corporation (MRTC). The MRTC undertook to build MRT 3 which
it shall own for 25 years, after which, ownership shall be transferred to the Philippine
government in accordance with R.A. No.6957 or the Build, Operate and Transfer Law.
This allows MRTC, either by itself or through any estate developers, to develop
commercial premises in the MRT 3 structure or to obtain advertising income therefrom.
Philippine National Railways (PNR). It is a corporation to serve as the instrumentality
of the Government of the Philippines in providing a nationwide railroad transportation
system. The PNR shall not be subject to the authority and supervision of the Public
Service Commission. 179

Department of Trade and Industry (DTI).

82Air Transportation Office. Accessed February 2014. www.ato.gov.ph.
1 •THE TOURISM
 Under Executive Order 133 which remains effective up to the present time, the
DTI serves as the primary coordinative, promotive, and facilities arm for trade, industry
and investment activities. It acts as the catalyst for intensified private sector activity to
accelerate and sustain economic growth through:
(a) A comprehensive industrial growth strategy;
(b) A progressive and socially responsible liberalization and deregulation
program; and
(c) Policies designed for the expansion and diversification of both domestic and
foreign trade.
The end goal is to grow and expand Philippine trade and industry as the means
to generate jobs and raise incomes, so that Filipinos may enjoy continuing
improvements in their quality of life. 85
The DTI shall be empowered and authorized to issue rules and regulations and
adopt measures as to:
(a) Consolidate and/or coordinate all functions and efforts in domestic trade and
development of foreign trade in general;
(b) Maintain reasonable allocation/distribution as between domestic and export
market through export retention, expert allocation, export subsidy, pricing,
export ban and • other schemes and measure to ensure price stability and
supply availabilities of essential commodities in the local market;
(c) Regulate the import of essential consumers and producers' items with a view
of enhancing availability at fair and competitive prices to end-users; and
(d) Promote and regulate domestic trade, marketing and distribution to ensure
the rational, economic and steady flow of commodities from producing
and/or marketing centers to area in short-supply through the support of
centralized buying operations, terminal markets and large scale and

83Section 10 (A), R.A. No. 776.

84 Section 2, Executive Order No. 603. 179 Section
15, R.A. No. 4156.

CHAP}MR2 PUBLIC SEC(OR

85DTI. The LawPhil Project. Accessed February 2014, www.lawphil.net.
 economical distribution systems organized by the public or private sector.
8687

Board of Investments (BOI)

Under the Omnibus Investment Code of 1987 182 the Board of Investments (BOI)
shall be responsible for the regulation and promotion of investments in the Philippines.
The BOI shall exercise the following powers and duties:
(1) Prepare annually the Investment Priorities Plan, which shall contain a listing of
specific activities that can qualify for incentives, duly supported by the studies
of existing and prospective demands for such products and services in the light
of the level and structure of income, production, trade, prices and relevant
economic and technical factors of the regions as well as existing facilities;
(2) Promulgate such rules and regulations as may be necessary to implement the
intent and provisions of the code relevant to the Board;

86 Presidential Decree No. 721, June 2, 1975. 182

Executive Order No. 226, July 16, 1987.

87 LEGAL ASPECTS IN TOURISM AND HQSPITAUTY •

1 •THE TOURISM
(3) Process and approve applications for registration with the Board, imposing such
terms and conditions as it may deem necessary to promote the objectives of the
Code, including refund of incentives when appropriate, restricting availment of
certain incentives not needed by the project in the determination of the Board,
requiring performance bonds and other guarantees, and payment of application,
registration, publication and other necessary fees and when warranted may limit
the availment of the tax holiday incentive to the extent that the investor's
country law or treaties with the Philippines allows a credit for taxes paid in the
Philippines;
(4) After due hearing, decide controversies concerning the implementation of the
relevant books of the Code that may arise between registered enterprises or
investors therein and government agencies, within (30) days after the
controversy has been submitted for decision: Provide, That the investor or the
registered enterprise may appeal the decision of the Board within thirty (30)
days from receipt thereof of the President;
(5) Recommend to the Commissioner of and Immigration and Deportation the entry
into the Philippines for employment of the foreign nationals under the code;
(6) Periodically check and verify, either by inspection of the books or by requiring
regular reports, the proportion of the participation of the Philippine nationals in
a registered enterprise to ascertain compliance with its qualification to retain
registration under the Code;
(7) Periodically check and verify the compliance by registered enterprises with the
relevant provisions of the Code, with the rules and regulations promulgated
therein and with the terms and conditions of registration;
(8) After due notice, cancel the registration or suspend the enjoyment of
incentives/benefits of any registered enterprise and/or require refund of
incentives enjoyed by such enterprise including interest and monetary
penalties, for (a) failure to maintain the qualifications required by the Code for
registration with Board or (b) for violation of any provisions of the Code of the
rules and regulations issued thereof, of the terms and conditions of registration,
or of laws for the protection of labor or of the consuming public: Provided that
the registration of an enterprise whose project timetable, as set by the Board is
delayed by one year, shall be considered automatically canceled unless
otherwise reinstated as a registered enterprise by the Board;
(9) Determine the organizational structure, appoint, discipline and remove its
personal consistent with the provisions of the Civil Service Law and Rules;
 SECTOR I

(10) Prepare or contact for the preparation of feasibility and other pre-investment
studies for pioneer areas either upon its own initiative; or upon the request of
Philippine nationals who commit themselves to invest therein and show the
capability of doing so; Provided, That if the venture is implemented, then the
amount advanced by the Board shall be repaid within five (5) years from the
date the commercial operation of said enterprise starts;
(11) When feasible and considered desirable by the Board, require registered
enterprises to list their shares of stock in any accredited stock exchange or
directly offer a portion of their capital stock to the public and/or their
employees;
(12) Formulate and implement rationalization programs for certain industries whose
operation may result in dislocation, overcrowding or inefficient use of
resources, thus impending economic growth. For this purpose, the Board may
formulate guidelines for progressive manufacturing programs, local content
programs, mandatory sourcing requirements and dispersal of industries. In
appropriate case and upon approval of the President, the Board may restrict,
either totally or partially, the importation of any equipment or raw materials or
finished products involved in the rationalization program;
(13) In appropriate cases, subject to the conditions which the Board deems necessary,
suspend the nationality requirement provided for in the Code or any other
nationalization statue in cases of ASEAN projects or investments by ASEAN
nationals in preferred projects, and with the approval of the President, extend
said suspension to other international complementation arrangements for the
manufacture of a particular product on a regional basis to take advantage of
economies of scale;
( 14) Extend the period of availment of incentives by any registered enterprise;
Provided, That the total period of availment shall not exceed ten (10) years, subject to
any of the following criteria:
(a) The registered enterprise has suffered operational force majeure that
has impaired its viability;

(b) The registered enterprise has not fully enjoyed the incentives granted
to it for reasons beyond its control;
(c) The project of the registered enterprise has a gestation period which
goes beyond the period of availment of needed incentives; and

CHAVBER2 1 THE TOURISM

 (d) The operation of the registered enterprise has been subjected to
unforeseen changes in government policies, particularly,
protectionalism policies of importing countries, and such other

104 LEGAL ASPECTS IN TOURISM AND Hosprrm.rry

supervening factors which would affect the competitiveness of the

registered firm.
(15) Regulate the making of investments and the doing of business with the
Philippines by foreigners or business organization owned in whole or in part
by foreigners;
(16) Prepare on contract for the preparation of industry and sectoral development
programs and gathered and compile statistical, marketing, financial and other
data required for the effective implementation of the Code;
(17) Within (4) months after the close of the fiscal year, submit annual reports to
the President which shall cover is activities in the administration of this
Code, including recommendations on investment policies;
(18) Provide, directly or through Philippine Diplomatic Missions, such
information as may be of interest to prospective foreign investors.
complete pertinent information and studies
concerning areas that have been or may be declared preferred areas of
investments;
(20) Enter into agreements with other agencies of government for the
simplifications and facilitation of systems and procedures involved in the
promotion of investments, operation of registered enterprises and other
activities necessary for the effective implementation of the Code; and
(21) Generally, exercise all the powers necessary or incidental to attain the
purposes of the Code and other laws vesting additional functions on the
Board.

Philippine Economic Zone Authority (PEZA)

R.A. No.7916 creating the Philippine Economic Zone Authority (PEZA) was
enacted only July 25, 1994 with the following objectives:
(a) To establish the legal framework and mechanism for the integration,
coordination, planning and monitoring of special economic zones, industrial
estates/parks, export processing zones and other economic zones;
 (b) To transform selected areas in the country into highly developed agro
industrial, industrial, commercial, tourist, banking, investment, and financial
centers, where highly trained workers and efficient services will be available
to commercial enterprises;
(c) To promote the flow of investors, both foreign and local, into sp&ial
economic zones which would generate employment opportunities and
establish backward and forward linkages among industries in and around the
economic zones;
PVBUC 105

(d) To stimulate the repatriation of Filipino capital by providing attractive

climate and incentives for business activity;
(e) To promote financial and industrial corporation between the Philippines and
industrialized countries through technology-intensive industries that will
modernize the country's industrial sector and improve productivity levels by
utilizing new technological and managerial know-how; and

(f) To vest the special economic zones on certain areas thereof with the status
of a separate customs territory within the framework of the Constitution and
the national sovereignty and territorial integrity of the Philippines. 183

PEZA grants fiscal and non-fiscal incentives to developers of economic zones,

export procedures, and I.T. service exporters. PEZA offers ready-to-occupy locations

to foreign investors who are export producers or IT service exporters in world-class and
environment-friendly Economic Zones and I. T. Parks/Buildings.
For PEZA-registered enterprises under Section 23 of Rep. Act. No. 7916, there
are two options with respect to its tax burden. It could avail of an income tax holiday
pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a number
of years but not from other internal revenue taxes such as VAT; or it could avail of the
tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the
preferential tax rate of 5% under Rep. Act No. 7916.
Once the PEZA-registered enterprise avails of the income tax holiday under E.O. 226, it
is, not exempt VAT and it must register itself as a VAT taxpayer. In fine, it is engaged
in taxable rather than exempt transactions. 184 However, the Supreme Court already
pronounced that business companies registered in and operating from the Special
Economic Zone are entities exempt from all internal revenue taxes and the -
implementing rules relevant thereto, including the value-added taxes or VAT. Although
CHAVBER2 1 THE TOURISM
export sales are not deemed exempt transactions, they are nonetheless zero-rated.
Hence, the distinction between exempt entities and exempt transactions has little
significance, because the net result is that the taxpayers are not liable for the VAT. 185
The term "Special Economic Zones (SEZs)," hereinafter referred to as the
ecozones, are selected areas with highly developed or which have the potential to be
developed into agro-industrial, industrial tourist/recreational, commercial, banking,
investment. and financial centers. An ecozone may contain any or all of
183 Section 3, R.A. 7916.
184 Commissioner of Internal Revenue v. Cebu Toyo Corporation, G.R. No. 149073, February 16, 2005.
185 Commissioner of Internal Revenue v. Seagate Technology (Philippines), Inc., G.R. No. 153866,
February 11, 2005.

I ASPECTS 'FOLiRiSM
the following: Industrial Estates (IEs), Export Processing Zones (EPZs), Free Trade
Zone, and Tourist/Recreational Centers.
The PEZA is a body corporate attached to the DTI. The Board shall have a
director general with the rank of department undersecretary who shall be appointed
by the President. The director general shall be at least forty (40) years of age, of
proven probity and integrity, and a degree holder in any of the following fields:
economics, business, public administration, law, management or their equivalent, and
with at least ten (10) years relevant working experience preferably in the field of
management or public administration.
The director general shall be assisted by three (3) deputy directors general
each for policy and planning administration and operation, who shall be appointed by
the PEZA Board, upon the recommendation of the director general. The deputy
directors general shall be at least thirty-five (35) years old, with proven probity and
integrity, and degree holders in any of the following fields: economics, business,
public administration, law, management, 'or their equivalent.
The Board shall be composed of thirteen (13) members as follows: the
secretary of the DTI as chairman the director general of the Philippine Economic Zone
Authority as vice-chairman, the undersecretaries of the Department of Finance, the
Department of Labor and Employment, the Department of Interior and Local
Government, the Department of Environment and Natural Resources, the
Department of Agriculture, the Department of Public Works and Highways, the
Department of Science and Technology, the Department of Energy, the Deputy
Director General of the National Economic and Develop Authority, one (1)
representative from the investors/business sector ih the ecozone. In case of the
unavailability of the secretary of the DTI to attend a particular board meeting, the
director general of PEZA shall act as Chairman. 187
The PEZA Board shall have the following functions and powers. 188
(a) To operate, administer, manage and develop the ecozone according to the
principles and provisions set forth in this Act;
(b) To register, regulate and supervise the enterprises in the ecozone in an
efficient and decentralized manner;
(c) To coordinate with local government units and exercise general
supervision over the development, plans, activities and operations of the
ecozones, industrial estates, export processing zones, free trade zones,
and the like;

186 Section 4 (a), R.A. 7916.

187 Section i 1, R.A. 7916. 188 Section 12, R.A. 7916.
CHAMER2 1 THE
 SECTOR I

(d) In coordination with local government units concerned and appropriate

agencies, to construct, acquire, own, lease, operate and maintain on its
own or through contract, franchise, license, bulk purchase from the private sector
and build-operate-transfer scheme or joint venture, adequate facilities and
infrastructure, such as light and power systems, water supply and distribution systems,
telecommunication and transportation, buildings, structures, warehouse, roads,
bridges, ports and other facilities for the operation and development of the ecozone;
To create, operate and/or contract to operate such agencies and functional
units or offices of the authority as it may deem necessary;
(f) To adopt, alter and use a corporate seal; make contracts, lease, own or
otherwise dispose of personal or real property; sue and be sued; and
otherwise carry out its duties and functions as provided for in this Act;
To coordinate the formulation and preparation of the development plans of
the different entities mentioned above;
(h) To coordinate with the National Economic Development Authority (NEDA),
the Department of Trade and Industry (DTI), the Department of Science and
Technology (DOST), and the local government units and appropriate
government agencies for policy and program formulation and implementation;
and
To monitor and evaluate the development and requirements of entities in
subsection (a) and recommend to the local government units or other appropriate
authorities the location, incentives, basic services, utilities and infrastructure required
or to be made available for said entities.

Department of Foreign Affairs (DFA)

The DFA is the prime agency of the government responsible for the pursuit of
the State's foreign policy and the nerve center for the Foreign Service worthy of the
trust and pride of every Filipino.
Throughout the 1970s, the DFA pursued the promotion the trade and
investments, played an active role in hosting international meetings, and participated
in the meetings of the Non-Aligned Movement. The Foreign Service Institute was
created in 1976 to provide in-house training to Foreign Service personnel.
The EDSA Revolution 1986 saw the reestablishment of a democratic
government under President Corazon Aquino. During this period, the DFA once
again pursued development policy in the active pursuit of opportunities abroad in the
vital areas of trade, investment, finance, technology and aid. The DFA also revived its

1
efforts to boost the Philippines' role in the Asia-Pacific region. The Philippines
became one of the founding members of the Asia-Pacific Economic Cooperation or

08 i.EGAi. ASPECTS TOURISM

APEC in November 1989, and an active player in regional efforts to establish the
ASEAN Free Trade Area. In 1990, the DFA proposed the establishment of more
diplomatic missions in the Middle East to improve existing ties with the Arab states
and to respond to the growing needs of overseas Filipino workers in the region.
In 1991, the Philippine Senate, heeding the growing nationalist sentiments
among the public, vote against the extension of the Military Bases Agreement. This
symbolized the severance of the political and ideological ties which had long linked
the country to the United States. Also, in 1991, President Aquino signed into law
R.A. 7157, the new Foreign Service Law, which reorganized and strengthened the
Foreign Service.
The Ramos administration, from July 1992, defined four core areas of
Philippine foreign policy—the enhancement of national security, promotion of
economic diplomacy, protecting Overseas Filipino Workers and Filipino nationals
abroad, and the projection of a good image out of the country abroad. President
Ramos boosted foreign trade, Investments, and official development assistance to the
Philippines through his state visit and summit meetings.
The Estrada administration upheld the foreign policy thrusts of the previous
administration, focusing on national security, economic diplomacy, assistance to
nationals, and image-building. The Philippines continued to be at the forefront of the
regional and multilateral arena. It successfully hosted the ASEAN Ministerial
Meeting in July 1998 undertook confidence-building measures with China over the
South China Sea issue through a meeting in March 1999. President Estrada
strengthened bilateral ties, with neighboring countries with visits to Vietnam,
Thailand, Malaysia, Singapore, Hong Kong, Japan, and South Korea.
The DFA played a major role in the forging of a Visiting Forces Agreement
with the United States, which was concurred in the Senate. The country also sent a
delegation of 108 observers to the Indonesian parliamentary elections, and engaged in
cooperative activities in the areas of security, defense, combating transnational
crimes, culture, and the protection of OFWs and Filipinos abroad.
As the DFA enters yet another year in its existence, it sets its right toward the
new millennium, and welcomes the challenges and opportunities it faces in an
increasingly globalized world. 88
Department of Interior and Local Government (DILG)

88Department of Foreign Affairs. Accessed February 2014. www.dfa.gov.ph.

THE
 The Department of Interior and Local Government (DILG) has the following
functions: (a) Assists the President in the exercise of general supervision over
local governments;
(b) Advises the President in the promulgation of policies, rules, regulations
and other issuances on the general supervision over local governments
and on public order and safety;
(c) Establishes and prescribes rules, regulations and other issuances
implementing laws on public order and safety, the general supervision
over local governments and the promotion of local autonomy and
community empowerment and monitor compliance thereof;
(d) Provides assistance toward legislation regarding local governments, law

enforcement and public safety;

(e) Establishes and prescribes plans, policies, programs and projects to
promote peace and order, ensure public safety and further strengthen the
administrative, technical and fiscal capabilities of local government
officers and personnel;
(f) Formulates plans, policies and programs which will meet local
emergencies arising from natural and man-made disaster;
Establishes a system of coordination and cooperation among the citizenry,
local executives and the Department, to ensure effective and efficient
delivery of basic services to the public; and
(h) Organizes, trains, and equips primarily for the performance of police
functions, a police force that is national in scope and civilian in
character.89

Under R.A. No. 6975 or known as the Department of the Interior and Local
Government Act of 1990, the DILG consists of the Department Proper, the existing
bureaus and offices of the Department of Local Government, the National Police
Commission, the Philippine Public Safety College, and the following bureaus: the
Philippine National Police, the Bureau of Fire Protection, and the Bureau of Jail
Management and Penology.

CHAPTER 2 | TOURISM PUBLICSECTOR 1 09

89DILG. The LawPhil Project. Accessed February 2014. www.lawphil.net.

IN TOURISM AND HOSPITALITY

1
Bureau of Food and Drugs (BFAD)
The BFAD is an attached agency under the Department of Health in charge of
the registration of processed foods, drugs, medical devices, in vitro diagnostic
reagents, cosmetics, and household hazardous substance products. In case these
products will have to be hand-carried for professionals abroad, consumers may go
directly to the BCFAD Policy, Planning, and Advocacy Division — Public
Assistance and Compliance Division (PPAD-PACD). Consumers are advised to bring
for verification, product samples, and the doctor's prescription drug products.
Establishments involved in the manufacture, packaging, repacking,
importation, exportation, distribution, and retailing of processed foods, drugs,
medical

THE
 in vitro diagnostic reagents, cosmetics, and household hazardous substance
groducts must secure a license to operate from BFAD. As a precaution, consumers are
advised to verify the existence of the license to operate of the establishment/outlet which
should be conspicuously displayed and the existence of the applicable BFAD Product
Registration Number on the label of the products intended to be bought. The absence of
such information on possible illegal source/product.
Furthermore, consumers must ask for receipts of payment of purchased products
reflecting the business name and address, Identification Number (TIN), and name of
printer (BIR Permit No.) with exclusive serial number of booklets and date of issuance
of receipts and the description of the goods bought. 90Bureau of Immigration
The main functions of the Bureau of Immigration are: 91
Acts as the primary enforcement arm of the Department of Justice and the
President of the Philippines in ensuring that all foreigners within its territorial
jurisdiction comply with existing laws;
Assists local and international law enforcement agencies in securing the
tranquility of the state against foreigners whose presence or stay may be
deemed threats to national security, public safety, public morals and public
health and;
Acts as chief repository of all immigration records pertaining to entry,
temporary sojourn, admission, residence, and departure of all foreigners in the
country.

Bureau of Internal Revenue (BIR)

The BIR shall be under the supervision and control of the Department of Finance
and its powers and duties shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, Including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. 193 Bureau
of Customs (BOC)
Under R.A. No. 1937 (June 22, 1957) titled: Revising the Tariff and Customs
Laws, the general duties, as amended by R.A. No. 9135 dated April 27, 2001, the powers
and jurisdiction of the bureau shall include:
90Bureau of Food and Drugs. Department of Health. Accessed February 2014. www.doh.gov.ph.
91 Bureau of Immigration. Accessed February 2014. www.immigration.gov.ph. 193 Bureau of
Internal Revenue. Accessed February 2014. www.bir.gov.ph.

CHAiY(ER2 1 TOURISM PUBLIC SECTOR I I I

1
 1) Assess and collect lawful revenues;
2) Prevent smuggling and other frauds;
3) Control vessels/aircrafts doing foreign trade;
4) Enforce tariff and customs laws;
5) Control the handling of foreign mails revenues and prevention purposes;
6) Control import and export cargoes; and
7) Jurisdiction over forfeiture and seizure cases. 194

The revised Charter of the Philippine Ports Authority which took effect on
December 23, 1975, 195 transferred the powers, duties and jurisdiction of the BOC with
regard to arrastre and stevedoring operations of the PPA. [Pernito Arrastre Services, Inc.
v. Mendoza, 146 SCRA 43(), 434
When a vessel becomes subject to seizure by reason of an act done in Philippine
waters in violation of the tariff and customs laws, a pursuit of such vessel begins within
the jurisdictional waters and may continue beyond the maritime zone, in such case, the
vessel may be seized on the high seas. Imported articles which may be subject to seizure
for violation of the tariff and customs laws may be pursued in their transportation in
the Philippines by land, water or air and such jurisdiction exerted over it at any place
therein as may be necessary for the due enforcement of the law. 197
The BOC shall, for customs purposes, have exclusive control, direction and
management of custom-houses, warehouse, offices, wharves, and other premises in the
respective ports of entry, in all cases without prejudice to the general police powers of
the city or municipality wherein such premises are situated. 198
When any public wharf, landing place, street or land, not previously under the
jurisdiction of the BOC, in any port of entry, is necessary or desirable for any proper
customs purpose, the President of the Philippines may, by executive order, declare such
premises to be under the jurisdiction of the BOC, and thereafter the authority of such
Bureau in respect thereto shall be fully effective. 199
However, in the case of Hon. Executive Secretary et al. v. South Wing Heavy
Industries, et al., G.R. Nos. 164171, 164172, and 1687841, February 21, 2006, the
Supreme Court declared as constitutionally invalid provision, President Arroyo's
Executive Order 156 which prohibits the importation of used motor vehicles at the
Subic Bay Freeport.

194 Section 602, R.A. 1937.

 195 Executive Order No. 513, November 16, 1978.
196 Association of International Shipping Lines et al. v. Philippine Ports Authority et al., G.R. 158000.
March 31, 2005.
197 Section 603, R.A. 1937.
198 Section 604, R.A. 1937. 199 Section 606, R.A. 1937.

12 ASPECTS TN TOURISM AND HOSPiTALITY

The Philippine Coast Guard

By virtue of R.A. No. 5173, the Philippine Coast Guard has been created as an
attached agency of the Department of Transportation and Communication with the
following objectives:
(a) To enforce or assist in the enforcement of all applicable laws upon the high
seas and waters subject to the jurisdiction of the Republic of the Philippines.
(b) To enforce law, promulgate, and administer regulations for the promotion of
safety of life and property within the maritime jurisdiction of the Philippines;
and
(c) To develop, establish, maintain, and operate, with due regard to the
requirements of national defense, aids to maritime navigation and rescue
facilities for the promotion of safety on and over the high seas and waters,
subject to the jurisdiction of the Philippines.
Professional Regulatory Board for Customs Brokers
Pursuant to the national policy, the government shall provide a program to set up
a climate conducive to the practice of the profession and maximize the capability and
potential of our Filipino customs brokers. Hence, R.A. No.9280 (March 30, 2004) was
enacted regulating the practice of customs brokers profession in the Philippines, and
creating the Professional Regulatory Board for Customs Brokers. This Act provides for
and shall govern:
(a) The standardization and regulation of customs administration education;
(b) The examination and registration of customs brokers; and
(c) The supervision, control, and regulation of the practice and the customs
broker profession.
Nayong Pilipino Foundation (NPF)
The NPF was created under P.D. No. 37 on November 16, 1972 with the
intention of promoting, encouraging, and initiating research and development projects
and activities in social sciences, humanities, social; and amelioration and allied fields.
The Foundation is non-stock, non-profit corporation, organized, established, and
1
operated in the public interest and no portion of its funds and income shall inure to the
benefit of any of its member. The policymaking body of the Nayong Pilipino shall be the
Board of Trustees composed of a chairman and eight members to be appointed by the
President for a term of one year. The chairman and members shall be persons genuinely
interested in the promotion of the purposes and objectives of the Foundation.

CHAPTER 2 | THE TOURISM 1 13

Philippine Sports Commission

The primary mandate of the Philippine Sports Commission is to serve as the
prime catalyst and advocate for the propagation and development of Philippine sports by
helping shape policies and setting priorities through the following:92
Coordinating and implementing a national sports program;
Creating equitable opportunities for participation in sports by all sectors;
Providing assistance to stakeholders and partners;
Supporting the especially talented athletes for high-level competitions; and
Promoting the development of physical qualities and moral values which is the
basis of sports.
Philippine National Police (PNP)
The PNP is the armed, civilian national police force in the Philippines
headquartered at Camp Crame in Quezon City. It is administered and controlled by the
National Police Commission and is part of the Department of the Interior and Local
Government (DILG). Local police officers are operationally controlled by municipal
mayors. DILG, on the other hand, organizes, trains and equips the PNP for the
performance of police functions as a police force that is national in scope and civilian in
character. The PNP was formed on January 29, 1991 when the Philippine Constabulary
and Integrated
National Police were merged pursuant to R.A. No.6975 of 1990.9394
Anti-Graft and Corruption Law in Government
R.A. No. 10910 or "An Act Increasing the Prescriptive Period for Violations of
R.A. No. 3019, Otherwise Known as the 'Anti-Graft and Corrupt Practices Act' from

92Philippine Sports Commission. Accessed February 2014. www.psc.gov.ph.

93 Philippine National Police. Accessed February 2014. www.pnp.gov.ph. 202 R.A.
10910.

94ASPECTS IN TOURISM ANO

Fifteen (15) Years to Twenty (20) Years, Amending Section 11 Thereof' amended the
prescription of offenses, also known as the statute of limitations, from 15 to 20 years.
This means it is still possible to carry out judgment on individuals guilty of graft and
corruption within 20 years.202

As part ofyour comprehensive review, try to answer the following questions:

1. What is the main function of the Department of Tourism?
2. What is the relationship of the Department of Transportation and Communication
to the Department of Tourism?
3. What is the relationship of the Department of Trade and Industry to the
Department of Tourism?
4. What is the relationship of the Department of Interior and Local Government to
the Department of Tourism?
5. What is the relationship of the Department of Foreign Affairs to the Department
of Tourism?
6. What is the relationship of the Department of Public Works and Highways to the
Department of Tourism?

7. What is the relationship of the Department of Natural Resources to the

Department of Tourism?
8. What is the relationship of the Department of Labor and Employment to the
Department of Tourism?
9. What are the functions of the Philippine Tourism Authority?
10. What are the functions of the National Historical Institute?

ll. Why is the Intramuros Administration important?

12. What are the objectives of the Philippine Economic Zone Authority?
13. Why is the Protected Areas and Wildlife Bureau important?

Case Studies
Boracay Shutdown

1
 Boracay Island was closed for 6 months in 2018 by
the government due to excessive pollution and degradation
of the environment. All flights and boat trips to and from the
island carrying tourists were suspended. An inter-agency
taskforce comprised of the DOT, DENR, and DILG
spearheaded the rehabilitation of the island Thousands of
workers were displaced as a result of the closure of over 400
tourist establishments. Was the government right in
pursuing the total shutdown of the island for 6 months?
What are the advantages and disadvantages of such action?
What law supports the action of the government?

1 THE TOUIUSMPUBÜC SECTOR 1 5

 Quirino Grandstand Shooting
On August 23, 2010, dismissed PNP Officer Rolando Mendoza hijacked a Hong Thai Travel
Services tourist bus in Rizal Park, Ermita, Manila. It carried 20 Chinese tourists, a tour guide from
Hong Kong, and 4 Filipinos. He demanded reinstatement to his previous post with benefits as police
captain and claimed he was framed. The hostage situation in front Of the Quirino Grandstand lasted
over 8 hours as covered by TV networks and broadcast nationwide. It resulted in the death of8 people
and many injured. Government authorities were criticized for a botched rescue operation. Was the
travel and tour agency liable for the deaths of its tourist clients? Were the government authorities liable
for their alleged incompetence? Form 8 teams and discuss your answers.

Guimaras Oil Spill

When an oil tanker had an accident in 2006 causing massive oil spill, affecting adversely the
province of Guimaras, many were skeptical whether tourism in the island could ever recover. Divide the
class into two groups wherein the first group answers the first question and the second group answers
the second question. (a) What are the liabilities of the shipping line that owns the oil tanker? (b) What is
the impact of such a massive oil to tourism and the economy?

Internet Research
Surf, Reflect, and Write
Research on any ofthefollowing tourism cases:
Coliform bacteria contamination in Boracay in the 1990s
Pedophilia in Pagsanjan in the 1980s
Puerto Princesa Underground River in the New 7 Wonders
ofthe Natural World in 2011
Southeast Asian Games hosting of the Philippines in 2019
Deterioration of the Banaue Rice Terraces in Ifugao
Killing ofSouth Korean businessman in 2017 Hosting of the
Miss Universe Pageant in Manila in 2016.
Travel ban during the COVID-19 pandemic in 2020.
Write a 150-word essay on the topic highlighting the role of the
responsible government agency and your insights on the various
issues surrounding your chosen topic.

CHAPTER 3
LAWS REGULATING TRANSPORTATION COMPANIES
From the time wheel was invented, man began to travel and explore different corners ofthe
world In modern times, with the invention of the first flying machine and marine vessel, tourism
 has started to grow at a fast pace. Transportation as a business carries with it not only high
returns but also great responsibility for many lives that are at stake.

The Case of the Congested Ship

In October 1980, MVDon Juan sailed from Manila to Bacolod carrying many
Negrenses coming home for the much-hyped initial celebration of the MassKara
Festival. The staff ignored the capacity limit of the marine vessel as many students
went home for their semestral break vacation. Halfway through the trip, MVDon Juan
sank along with hundreds of passengers. The Supreme Court ruled that the gross
negligence of the staff caused one of the worst sea disasters in the country. Many men,
women, and children drowned and the entire country mourned over the tragedy. The
courtsfound out in the records that MVDon Juan was overloaded when it left the Port
of Manila.

Questions
What do you think are responsibilities of marine
vessel staff when selling tickets?
Why should shipping companies observe the
capacity limit of the marine vessels they operate?
What kind of penalties may be imposed on
shipping companies that violate? What government
agency regulates the seaworthiness of marine
vessels?
Give some examples of safety measures that may
be undertaken or implemented by shipping
companies.

117
Learning Objectives
Identify the laws affecting the transportation sector
Identify the rights of passenger of commercial transportation
Explain the relevance of these laws to the promotion of tourism in the country
 The Philippines has become one of the promising tourist destinations due to the
extraordinary hospitality of the Filipinos and diversity of tourist attractions in the country.
However, one challenging aspect of promoting inbound tourism in the Philippines is the
security and safety issue. Some of the best transportation and travel professionals are
Filipinos, e.g., seafarers, pilots, drivers, flight attendants, cruise cabin crew, aircraft
mechanics, etc. Ironically, some of the worst recorded transportation disasters and accidents
are in the Philippines. This chapter will deal with the different laws affecting the
transportation sector as they are integral in the study of tourism.

Law on Common Carriers

The primary law that governs common carriers is the Civil Code of the
Philippines as clearly implied in Article 1766 thereof which states that "in all matters
not regulated by this Code, the rights and obligations of common carriers shall be
governed by the Code of Commence and special laws." The Law
Article 1732. Common carriers are persons, corporations, firms or
occasions engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services
to the public.
Discussion of the Law
A common carrier is defined as one holding itself out to the public as engaged
in the transportation of freight or passenger for hire. 203 It is one who is in the business
of transporting goods or persons for hire, as a public utility. A private carrier, in
contrast, is not in the business of transporting public employment, but hires out to
deliver goods (not passengers) in particular cases. 204 Both the Civil Code of Commerce
give clear-cut divisions between contracts of carriage of cargo and contracts of
carriage of passengers, because the rights and defenses in each kind of contracts are
different from the other.
Application of the Law (Private Carrier of Goods Based on a Charter Agreement)
Case: The MV Vlasons I is a vessel which renders tramping service and, as such, does
not transport cargo or shipment for the general public. Its services are available

203 Philippine Legal Encyclopedia, by Jose Agaton Sibal, 1986 Edition, p. 144. 204
Barron 's Law Dictionary, by Steven H. Gifis, 5th Edition, pp. 68—69.

118 TOURISM ANE.) ftOSPVTAi,rry

only to specific persons who enter into special contract of charter party with its
owner.The term "FIOST" which is used in the shipping business is standard provision
in the NANYOZAI Charter Party which stands for "Freight In and Out including
Stevedoring and Trading," which means the handling, loading, and unloading of the
cargoes are the responsibility of the city owner, charterer. Moreover, it is in the
capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment
or contract of voyage charter hire with National Steel Corporation. Is MV Vlasons I a
common carrier?
Legal Opinion: MV Vlasons I is classified as a private carrier. It has been held that the
true test of a common carrier is the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its transportation service for a fee. A
carrier that does not qualify under the above test is deemed a private carrier. Generally,
private is undertaken by special agreement and the carrier does not hold himself out to
carry goods for the general public. The most typical, although not only form of private
carriage, is the charterparty, a maritime contract by which the charterer, a party other
than the shipowner, obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages. 95 In this regard, distinction must be made
between a voyage charter and a bareboat charter. In case of a voyage charter or time
charter, the same is limited to the ship only, and its crew members are still under the
direct control of the shipowner, in which case, such ship may be classified as a
common carrier. However, a bareboat or demise charter includes both the vessel and
crew under the direct control of the charterer, in such case, the ship may already be
classified as a private carrier.96
Application of the Law (Private Bus Service for School Children)
Case: Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus.
They used the bus principally in connection with a bus service for school children
which they operated in Manila. The couple had a driver, Porfirio J. Cabil, whom they
hired in 1981. His job was to take school children to and from the St. Scholastica's
College in Malate, Manila. On November 2, 1984, the Word for the World Christian
Fellowship Inc. (WWCF) arranged with Spouses Fabre for the transportation of33
members of its Young Adults Ministry from Manila to La Union and back in
consideration ofP3,000. Are Spouses Fabre considered a common carrier or a private
carrier?

95 National Steel Corporation v. Court ofAppeals v. Vlasons Shipping Inc., G.R. No. 112287, December
12, 1997.
96Planters Products, Inc. v. Court ofAppeals, G.R. No. 101503, September 15, 1993.

CHA}YtER3 LAWS COMPAMÉS 1 19

Legal Opinion: Spouses Fabre engaged in a business as a common carrier. They need
not have to be engaged in the business of public transportation for the provision of the
Civil Code on common carries to apply to them. Under Article 1732 of the
Civil Code, "common carries are persons, corporations, firms, or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water,
or air for compensation, offering their services to the public." The article makes no
distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local
idiom, as "a sideline"). Article 1732 also carefully avoids making any distinction
between a person or enterprises offering transportation service on a regular or
scheduled basis and one offering such service of an occasional, episodic, or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the "general public," i.e., the general community or population and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making such
distinctions.207
Nature of Contract of Carriage
A contract to transport passengers is quite different in kind and degree from any
other contractual relation, and this is because of the relation which an air carrier
sustains with the public. It invites people to avail the comforts and advantages it offers.
The contract of carriage therefore, generates a relation attended with a public duty.
Neglect or malfeasance of the carrier's employees naturally could give ground for an
action for damages.208
Responsibility of Common Carriers
The Law
Article 1733. Common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
Article 1755. A common carrier is bound to carry the passengers safely
as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with due regard for all the circumstances.
Article 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently, unless
 they prove that they observed extraordinary diligence as prescribed in Articles
1733 and 1755.
Article 1757. The responsibility of a common carrier for the safety of
passengers as required in Articles 1733 and 1755 cannot be dispensed with or
lessened by stipulation, by the posting of notices, by statements on tickets, or
otherwise.

207
208 Philippine Airlines v. Court ofAppeal, 275 SCRA 621 (1997).

120 LEGAL. ASPECTS IN TOURISM AND HOSHTAi.ux

Discussion of the Law
As soon as the passenger puts his foot on the platform, the obligation of
extraordinary diligence of the common carrier begins.97 The relation of carrier and
passenger does not. cease at the moment the passenger alights from the carrier's vehicle
at a place selected by the carrier at the point of destination, but continues until the
passenger has had a reasonable time or a reasonable opportunity to leave the carrier's
premises. 98
A certificate of public convenience is not a requirement in order for a common
carrier to incur liability. Such liability arises from the moment a person or firm acts as a
common carrier, without regard to whether or not such carrier has been granted a
certificate of public convenience or has complied with the requirements of the applicable
implementing regulations.99
The term "extraordinary diligence" has been defined as the standard of care
required of common carrier bringing safely its passengers (and goods) from one place to
another. 212
In a contract of carriage of passengers, it is the obligation of the common carrier
to bring the passengers safely to the point of destination, if injured, or death occurs, the
presumption of negligence automatically arises, and the common carrier can be held
liable if he fails to prove extraordinary diligence for the duration of the carriage.
Application of the Law
Case: Fortune Express is a bus company in Northern Mindanao. Diosdado Bravo, the
operations manager of Fortune Express received an investigation report from the
Philippine Constabulary Regional Headquarters at Cagayan de Oro City that certain
Maranaos are planning to take revenge on Fortune Express due to an accident with a
jeepney in Kauswagan, Lanao del Norte, resulting in the death of two Maranaos. Bravo
assured the Philippine Constabulary that certain precautions in protecting lives and
properties will be made. Normal operations continued in Fortune Express without taking
the necessary precautions (such as frisking the passengers or inspecting their baggage
before boarding the bus). It was until November 22, 1989, when three armed Maranaos
who pretended to be passengers seized a bus of Fortune Express at Linamon, Lanao del
Norte while on its way to Iligan City. Shots ensued which resulted in the burning of the
bus, the injury of passengers, and the death of Atty. Caorong. Should Fortune Express be
97Dangwa Transportation Co., Inc. et al. v. Court ofAppeals, G.R. No. 95582, October 7, 1991.
98La Mallorca v. Honorable coun ofAppea1s, G.R. No. L-20761, July 27, 1966.
99 Loadstar Shipping Co., Inc., v. Court of Appeals, G.R. No. 131621, September 28, 1999. 212 Philippine
Legal Encyclopedia, by Jose Agaton Sibal, 1986 Edition, p. 136.

TRANSPOR?ATION COMPANU:.S 121

1 LAWS
held liable for the injury and death of its passengers due to the hijacking of three armed
Maranaos?
Legal Opinion: Yes, Fortune Express should be held liable. It is evident that the bus
company through its Operations Manager Diosdado Bravo, was informed of the "rumors"
that the Muslims intended to take revenge on Fortune Express. Yet despite this
information, the bus company did not take proper precautions. Frisking of passengers
picked up along the route and for those boarding at the bus terminal could have been
implemented by the bus conductor. On hindsight, the handguns especially the gallon of
gasoline used by the felons all of which were brought inside the bus would have been
discovered, thus preventing the burning of the bus and the fatal shooting of the victim.
The least thing that the bus company could have done in response to the report was to
adopt a system of verification such as frisking of passengers boarding its buses.
Nothing, and to repeat, nothing at all, was done b} Fortune Express to protect its
innocent passengers from the danger arising from the Maranao threats.
In the case of Gacal v. Philippine Airlines, Inc., [183 SCRA 1 89, 195-196, G.R.
No. 55300, March 15, 1990] the Supreme Court intimated that a common carrier can be
held liable for failing to prevent a hijacking by frisking passengers and inspecting their
baggage.
Article 1755 of the Civil Code provides that "a common carrier is bound
to carry the passengers as far as human care and foresight can provide, using the
utmost diligence of very cautious person, with due regard for all the
circumstances. " Thus, for failure to use utmost diligence of a very cautious
person, the bus company should be held liable. 213
Liabilities of Common Carriers for the Acts of Employees and Strangers The Law
Article 1759. Common carriers are liable for the death or injuries to
passengers through the negligence or willful acts of the former 's employees,
although such employees may have acted beyond the scope of their authority or in
violation of the orders of the common carriers.
This liability of the common carrier does not cease upon proof that they
exercised the diligence of a good father of a family in the selection and
supervision of their employees.
Discussion of the Law
For the bus company, due diligence in selection of employees is not satisfied by
finding that the applicant possessed a professional driver's license. The employer should
also examine the applicant for his qualifications, experience, and record of the service.
Due diligence in supervision, on the other hand, requires the formulation of rules and
regulations for the guidance of employees and issuance
1 LAWS COMPANYES
 213 Fortune Express, Inc. v. Court ofAppeals, G.R. No. 119756, March 18, 1999.

122 LEGAL ASPECTS N TOURISM •

of proper instruction as well as actual implementation and monitoring of consistent
compliance with the rules.100 For a shipping company, the vessel must be considered
seaworthy, adequately equipped for the voyage and manned with a sufficient number of
competent officers and crew.101Application of the Law
Case: At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow
Blocks and General Merchandise" was loaded with firewood in Bogo, Cebu City. Upon
reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a
bridge, one of its fear tires exploded. The driver, Sergio Pedrano, then parked along the
right side of the national highway and removed the damaged tire to have it vulcanized at
a nearby shop, about 700 meters away. Pedrano left his helper, Jose Mitante, Jr. to keep
watch over the stalled vehicle, and instructed the latter to place a spare tire six feet away
behind the stalled truck to serve as a warning for oncoming vehicles. The truck's tail
lights were also left on.
At about 4:45 a.m. ofMarch 16, 1987, D' Rough Riders passengers bus driven by
Virgilio Te Laspifias was cruising at a speed of 40—45 kilometers per hour along the
national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was
also bound for Cebu City. Among its passengers were the Spouses Pedro A. Arriesgado
and Felisa Pepito Arriesgado, who were seated at the right side of the bus.
As the bus was approaching the bridge, Laspifias saw the stalled truck, which was
then about 25 meters away. He applied the brakes and tried to swerve to the left to avoid
hitting the truck. But it was too late and the bus rammed into the truck's left rear. The
impact damaged the right side of the bus and left several passengers injured. Pedro
Arriesgado lost consciousness and suffered a fracture in his right collar. His wife, Felisa,
was brought to the Danao City Hospital. She was later transferred to the Southern Island
Medical Center where she died shortly thereafter.
.1s the bus company liable for the death of Felisa Arriesgado?
Legal Opinion: Yes, the bus company is liable for the death of Felisa Arriesgado. It is
such a firmly established principle that the negligence of the employee gives rise to the
presumption of negligence on the part of the employer. This is presumed negligence in

100Fabre v. Court ofAppeals, G.R. Il 1127, July 26, 1996.

101Trans-Asia Shipping Lines, Inc. v. Court ofAppeals, G.R. No. 118126, March 4, 1996.

TRANSPORTATION 123
the selection and supervision of employee. The theory of presumed negligence, in
constant with the American doctrine of respondeat superior, where the negligence of the
employee is conclusively presumed to be the negligence of the employer, is clearly
deducible from the last paragraph of Article 2180 of the
Civil Code which provides that the responsibility therein mentioned shall cease if the
employees prove that they observed all the diligence of a good father of a family to
prevent damages.
Indeed, Laspifias' negligence in driving the bus is apparent in the records. By his
own admission, he had just passed a bridge and was traversing the highway of
Compostela, Cebu as a speed of 40 to 50 kilometers per hour before the collision
occurred. The maximum speed allowed by law on a bridge. is only 30 kilometers per
hour. And as gorregtly pointed out by the trial court, petitioner Laspifias also violated
Section 35 and the Land Transportation and Traffic Code, R.A. No.4136. Any defense of
the bus company on efficiency and in-service training of its drivers is insufficient to
prove that it observed the diligence of a good father of a family in the selection and
supervision of his employees.102 Enforcement of Liability of Common Carriers
The liability of common carriers can be enforced on the following causes of
action:
(1) In case of death or injury caused to passengers, the victim may file a case of
breach of contract of carriage or culpa contractual against the owner of the
common carrier.
(2) In case of death or injury caused to stranger or pedestrian, the victim may file
a criminal complaint against the driver of the common carrier for reckless
imprudence resulting in homicide and damage to property. The victim may
also file a civil suit against the common carrier and its driven on the ground of
culpa aquiliana or quasi-delict.
Damages Recoverable from Common Carriers
In an action based on a culpa contractual or culpa aquiliana, the damages that are
recoverable are as follows: actual damages, compensatory damages, moral damages,
exemplary damages, death indemnity and attorney's fees. Nominal damages may be
awarded in case moral or exemplary damages may not be awarded.
(a) Actual damages consist in expenses for medicine, hospitalization, etc.

102 William Tiu et al. v. Pedro A. Arriesgado et al., G.R. No. 138060, September 1, 2004. 217 Article
1764 in relation to Article 2206, Civil Code of the Philippines.

•1 04 IN AND
1 LAWS COMPANYES
(b) Unrealized profits are recoverable as compensatory damages which shall be
fixed by determining in the next yearly income of the injured or deceased
passenger and multiplying the same by the number of years that he was
expected to live or lead a gainful existence as determined by mortality tables
or life insurance companies of the Philippines.
(c) Moral damages may be awarded when the mishap resulted in the death of a
passenger,217 or when the heirs of the deceased suffered mental
 anguish,218 or when the carrier was guilty of fraud or bad faith, even if death did
not result.219 The big amount of damages will be awarded in view of the
importance of the person of the passenger.220
(d)Exemplary or corrective damages are awarded by way of example or
correction of the public good,221 or when the common carrier acted in
wanton, reckless and oppressive manner.222 While the immediate
beneficiaries of the standard of extraordinary diligence are, of course, the
passengers and owners of cargo carried by common carrier, they are not the
only persons that the law seeks to benefit. Article 2231 of the Civil Code
explicitly authorizes the imposition of exemplary damages in case of quasi-
delicts "ifthe defendant acted with gross negligence.,,223
Award for death indemnity is in accordance with current rulings of the Court.224

(f) Award for attorney 's fees may be recovered when exemplary damages are awarded.
Under Article 2008 of the Civil Code, attorney's fees may be recovered when
exemplary damages are awarded. In the case of Metro Manila Transit Corporation v.
Court of Appeals [298 SCRA 945] (1998) it was held that an award ofP50,000 as
attorney's fees is reasonable.225 In case moral damages cannot be awarded without
proof of the carrier's bad faith, ill will, malice or wanton conduct, conduct nominal
damages may be allowed under the circumstances. Nominal damages may be awarded
as provided under Articles 2221 and 2222 of the Civil Code of the Philippines for the
purpose of indemnifying the victim for any loss suffered by him. Nominal damages are
recoverable if no actual, substantial, or specific damages were shown to have resulted
from the breach. The amount of such damages is addressed to the sound discretion of
the court, taking into account the relevant circumstances.226

218 Victory Liner, Inc. v. Heirs of Andres Malecdan, G.R. No. 154278, December 27, 2002.
219 Article 2220, Civil Code of the Philippines.
220 Francisco Ortigas Jr. v. Lufthansa German Airlines, G.R. No. L-28773, June 30, 1975.
221 Article 2209, Civil Code of the Philippines.
222 Northwest Airlines, Inc. v. Cuenca, G.R. No. L-22425, August 31, 1965.
223 William Tiu et al. v. Pedro A. Arriesgado et al., G.R. No. 138060, September 1, 2004.
224 Fortune Express Inc. v. Court ofAppeals, G.R. No. 119756, March 18, 1999; Victory Iher, Inc. v. Heirs
ofAndres Malecdan, G.R. No. 154278, December 27, 2002.
225 Article 2008, Civil Code of the Philippines; Victory Liner, Inc. v. Heirs ofAndres Malecdan, G.R. No.
154278, December 27, 2002.
226 Victorino Savellano et al. v. Nortwest Airlines, G.R. No. 151783, July 8, 2003.

CHA?TER3 REGVLATiNGTRANSPORTATION 1

1 LAWS COMPAN}ES 25
 The 103Law
Nature of Airline, Bus, and Shipping Tickets
The best evidence of a contract of carriage is the passage ticket? 27
urisprudence, an airline, bus, or shipping ticket is a contract of adhesion considering that all
he provisions thereof are prepared and drafted only by the carrier. The only participation
eft of the other party is to affix his signature thereto. In such situation, the Supreme Court
uled that the terms thereof must be interpreted against the party who drafted the same, in
his case the carrier.104Discussion o fthe Law
Such contracts of adhesion are not entirely prohibited and are in fact binding
regardless of whether or not the passenger or shipper had read the provisions thereof.105
Thus, it was held that even if the passenger had not signed the plane ticket, he is
nevertheless bound by the provisions thereof. Such provisions have been held to be a
part of the contract of carriage, valid and binding upon the passenger regardless of the
latter's lack of knowledge or assent to the regulation. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent. 106 Even
if the conditions are printed in small letters does not make the ticket or bill
invalid.107108109
However, the courts will exercise greater vigilance when dealing with contracts
of adhesion in that the said contracts must be carefully scrutinized in order to protect
the weaker party from deceptive schemes contained in ready-made stipulations. This is
in recognition of Article 24 of the Civil Code which mandates that "in all contractual,
property or other relations, when one of the parties is at a disadvantage on account of
his moral dependence, ignorance, indigence, mental weakness, tender age or other
handicap, the courts must be vigilant for his protection."232 Application of the Law
Case: Sweet Line Inc. is a shipping company transporting inter-island passengers and
cargoes. A stipulation in its passenger ticket states that: "It is hereby agreed and
understood that any and all actions arising out of the conditions and provisions of the

103Sweet Line, Inc. v. Teves, G.R. No. L-37750, May 19, 1978.
104Victorino Savellano et al. v. Nortwest Airlines, G.R. No. 151783, July 8, 2003.
105 Philippine Airlines, Inc., v. Court ofAppeals et al., G.R. No. 119706, March 14, 1996.
106 Telengtan Brothers & Sons, Inc. (La Suerte Cigar & Cigarette Factory) V. The Court ofAppeals et al.,
G.R. No. 110581, September 21, 1994; citing Ong Yiu v. Courts ofAppeals„ 91 SCRA 223.
107Everett Steamship Corporation v. Court ofAppeals et al., G.R. No. 122494, October 8, 1998.
108 Ibid

109 LEGAL ASPECTS IN TOURISM AND HOSPHAUTY

ticket, irrespective of where it is issued, shall be filed in the competent courts in the
City of Cebu." Is the stipulation valid?
Legal 110Opinion: No, such stipulation is void. Such stipulation subverts the public
policy on transfer of venue of proceeding of this nature, since the same will prejudice
rights and interests of innumerable passengers in different parts of the country who will
have to file suits against Sweet Line, Inc. only in the City of Cebu. The protection by
the courts of the disadvantaged is expressly enjoined by Article 24 of the Civil Code
which states: "In all contractual, property or other relations, when one of the parties is
at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age and other handicap, the courts must be vigilant for his
protection."233
Regulation of the Transportation Business
The Department of Transportation and Communication (DOTC) is the primary
policy, planning, programming, regulating, and administrative entity of Executive
branch of government in the promotion, development, and regulation of dependable
and coordinated networks of transportation and communications systems as well as in
the fast, safe, efficient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title Xv, Sec.2). It has the power, authority
and technical expertise to determine whether or not a specific transportation or
communication project is necessary, viable, and beneficial to the people. (Bureau
Veritas v. Office of the President, 205 SCRA 705[1992]). Regulation of Air
Transportation Business
Legislative Act No. 3909 passed by the Philippine Legislature on November 20,
1931 created an Office under the Department of Commerce and Communications to
handle aviation matters particularly the -enforcement of rules and regulations
governing commercial aviation as well as private flying. It was amended by Act 3996
to include licensing of airmen and aircraft, inspection of aircraft concerning air traffic
rules, schedules and rates and enforcement of Aviation Laws.
On June 20, 1952, R.A. No.776, otherwise known as the Civil Aeronautics Act
of the Philippines was enacted which defined the powers and duties of the Civil
Aeronautics Board, personnel and the regulations of Civil Aviation. On April 4, 1987,
Executive Order No. 125 was enacted creating the Air Transportation Office.
The Civil Aeronautics Board (CAB) regulates the economic aspect of air
transportation and has general supervision and regulation of and jurisdiction and
control over air carriers as well as their property rights, equipment, facilities, and

110Sweet Line, Inc. v. Teves, G.R. No. L-37750, May 19, 1978.
LAWS COMPAN}ES 27
franchise.111 It has the power to fix and determine reasonable rates, charges or fares
which an air carrier may demand, collect, or receive for any service in connection with
air commerce.112 It also has the power to issue, deny, amend, revise, alter, modify,
cancel, suspend or revoke any temporary permit or Certificate of Public Convenience
and Necessity (CPCN). In case of foreign air carriers, the permit shall be used with the
approval of the President of the Republic of the Philippines. 236 It has been ruled that the
Legislature has validly delegated the CAB the authority to issue a CPCN or Temporary
Operating Permit to a prospective domestic air transport operator which does not
possess a legislative franchise to operate.237
Persons authorized to engage in domestic air transportation (air transportation
within the limits of the Philippines territory) 238 shall be reserved only to citizens of the
Philippines, except as otherwise provided in the Constitution and existing treaty or
treaties.239 The term "citizen of the Philippines" means:
(a) any individual who is a citizen of the Philippines; or
(b) a partnership of which each member is much an individual; or
(c) a corporation or association created or organized under the laws of the
Philippines, of which the directing head and 2/3 or more of the Board of
Directors and other managing officers are citizens of the Philippines, and in
which 60% of the voting interest is owned or controlled by persons who are
citizens of the Philippines.240

The CAB grants the CPCN if it finds:

(a) that the applicant is fit, willing and able to perform service to the public; and (b)
that such service is required by public convenience and necessity.241

The Air Transportation Office (ATO) is primarily charged with the technical
and operational phase of civil aviation matters.242 It performs the following functions:
(a) Establishes and enforces rules and regulations for the inspection and
registration of all aircraft owned and operated in the Philippines and all air
facilities;

111Section 10 (A), Republic Act 776.

112Section 10 (C) (2), Republic Act 776.

CHAPTER 3 | REGULATING TRANSPORTATION

 (b) Establishes and prescribes the corresponding rules and regulations for the
enforcement of laws governing air transportation;
(c) Imposes and prescribes charges and/or rates pertinent to the operation of
public air utility facilities and services (i.e., collection of landing fees,
parking space fees, terminal fees, etc.);

236 Section 10 (C) (3), Republic Act 776.

237 Philippine Airlines, Inc. v. Civil Aeronautics Board, G.R. No. 119528, March 26, 1997.
238 Section 3 (v), Republic Act 776.
239 Section 12, Republic Act 776.
240 Section 3 (r), Republic Act 776.
241 Section 21, Republic Act 776.
242 Section 32 (1), Republic Act 776.

128 LEGAL Asr•ecrs IN AND HOSPITALITY

(d) Administers and operates the Civil Aviation Training Center (CATC); Operates
and maintains national airports, air navigation, and other similar facilities , 243

(f) Promulgates rules and rules and regulations in the interest of safety in air
commerce;
Investigates aircraft accidents; and
(h) Issues, denies, cancels, or revokes any certificate, permit or license
pertaining to aircraft, airmen and air agencies.244
Registration Aircraft
The Law
Only aircraft owned by or leased to a citizen of the Philippines, and which are.
not registered under the laws of any foreign country may be eligible for registration.

Discussion of the Law

The certificate of registration is conclusive evidence of ownership, except in a
proceeding where such ownership is in issue or when the aircraft is only under
lease.245
Application of the Law
Case: Pilipinas Airline Company Flight 888 crashed in the mountains of Bukidnon
killing all the passengers of the aircraft. The airline company wants to know what
really happened. Who has the jurisdiction to investigate the accident?
Legal Opinion: The ATO has the jurisdiction to investigate the aircraft accident and
must submit its investigation report to the CAB 246
LAWS COMPAN}ES 29
Case: Grand Airline Company wants to engage in the business of carrying passengers
and goods by air. In addition, its pilots •want to be licensed to operate the aircraft of
Grand Airline Company. In what government agency should Grand Airline Company
and its pilots apply so that it will be accredited?
Legal Opinion: Grand Airline Company should apply to the CAB for a certificate of
public convenience to operate as a common carrier. However, the pilots must secure a
license to operate from the ATO.

243 Air Transportation Office. Accessed February 2014. www.ato.gov.ph.

Section 32, Republic Act 776
245 Section 34, Republic Act 776, as amended by B.P. 504. 246Section
32, Republic Act 776.
1 1

Regulation of the Shipping Industry

The Maritime Industry Authority (MARINA) was created on June 1, 1974 with
the issuance of Presidential Decree No. 474 to integrate the development, promotion,
and regulation of the maritime industry in the country. It was originally placed under
the Office of the President. With the creation of the Ministry (now Department) of
Transportation and Communications by virtue of Executive Order No. 546 the
"MARINA" was attached to the DOTC for policy and program coordination on July
23, 1979.
By virtue of R.A. No.9295 (May 03, 2004), MARINA has the following
functions:
(1) Registers vessels;
(2) Issues certificates of public convenience or any extensions or amendments
thereto, authorizing the operation of all kinds. Classes and types of vessels
in domestic shipping: Provided, that no such certificate shall be valid for
a period of more than twenty-five (25) years;
(3) Modifies, suspends, or revokes at any time upon notice and hearing, any
certificate, license or accreditation it may have issued to any domestic ship
operator.
(4) Establish and prescribe routes, zones, or areas of operations of domestic
ship operators;
 (5) Requires any domestic ship operator to provide shipping services to any
coastal area, island or region in the country where such services are
necessary for the development of the area, to meet emergency sealift
requirements, or when public interest requires;
(6) Sets safety standards for vessels in accordance with applicable
conversations and regulations;
(7) Requires all domestics with ship operators to comply with operational and
safety standards for vessels set by applicable conventions and regulations,
maintain its vessels in safe and serviceable conditions, meet
the standards of safety of fife at sea manning requirements, and furnish
safe, adequate, efficient, reliable and proper service at all times;
(8) Inspects all vessels to ensure and enforce compliance with safety standards
and other times;
(9) Ensures that all documents ship operators shall have the financial capacity to
provide and sustain safe, reliable, efficient and economic passenger or cargo
service, or both;

1 30 [N AND

LAWS COMPAN}ES 31
 (10) Determines the impact which any new service shall have to the locality it will
serve;
(11) Adopts and enforces such rules and regulations which will ensure compliance
by every domestic ship operator with required safety standards and other rules
and regulations on vessel safety;
(12) Adopts such rules and regulations which ensure the reasonable stability of
passengers and freight rates and, if necessary, to interview in order to protect
public interest.
(13) Hears and adjudicates any complaint made in writing involving any violation
of this law or the rules and regulations of the MARINA;
( 14) Imposes such fines and penalties on, including the revocations of licenses of any
domestic ship operator who shall fail to maintain its vessels in safe and
serviceable condition, or who shall violate or fail to comply with safety
regulations;
(15) Investigates any complaint made in writing against any domestic ship
operator, or any shipper, or any group of shippers regarding any matter
involving violations of the provisions of this Act;
(16) Upon notice and hearing, imposes such fines, suspends or revokes certificates
of public convenience or other license issued, or otherwise penalizes any ship
operator, shipper or group of shippers found violating the provisions of this
Act; and
(17) Issues such rules and regulations necessary to implement the provisions of this
Act: Provided, that such rules and regulations cannot change or in any way
amend or be contrary to the intent and purpose of this Act.113

Authority to Operate
No franchise, certificate, or any other form authorization awarded by MARINA for
the carriage of cargo or passenger, or both in the domestic trade, shall be granted except to
domestic ship owners or operators.114 The term "domestic ship owner or operator" means a
citizen of the Philippines, or a commercial partnership wholly owned by Filipinos, or a
corporation at least sixty percent (60%) of the capital of which is owned by Filipinos,
which is dully authorized by the Maritime Industry Authority (MARINA) to engage in the
business of domestic shipping.249

113Section 10, R.A. 9295.

114 Section 5, RSA. 9295. 249Section 3 (c),
R.A. 9295.
However, foreign vessels who may wish to engage in trade and commerce within

Philippines territorial waters may be granted a Special Permit by the MARINA when no
domestic vessels are available or suitable to provide the needed shipping service and
where public interest warrants the same.250
By reason of the deregulation of the domestic shipping industry as mandated by
R.A. No. 9295 and to encourage investments in the domestic shipping industry, domestic
ship operators are now authorized to establish their own shipping rates provided that
effective competition is fostered and public interest is served. 251 Regulation of the Land
Transportation
The concept of land transportation system in the Philippines started when our
ancestors invented means of locomotion. The early means of transportation used in moving
people and goods from place to place were animals. Although the means of land
transportation during the early days were not as sophisticated as the modern vehicles of
today and the roads were not as well constructed, the early Filipinos also observed some
forms of laws to govern their mobility. These laws were as informal as simple as
specifying which animal could be used for certain purposes. However, the existence of
these rules showed that our ancestors already felt the need to regulate the transportation
system.
Today, it is the Land Transportation Office (LTO) and the Land Transportation
Franchising and Regulatory Board (LTFRB)252 which are the agencies involved in the
regulation of the land transportation industry.
The LTO is the proper agency which controls the registration and operation of
motor vehicles and licensing of owners, dealers, conductors, drivers, and similar matters.
Under the Clean Air Act of 1999, vehicles must pass the emission testing requirements to
be administered by the Department of Transportation and Communications as a
prerequisite for registration.
On the other hand, the functions of the LTFRB are as follows:

CHARIER 3 | REGELAT}NC, TRAN$?OiU'ATtON COMPANIES 13 1

 (a) To prescribe routes of service, economically viable capacities and zones or
areas of operation of public land transportation services provided by motorized
vehicles in accordance with the public land transportation development plans
and programs approved by the Department of Transportation and
Communications;
(b) To issue, amend, revise, suspend or cancel Certificates of Public Convenience
or permits authorizing the operation of public land transportation services
provided by motorized vehicles, and to prescribe the appropriate terms and
conditions therefor;

250 Section 6, R.A. 9295.

251 Section 8, R.A. 9295.
252 Executive Order 202, June 19, 1987.

132 {N TOURISM AND

(c) To determine, prescribe, and approve and periodically review and adjust, reasonable
fares, rates and other related charges, relative to the operation of public land
transportation services provided by motorized vehicles;
(d) To issue preliminary or permanent injunction, whether prohibitory or mandatory,
in all cases in which it has jurisdiction, and in which cases the pertinent provisions
of the Rules of Court shall apply;
(e) To punish for contempt of the Board, both direct and indirect, in accordance with
the pertinent provisions of, and the penalties by, the Rules of Court;
(f) To issue subpoena duces tecum and summon witnesses to appear in any
proceedings of the Board, to administer oaths and affirmations;
To conduct investigations and hearings of complaints for violation of the public service
laws on land transportation and of the Board's rules and regulations, orders,
decisions and/or rulings and to impose fines and/ penalties for such violations;
(h) To review motu proprio the decisions/actions of the Regional
Franchising and Regulatory Office herein created;
To promulgate rules and regulations governing proceedings before the Board and the
Regional Franchising and Regulatory Office: Provided, that except with respect to
paragraphs d, e, f and g hereof, the rules of procedure and evidence prevailing in
the courts of laws should not be controlling and it is the spirit and intention of said
rules that the Board and the Regional Franchising and Regulatory Offices shall use
every and all reasonable means to ascertain facts in its case speedily and objectively
 and without regard to technicalities of law and procedures, all in the interest of due
process;
(j) To fix, impose and collect, and periodically review and adjust, reasonable fees and
other related charges for services rendered;
(k) To formulate, promulgate, administer, implement and enforce rules and regulations
on land transportation public utilities, standards of measurements and/or design,
and rules and regulations requiring operators of any public land transportation
service to equip, install and provide in their utilities and in their stations such
devices, equipment facilities and operating procedures and techniques as may
promote safety, protection, comfort and convenience to persons and property in
their charges as well as the safety of persons and property within their areas of
operations;

CHAPIN 3 | LAWS REGULAONG TRANSPORTATION COMPANIES 133

The following may apply for accreditation as motorized boat/banca engaged in

tourism activities and services:
(a) single proprietorship owned by a resident Filipino citizen;
(b) a partnership organized under the laws of the Philippines, at least 60% of its
capital being owned by Filipino citizen; and
(c) a corporation organized under the laws of the Philippines, at least 60% of the
subscribed common or voting shares of stocks of which is owned by Filipino
citizens and the composition of its Board of Directors being at least 60%
Filipinos.266

The application for accreditation should be accompanied by the following

documents:
(a) In the case of single proprietorship, a Business Name Certification and
all amendments thereto duly registered with the Bureau of Trade
Regulation and Consumer Protection, Department of Trade and Industry;
in case of a corporation/partnership, a certified copy of the Articles of
Incorporation/Partnership and its By-laws and amendments thereto, duly
registered with the Securities and Exchange Commission;
(b) Mayor's Permit and/or Municipal License;
 (c) Resolution of the Board of Directors authorizing the filling of application and
designating the person authorized to sign and act for and in its behalf and
transact business with the Department. If single proprietorship or partnership, a
letter of authority from the owner/partners;
(d) Complete list of its officers and employees, indicating therein the nationality,
home address and position, certified correct under oath by the general
manager/president; MARINA Documents:
(a) Copy of MARINA certificate of inspection which validity shall not be
less than three (3) months from the date of filing of application with the
Department; and
(b)Valid Certificate of Public Convenience (CPC) Provisional Authority
(PA) Special Permit (SP).
(f) Valid copy of the Compulsory Passenger Insurance with appropriate coverage for
each passenger;

266 Section 3, Rules and Regulations to Govern the Accreditation of Motorized Boat/Banca Engaged in
Tourism Activities and Services.

138 {N AND
 (g) Copy of rates and routes to be served and schedules; and
(h) Such other documents that the Department may require from time to time.267

Seatbelt Law roe

Law
The Seatbelt was enacted to secure and safeguard its citizenry, particularly
passengers and drivers of private and public motor vehicles, from the ruinous
extremely injurious effects of vehicular accidents. In order of seatbelt devices
'y the drivers and front seat passengers of private and public motor vehicles shall
enforced. 268
Discussion of the Law highlights of the
law are as follows:
(1) The driver and front seat passengers of a public vehicle are required to wear
or use their seatbelt devices while inside a vehicle of running engine on any
road or thoroughfare. In addition, the driver of a public motor vehicle shall
be required to immediately inform and require the front seat passengers
upon boarding a vehicle of running engine to wear the prescribed seatbelts.
Any passenger who refuses to wear seatbelts shall not be allowed to
continue his/her trip.
(2) Infants and/or children aged (6) years and below shall be prohibited to sit in
the front seat of any running motor vehicle.
(3) It shall be unlawful for any person to import or cause the importation of any
vehicle without appropriate and operational seatbelt devices.
(4) For new vehicles, compliance is required for registration.

Failure to comply shall disallow the registration and/or renewal of the

registration of vehicle at the LTO.
*plication of the Law
Case: Mr. Jorge San Jose is an operator of 100 units of taxicabs with Makati-Cubao
E the route area. Ronnie Boy, one of the drivers of the taxicabs being operated by
San Jose, was caught by a police officer who imposed a fine on Ronnie Boy not
wearing any seatbelt at the time he was driving. In Ronnie Boy's defense, San Jose
stipulated that Ronnie Boy should not have been imposed a fine because z±ough the
latter was not wearing the same at the time he was driving nevertheless seatbelt was
installed in the taxicab in compliance with the Seatbelt Law. Is the

39
 Section 4, Rules and Regulations to Govern the Accreditation of Motorized Boat/Banca Engaged in
Tourism Activities and Services. Section 2, R.A. 8750.

CHAPTERS I y.aws REGULATtNG TRANSPORtXÜON coveANiEs 1

police officer correct in imposing a fine on Ronnie Boy who was caught not wearing a
seatbelt at that time?
Legal Opinion: Yes, the police officer was correct in imposing a fine on Ronnie Boy
for not wearing a seatbelt at that time. Under Section 4 of R.A. 8750, also known as
Seatbelts Use Act of 1999, the driver of a public motor vehicle is required to wear or
use their seatbelt devices while inside the vehicle of running engine on any road or
thoroughfare. In case of violation, LTO, through its authorized representative, may
impose a fine or penalty in case of non-compliance. Law on Transportation of Animals
The Law
By virtue of R.A. No. 8485 115 also known as the Animal Welfare Act of
1998, it shall be the duty of any operator of any land, air, or water public utility
transporting pets, wildlife and all the other animals to provide in all cases
adequate, clean and sanitary facilities for the safe conveyance and delivery
thereof to their consignee at the place of confinement. These animals shall be
provided sufficient food and water while in transit for more than twelve (12
hours or whenever necessary.
No public utility shall transport any such animal without a written permit from
the Director of the Bureau of Animal Industry or his/her authorized representative. Any
form of cruelty shall be penalized even if the transporter has obtained a permit from the
Bureau of Animal Industry. Cruelty in transporting includes overcrowding, placing
animals in the trunks or under the food trunks of the vehicles.116
Discussion of the Law
In order to assure safety of passenger and crew members of aircraft or vessels,
it is necessary to obtain a shipping permit from the Bureau of Quarantine before an
animal may be allowed to be transported on board. 117118 The Bureau of Quarantine has
required the following documents as certified by a licensed veterinary doctor or
veterinary clinic/hospital to be presented before shipping permit will be issued;
(a) Certified of rabies vaccination for not less than 30 days; in case of
international carriage, a certificate of"5 in 1 " vaccination (parvo influenza,
lepto, deworming, distemper, and hepatitis) may also be required."
115Approved on February 11, 1998.
116Section 4, R.A. 8485.
117REA. 123, June 14, 1947.
 (b) For agricultural animals, a certified of clearance from the coggin test and
FMD (foot and mouth disease) test is required.
On the other hand, a person planning to bring any animal into the Philippines
from abroad must apply in writing for an import permit at the following address:
The Director, Bureau of AnimaIs Industry
Visayas Avenue, Quezon City, Philippines
Attention: Animal Health Division
A valid health and rabies certificate must be obtained from the agency
concerned at quarantine officer upon arrival at the port of disembarkation. Any pet
without such a certificate will be detained by the Bureau of Animals Industry (BAI)
until cleared.
For countries declared to be rabies-free, the rabies vaccination is waived. The
appropriate authorities in the country of origin can provide this information. For pet
fishes, in lieu of a health certificate, a prior import permit must be obtained from the
Bureau of Fisheries and Aquatic Resources (BFAR).
All animals imported into the Philippines shall be subject to such quarantine
and tests as may be prescribed by the director of animals industry and those found to
be infected with dangerous communicable animal disease shall immediately be
condemned, killed, and properly burned or buried in the presence of representative of
the Bureau of Animal Industry at the expense of the importer. Application of the Law
Case: Mr. David Thomas, an American citizen, wants to visit the Philippines. He has a
pet beagle dog which he wants to bring in the Philippines. What are the requirements
which Mr. Thomas should comply so that he may be allowed to bring his pet dog in the
Philippines?
Legal Opinion: The first step is for Mr. Thomas to apply in writing for an import
the Bureau of Animal Industry. The second step is for Mr. Thomas to secure a
valid health and rabies certificate from the agency concerned at the port of origin
shortly before shipment. The certificate will be required by the veterinary quarantine
officer upon arrival at the port of disembarkation. Any pet without such a certificate
will be detained by the Bureau of Animal Industry BAI) until cleared.
If the United States is declared to be rabies-free, the rabies vaccination is
waived. Mr. Thomas must provide the Philippine authorities with such dlocuments.
The pet dog of Mr. Thomas shall be subject to such quarantine and tests as may be
prescribed by the Director ofAnimal Industry.

118 E..ECAL IN TOURISM AND

COM?ANIES 41
LAWS REGUIAtuNG nANSPORtAYi0N
 Law on Importation of Vehicles
The Law
There are relevant laws on the importation of vehicles which may be useful for
the transportation business, namely:
R.A. No. 7227 allows the free flow of goods and capital within the Subic Bay
Freeport in Subic, Province of Zambales in order to attract investors to invest their
capital in a business climate with the least government intervention.
President Arroyo 's Executive Order 156 prohibits the importation of used motor
vehicles into the country except:
(a) on territories that are declared Freeport Zone, such as the Subic Bay
Freeport in Subic, Province of Zambales by virtue of R.A. No.7227 •272
(b) if the vehicle is owned by a returning resident or immigrant and covered by
an authority to import issued under the Non-Dollar Importation Program;
(c) if the vehicle is for the use of an official of the diplomatic corps and
authorized to be imported by the Department of Foreign Affairs (DFA); and
(d) if the vehicle falls under the category of "special purpose vehicles" such as
ambulance, fire trucks, refers, tanker trucks and crane lorries.273

Under Republic Act. No. 6537 which was enacted on August 26, 1972, or
otherwise known as the Anti-Carnapping Act of 1972, it shall be the duty of the
Collector of Customs jurisdiction of the principal port of entry where ån imported
motor vehicle is unloaded to make a report of the shipment of the vehicle to the Land
Transportation Office within seven days after the arrival of the imported motor vehicle,
specifying the make, type and serial numbers of the motor vehicle engine, engine block
and chassis or body, and stating the names and addresses of the owner or consignee
thereof. If the motor vehicle engine, engine block, chassis or body does not bear any
serial number, the Collector of Customs concerned shall hold the motor vehicle engine,
engine block, chassis or body until it is numbered by the Land Transportation
Commission.274
In this regard, any person engaged in the importation of motor vehicles shall
keep a permanent record of his stocks, stating therein their type, make and serial
numbers, and the names and addresses of the persöns from whom they were acquired
and the names and addresses of the persons to whom they were sold, and

272 Hon. Executive Secretary et al. v. Southwing Heavy Industries et al., G.R.
164171-72, G.R. 1687841, February 21, 2006.
273 Article 2, Section 3 (1), Executive Order 156. 274 Section 7, R.A. 6537.

COM?ANIES 43
142 'TOORiSM
shall 119render an accurate monthly report of his transactions in motor vehicles to the
Land Transportation Commission.275
Under the Philippine Clean Air Act of 1999, any imported new or local
assembled new motor vehicle shall not be registered at the LTO unless it complies with
the emission standards set as evidence by the Certified of the Conformity by the
Department of Environment and Natural Resources.
Under R.A. No. 8750 or known as the Seatbelts Use Act of 1999, it shall be
unlawful for any person to import or cause the importation of any vehicle without
appropriate and operational seatbelts devices.

Public Service Laws

The Law
Public service includes every person who may own, operate, manage or control
in the Philippines for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad or street railway, traction railway, subway motor vehicle,
steamboat, or steamship line, ferries, and water craft, shipyard, x x x. 120
Unless otherwise exempt, no public service shall operate without having been
issued a certificate of public convenience or a certificate of public convenience and
necessity. 121
Discussion of the Law
Public utilities are privately owned and operated businesses whose service is
essential to the general public. They are enterprises which specially cater to the needs
of the public and conduce to their comfort and convenience. As such, public utility
services are impressed with public interest and concern. The same is true with respect
to the business of common carrier which holds such a peculiar relation to the public
interest that there is superinduced upon it the right of public regulation when private
properties are affected with public interest. 122

119Section 8, R.A. 6537.

120Sec. 13 [b], Commonwealth Act No. 146, known as the Public Service Act.
121Sec. 15, ibid.
122Kilusang Mayo Uno Labor Center v. Hon. Jesus B. Garcia, Jr., et al., G.R. No. 115381,
December 23,1994.

CHAPTER 3 | LAWS REGULAflNG TRANSPORTAT}ON 1

AND HOSPITALITY
 As mandated by law, no public service shall operate without having been issued
a certificate of public convenience (which is considered a privilege and not a property
right).
A certificate of public convenience is an authorized granted by the proper
government agency for the operation of public service for which a franchise is required
by law for public use as required by law.
The requisites before a certificate of public convenience may be granted are:
(1) The applicant must be a citizen of the Philippines, or a corporation or co
partnership, association or join-stock company constituted and organized
under the laws of the Philippines, at least 60 percent of its stock or paid up
capital must belong entirely to citizens of the Philippines;
(2) The applicant must be financially capable of undertaking the proposed
service and meeting the responsibilities incident to its operation; and
(3) The applicant must prove that the operation of the public service proposed
and the authorization is to do business will promote the public interest in a
proper and suitable manner.279

The following are the government agencies which have the authority to grant a
certificate of public convenience:
(1) Civil Aeronautics Board (CAB) (R.A. No. 776) for Air Transportation;
(2) Land Transportation Franchising and Regulatory Board (LTFRB
(Executive Order 202) for Land Transportation; and
(3) Maritime Industry Authority (MARINA) (Presidential Decree No. 474) for
Water Transportation.

Traffic Laws
R.A. No. 4136, which is enacted on June 20, 1964 is a compilation relative
to traffc rules and regulations. Some of the highlights of the law are as follows:
Rules on Registration of Motor Vehicles
(1) No motor vehicle shall be used or operated on or upon any public
highway of the Philippines unless the same is properly registered at the
LTO.
(2) Tourist bringing their own motor vehicles to the Philippines may,
without registering such motor vehicles, use the same during but not after

COM?ANIES 45
 ninety days of their sojourn: Provided, that the motor vehicle displays the
number plates for the current year of some other country or state, and said
number plates as well as the name and address (permanent and temporary)
of the owner thereof are registered in the Land Transportation Commission
prior to the operation of the motor vehicle.

279 Supra.

144 LEGAL TOURiSM

(3) For public utility automobiles, application for registration shall be
accompanied by a certificate of public convenience and motor vehicles
registered shall be subject to the Public Service Law, rules and regulations.
(4) No person shall operate any motor vehicle without first procuring a license
to drive a motor vehicle for the current year, nor while such license is
delinquent, invalid, suspended or revoked. The license shall be carried by
the driver at all times when operating a motor vehicle, and shall be shown
and/or surrendered for cause and upon demand to any person with authority
under this Act to confiscate the same. An examination or
demonstration to show any applicant's ability to operate motor vehicles may
also be required.
(5) No person operating any vehicle shall allow more passenger or more freight
or cargo in his vehicle than its registered capacity. No driver shall permit
any person to ride on the running board, step board, mudguard of his motor
vehicle for any purpose.
(6) Every vehicle must be provided with sufficient car accessories such as tires,
brakes, horns, headlights, taillights, stoplight, windshield wipers, mufflers
and lights when disabled for the security and safety of the motor vehicle.
Under Letter of Instruction dated December 2, 1974, every motor vehicle
must have at all times at least one (1) pair of early warning device
consisting of triangular, collapsible reflectorized plates in red or yellow
colors at least 15 cm. at the base and 40 cm. at the sides.
Restriction as to Speed
(1) Any person driving a motor vehicle on a highway shall drive the same at a
careful and prudent speed, not greater nor less than is reasonable and proper,
having due regard for the traffic, width of the highway, and of any other
condition than the three existing; and no person shall drive any motor
vehicle upon a highway at such a speed as to endanger the life, limb

AND HOSPITALITY
 and property of any person, nor at a speed greater than will permit him to
bring the vehicle to a stop within the assured clear distance ahead.
(2) Subject to the provisions of the preceding paragraph, the rate of speed of any
motor vehicle shall not exceed the following:
Maximum Allowable Speed Passenger Cars Motor Trucks and
and Motorcycles Buses
l. On open country roads, with no "blind corners" 80 km. per hour 50 km. per hour
not closely bordered by habitations

2. On "through streets" or boulevards, clear 40 km. per hour 30 km. per hour
oftrafflc, with no "blind comers" when so
designated
CHAPTER 3 | LAWS REGULAT(NG 1

3. On city and municipal streets, with light traffc, 30 km. per hour 30 km. per hour
when not designated "through streets"
4. Through crowded streets, approaching 20 km. per hour 20 km. per hour
intersections at "blind corners," passing school
zones, passing other vehicles which are
stationary, or for similar dangerous
circumstances
R.A. No. 10916 or "An act requiring the mandatory installation of speed limiter
in public utility and certain types of vehicles" will require all covered public
transportation vehicles to have a speed limiter. Vehicles without speed limiters before
the passage of the law will have to comply within 18 months after it takes effect. The
absence of a speed limiter will not be allowed for registration or be given a franchise
permit, and the owners or operators for the vehicle will be fined with P50,OOO.
Meanwhile, the driver's license will be suspended for one month and the franchise
permit for three months for the first offense. Sanctions for succeeding offenses will be
license suspension for three months and franchise suspension for six months on top of
imposed fines at the second offense; and revocation of license and franchise suspension
for at least a year, and an imposed fine for the third offense. Offenders caught tampering
with speed limiters will be imprisoned for six to 36 months and fined with P30,000.280
Restrictions on Overtaking and Passing
The driver of a vehicle shall not drive to the left side of the center line of a
highway in overtaking or passing another vehicle proceeding in the same direction,
unless such left side is clearly visible, and is free of oncoming traffic for a sufficient
distance ahead to permit such overtaking or passing to be made in safety.
Right of Way

COM?ANIES 47
 (a) When two vehicles approach or enter an intersection at approximately the same
time, the driver of the vehicle on the left shall yield the right of way to the vehicle
on the right.
(b) The driver of any vehicle upon a highway, within a business or residential
district shall yield the right of way to a pedestrian crossing such highway
within a crosswalk, except at intersections where the movement of traffic is
being regulated by a peace officer or by traffic signal. Every pedestrian
crossing a highway within a business or residential district, at any point
other than a' crosswalk, shall yield the right way to vehicles upon the
highway.

280 R.A. 10916.

1 46 LEGAL ASPECTS

AND HOSPITALITY
 (c) The driver of a vehicle upon a highway shall bring to a full stop such vehicle
before traversing any "through highway" or railroad crossing. Provided,
that when it is apparent that no hazard exists, the vehicle may be slowed
down to five miles per hour instead of bringing it to a full stop.
Parking Prohibition
No driver shall park a vehicle, or permit it to stand, whether attended or
unattended, upon a highway in any of the following places:
(a) Within an intersection;
(b) On a crosswalk;
(c) Within six meters of the intersection of curb lines;
(d) Within four meters of the driveway entrance to and fire station;
(e) Within four meters of fire hydrant;
(f) In front of a private driveway;
On the roadway side of any vehicle stopped or parked at the curb or edge of
the highway; and
(h) At any place where official signs have been erected prohibiting parking.

Driving or Parking on Sidewalk

No person shall drive or park a motor vehicle upon or along any sidewalk,
path or alley not intended for vehicular traffic or parking.
Driving and Substance Intake
No person shall drive a motor vehicle while under the influence of liquor or
narcotic drug.
Obstruction of Traffic
No person shall drive his motor vehicle in such a manner as to obstruct or
impede the passage of any vehicle, nor, while discharging or taking on passengers or
loading or unloading freight, obstruct the free passage of other vehicles on the
highway.
Duty of Driver During an Accident
In the event that any accident should occur as a result of the operation of a
motor vehicle upon a highway, the driver present, shall show his driver's license,
give his true name and address and also the true name and address of the owner of
the motor vehicle.
LAWS COMPANU%S 147
 1 REGELATING FRANSE'ORTAVION

No driver of a mötor vehicle concerned in a vehicular accident shall leave the

scene of the accident without aiding the victim, except under any of the following
circumstances:
1. If he is in an Imminent danger of being seriously harmed by any person or
persons by reason of the accident;
2. If he reports the accidents to the nearest officer of the law; or

3. If he has to summon a physician or nurse to aid the victim.

Laws Regulating Tricycles, Pedicabs, Calesas and Other Related Provisions Under
the Local Government Code of 1991
In case of regulating tricycles, pedicabs, and calesas, the local government
unit concerned, through the city or municipality, has the power to regulate the same
by virtue of the Local Government Code. Regulation of tricycles by the city

or municipality shall be subject to the guidelines prescribed by the Department of

Transportation and Communication (DOTC) 281
Limited Access Highway Act (R.A. 2000, June 22, 1957), as Amended by Executive
Order 546
Under said law, the DOTC is authorized to design any limited-access facility
and to regulate, restrict, or prohibit access as to the best serve the traffic for which
such facility is intended. On February 19, 1968, Secretary Antonio V. Raquiza of the
Department of Public Works and Communications issued Administrative Order
(AO) 1, which prohibited motorcycles, pedicabs, tricycles and bicycles on limited
access highways. The pertinent provisions of AO I read:
Subject: Revised Rules and Regulation
Governing Limited Access
Highways
By virtue of the authority granted the Secretary of Public Works and
Communications under Section 3 of R.A. 2000, otherwise known as the Limited
Access Highway Act, the following rules and regulations governing limited access
highways are hereby promulgated for the guidance of all concerned:
 Section 3 — On limited access highways, it is unlawful for any person or
group of person to:

(h) Drive any bicycle, tricycle, pedicab, motorcycle or any vehicle (not

148
The use of public highways is subject to regulation as an exercise of the
police power of the state. The police power is far-reaching in scope and is the "most
essential, insistent and illimitable" of all government powers. The tendency is to
extend rather than to restrict the use of police power. The sole standard in measuring
its exercise is reasonableness. What is "reasonable" is not subject to exact definition
or scientific formulation. No all-embracing test of reasonable exist, for its
determination rests upon human judgment applied to the facts and circumstances of
each particular case.123
Accreditation of Calesa Drivers
A resident Filipino citizen who is at least eighteen (18) years of age,
physically and mentally fit and of good moral character may apply for accreditation
as a calesa driver.124
The application for accreditation shall be accompanied by the following
documents:
(a) Appropriate mayor's permit and/or municipal license;
(b) Proof that the driver has passed a seminar for calesa driver conducted by
the Department or any organization duly authorized by the Department;
(c) Police clearance and/or barangay clearance;

123 James Mirasol et al. v. Department of Public Works and Highways et al., G.R. 158793, June
8, 2006.
124 Chapter Ill Section 1, Rules and Regulations Governing the Accreditation of Calesas Providing
Transport Services to Tourists. 284 Chapter Ill, Section 2, ibid.

CHAPTER 3 | RECCLATING TRANSPORTATION

LAWS COMPANU%S 149

 (d) Certified of good health issued by a duly licensed physician and
veterinarian for the calesa driver and horse, respectively; and
(e) Other documents that the Department may require from time to time.284
For purposes of accreditation, the following are the minimum requirements for
the operation and maintenance of a calesa:
(a) Physical appearance of the carriage:

(1) The carriage shall be made of good quality materials and shall be
of excellent workmanship.
(2) It shall be neatly painted with a color/numeral markings duly
prescribed or assigned by the Department.
(3) It shall have a non-skid stepping board.
(4) It shall be clean, well-maintained, and provided with the comfortable seats.
 (b) Horse — The horse shall be in good physical condition.
(c) Roadworthiness — The calesa shall be fit for operation on all public
thoroughfares.
(d) Seating capacity — The calesa shall have a maximum load of two (2)
passengers.
First-Aid Kit — The calesa shall have the first-aid kit.
(f) Horse Waste Receptacle — Every calesa shall have a horse waste receptacle
at the rear end of the horse below the tail.
Calesa Drivers — The drivers shall be trained, well-groomed, courteous and
shall wear the prescribed uniform and DOT ID at all times during actual
operating hours and shall provide service that is safe, comfortable and
convenient as possible. Moreover, they shall look after the welfare of
their respective horses.
(h) Routes

(1) The calesa shall serve routes which are considered tourist zone/
belt areas and shall not disrupt the normal flow of traffic.
(2) The service shall be limited to the boundary of the city or
municipality issuing the pertinent mayor's permit or municipal
license.
Fares — The calesa driver shall charge only such fares for his services as may
be approved or fixed by any competent government agency.125
Anti-Drunk and Drugged Driving Act of 2003
The Law
Sec. 5. Punishable Act. — It shall be unlawful for any person to drive a motor
vehicle while under the influence of alcohol, dangerous drugs and/or other similar
substances.
Sec. 6. Conduct of Field Sobriety, Chemical and Confirmatory Tests. — A
law enforcement officer who has probable cause to believe that a person is driving
under the influence of alcohol, dangerous drugs and/or other similar substance by
apparent indications and manifestations, including over speeding, wearing, lane
straddling, sudden stops, swerving, poor coordination or the evident smell of alcohol

125Chapter Ill, Section 1, Rules and Regulations Governing the Accreditation of Calesas Providing
Transport Services to Tourists..

ASPECTS IN ANI.) Hosprrm,rxx

LAWS COMPANU%S 151

 in a person 's breath or signs of use of dangerous drugs and other similar substances,
shall conduct field sobriety tests.
If the driver fails in the sobriety tests, it shall be the duty of the law enforcement
officer to implement the mandatory determination ofthe driver 's blood alcohol
concentration level through the us e ofa breath analyzer or similar measuring
instrument.
If the law enforcement officer has probable cause to believe that a person is
driving under the influence of dangerous drugs and/or other similar substances, it
shall be the duty of the law enforcement officer to bring the driver to the nearest
police station to be subjected to a drug screening test and, if necessary, a drug
confirmatory test as mandated under Republic Act No. 9165.
Law enforcement officers and deputized local traffic, enforcement officers shall
be responsible in implementing this section.
Sec 7. Mandatory Alcohol and Chemical Testing of Drivers Involved in
Motor Vehicular Accidents. — A driver' of a motor vehicle involved in a vehicular
accident resulting in the loss of human life or physical injuries shall be subjected to
chemical tests, including a drug screening test and, if necessary, a drug confirmatory
test as mandated under Republic Act No. 9165, to determine the presence and/ or
concentration, of alcohol, dangerous drugs and/or similar substances in the
bloodstream or body.
Sec 8. Refusal to Subject Oneself to Mandatory Tests. —A driver ofa motor
vehicle who refuses to undergo the mandatory field sobriety and drug test under
Section 6, 7 and 15 of this Act shall be penalized by the confiscation and automatic
revocation of his or her driver's license, in addition to other penalties provided herein
and/or other pertinent laws. 286 Discussion of the Law
On May 27, 2013, RSA. 10586, also known as the Anti-Drunk and Drugged
Driving Act of 2013, was signed into law penalizing persons driving under the
influence of alcohol, dangerous drugs, and similar substances.
The conduct of "Field Sobriety Test" and "Chemical Test" such as drug
screening test 'and drug confirmatory test by law enforcement officers shall be
subject to the implementing Rules and Regulations as promulgated by the DOTC,
the DOH and the NAPOLCOM. In addition, the LTO shall conduct random terminal
inspections and quick random drug tests of public utility drivers. The cost of such
tests shall be defrayed by the LTO.
Application of the Law
Case: Mr. Jasper Manabat, chief financial officer of a Makati hotel, was caught over
speeding by a police officer and smelled alcohol in Mr. Manabat's breath when
150 LEGAL TOURISM
being asked to show his driver's license. Discuss the responsibility of the police
officer in such a situation.

CHAP 1 IUiGULSUNG TRANSPORTATION

Legal Opinion: Under R.A. 10586, also known as the Anti-Drunk and Drugged
Driving Act of 2013, the, police officer shall conduct field sobriety tests on Mr.
Manabat. It is a standard test to initially assess and determine intoxication, such as
the horizontal gaze nystagmus, the walk-and-turn, the one leg stand, and other
similar tests as determined jointly by the DOH, the NAPOLCOM, and the DOTC. If
Mr. Manabat fails the sobriety tests, the police officer shall implement the
mandatory determination of the driver's blood alcohol concentration level through
the use of a breath analyzer or similar measuring instrument. If the police officer has
probable cause to believe that Mr. Manabat is driving under the influence of
dangerous drugs and/or other similar substances, it shall be his duty to bring Mr.
Manabat to the nearest police station to be subjected to a drug screening test and, if
necessary, a drug confirmatory test as mandated under R.A. No. 9165. If found
guilty of violation of a law, this incident could definitely affect his employment.
Distracted Driving
R.A. No. 10913 or "An act defining and penalizing distracted driving" will
mean that any person who is using their phones in non-emergency cases and/or
needs it for work will be penalized with a fine of P5,000 for first offense, P 10,000
for second offense, and PI 5,000 and suspension of license for three months for the
third offense. The law added that the fine may be increased, along with ultimately
suspending the driver's license if properly disseminated to the public. Meanwhile,
those who are driving public utility vehicles, school buses, or carriers with
flammable or toxic material within a 50-meter radius from school premises will be
fined with P30,000 and have their licenses suspended for three months.287

Guide Questions
As part of your comprehensive review, try to answer the following questions:
1. What is a common carrier?
2. What does the term "extraordinary diligence" mean?
3. What does the term "public service" mean?
4. What is the certificate of public convenience?

LAWS COMPANU%S 153

5. What are the requirements in order for a certificate of public convenience to
be issued?
6. Is bus ticket considered an evidence of agreement between the bus company
and the passenger?
7. What agencies of government regulate land, air, and sea transportation in the
Philippines?

287 R.A. 10913.

ASPEC.rrs HOSPITALITY

150 LEGAL TOURISM

8. What are the advantages of having a DOT accreditation for transportation
vehicle?
9. What is the rationale of the Seatbelt Law?
10. Take the case of Mr. Chiong who is traveling to Paris with his prized pet, a
Dalmatian onboard a Northwest flight. Suggest ways on how animals should
be transported.
11. Why are traffic laws necessary?
12. Discuss how rigid the Anti-Drunk and Drugged Driving Act is in your city
or province.
13. Discuss how strict the Seatbelt Law is in your city or province.
14. Enumerate the requirements in importing vehicles.
15. Why are the acts of the driver of a vehicle transporting travelers equated as
the acts of the company?
16. What are the different kinds of speed limits?
17. What law affects the operation of boats and banca?
18. What are the possible remedies for pieces of lost luggage in airlines?
19. What are the disadvantages of riding unregistered, unlicensed, or
unfranchised public transport vehicles (also known as colorum vehicles)?
20. Cite the significant functions of the following government agencies:
a) Land Transportation Office
b) Land Transportation & Franchising Regulatory Board
c) Air Transportation Office
d) Civil Aeronautics Board
e) Marine Industry Authority

Class Activities
What's in Your Airline Ticket?
Secure a copy of a used airline ticket. Scrutinize all the pages. What are the important
provisions stated at the back o fthe ticket? Discuss in class the details of these provisions. What
does it say about cancellation of a flight? What are the provisions on insurance?

Life Jackets and Prankers

 When boarding a plane, one of the strictly implemented reminders of flight attendants to
passengers is not to remove the lifejacket unnecessarily as this may violate a law. Discuss this law
in class. What penalties are imposed on violators? Airline staff who receive bomb pranks or jokes
from passengers take seriously any word that could connote compromising the safety any security
of the flight. Discuss the procedure in handling such incidents and the penalties imposed on
violators.

CHAPTER 3 | LAWS REGULATING TRANS?OR'VAHON 1 53

Revisiting 9/11
Terrorism has become the number one concern of many airlines since the September Il
bombing of the World Trade Center using commercial planes. Security systems in airports have been
upgraded and have become more stringent. In some cases, many flights were delayed or even
canceled because of suspected breach of security. Suggest ways on how to make airlines safer for
travelers. Group the class into six groups and allow ten minutes for brainstorming.

150 LEGAL TOURISM

 ASPECTS IN AND HOSPffAi*TY

CHAPTER 4
LAWS REGULATING ACCOMMODATION
ESTABLISHMENTS
Hotels nowadays simulate the ambiance of a home away from home. Thus, it
should be clean, comfortable, functional and safe.
(Farid•Schoucair, former general manager,
Hyatt Regency Manila)

The Case of the Missing Television

In one particular deluxe hotel in Metro Manila, the management takes pride
in the excellent service given by its staff to all its hotel guests. Approximately 10%
of the in-house guests are Filipino balikbayans. One day, a Filipino balikbayan
checked in with two pieces of luggage—a huge suitcase and a big balikbayan box.
The guest was staying only overnight. The bellman brought the luggage to the
designated guestroom. The following day, the guest checked out with the same
number of luggage. The bellman called for a taxi cab to take the guest to his next
destination. The housekeeping attendant entered the vacant guestroom later to clean
it. The housekeeping attendant was surprised to note that the television unit in the
living room was no longer in the armoire or TV cabinet. The housekeeping
attendant also found plenty of huge rocks in the bathtub. This was reported right
away to the security personnel. It was investigated also by the Human Resources
Department. This was obviously a case of theft.

Questions
The investigation report indicated that the
housekeeping staff front desk, and bellman were
all negligent in allowing the guest to check out
without clearing the guestroom as it is a
standard procedure to ensure that nothing is
missing in the guestroom prior to checkout.
 The book value of the missing television set
(P24,685) was charged to the negligent
employees.
Do you agree with this verdict?
How can hotels prevent this incident?

155

150 LEGAL TOURISM

 Learning Objectives
Identify the laws affecting the accommodation sector
Identify the rights of hotels guests
Explain how quality and safety standards are maintained by hotels and similar establishments
by meeting minimum requirements of the law

The Philippine Medium-Term Development Plan: 2001-04 identifies the

tourism sector as one of the banner industries that will pole-vault the economy. The
results of the study on the Effects on the Competitiveness of the Philippine Tourism,
revealed that the Philippine tourism industry needs to improve its competitiveness
to catch up with its neighboring countries. Tourism competitiveness is defined as
the "ability of a destination to deliver goods and services that perform better than
other destinations on those aspects of the tourism experience considered to be
important by tourists." In assessing the state of competitiveness of Philippine
tourism vis-å-vis its major ASEAN neighbors, the study utilized the results of the
rankings made by the World Travel and Tourism Council on the basis of eight (8)
criteria-price competitiveness, human tourism, infrastructure, environment,
technology, openness, and social and human resources.
Of the eight criteria, the Philippines only got the highest rank in human
resources development, which indicates the high quality of its human resources,
second in terms of price competitiveness, and third in infrastructure. The price
competitiveness criterion uses data of costs of travel, accommodation, goods and
services, exchange rate, and purchasing power parity. The infrastructure criterion
refers to the accessibility and availability of roads, railways, and sanitation
facilities.
This shows that, aside from the eight criteria, there are the factors which
tourists consider and decide to visit a country, such as the known and perceived
peace and order situation in a country of destination. Improving the industry's
competitiveness, therefore, also depends on ensuring the tourists' personal
security.288
There is a clear indication of the steadily increasing number of tourist
arrivals in the Philippines. That is why the Department of Tourism under the
administration of President Gloria Arroyo, reiterated the need to construct 20,000
more hotel rooms to accommodate the target of 5 million tourists in 2010. The same
vision was continued by succeeding President Benigno Simeon Aquino Ill through
 the National Tourism Development Plan (2011—2016) which emphasized
increasing capacity in the Philippine hotel sector in the various tourism
development areas

288 Report dated July 2003 by Jeanette D. Tana, Chief Labor and Employment Officer, Institute of Labor
Studies.

1 56
nationwide. The administration of President Rodrigo Duterte highlighted his first
three years in office through a more aggressive approach through his Build, Build,
Build Program creating a robust growth in the real estate industry and property
market. There has been a marked increase in average hotel room occupancies
particularly in Metro Manila deluxe hotels between 2003 and 2019 as reported by
the Department of Tourism.289
A brief snitch in the momentum occurred during the six-month closure and
rehabilitation of Boracay Island in 2018. A more ominous vacuum was created by
the global pandemic due to the novel coronavirus which forced the country into an
enhanced community quarantine preventing all tourism establishments nationwide
from operating (i.e., except those engaged in food deliveries).
This confirms the major role accommodation establishments play in
boosting the tourism industry. This chapter will deal with the different laws
regulating different accommodation establishments. Basic provisions of the
National Building Code of the Philippines and its supporting laws, including rules
on security and registration of guests and occupants have also been incorporated in
this chapter. Nature and Description of the Business
The Law
Business entities engaged in the operation of tourist accommodation
establishments may be organized as a single proprietorship or a corporation.
(a) Hotel — a building, edifice or premises or a completely independent part
thereof, which is used for the regular reception, accommodation or
lodging of travelers and tourists and the provision of services incidental
thereto for a fee.
(b) Resort — any place or places with pleasant environment and atmosphere
conducive to comfort, healthful and rest, offering food, sleeping
accommodation and recreational facilities to the public for a fee or
remuneration.
LEGAL IN TOURISM
 (c) Tourist Inn — a lodging establishment catering to transients which does
not meet the minimum requirements of an economy hotel.
(d) Apartel — any building or edifice containing several independent and
furnished or semi-furnished apartments, regularly leased to tourists and
travelers for dwelling in a more or less long term basis and offering
basic services to its tenants, similar to hotels. This type of
accommodation is sometimes called serviced apartments.

289 Department ofTourism.

CHAFFER 4 | LAWS ACCOMMODATION ESTABMSHMEMS 157

(e) Pension House — a private or family-operated tourist boarding house,

tourist guest house or tourist lodging house, employing non-professional
domestic helpers regularly catering to tourists and travelers, containing
several independent lettable rooms, providing common facilities such as
toilets, bathrooms/showers, living and dining rooms and/or kitchen and
where a combination of board and lodging may be provided.
(j) Motorist Hotel or Motel — any structure with several separate units,
primarily located along the highway with individual or common parking
space at which motorists may obtain lodging and, in some instances, meals
•290
Star Grading System for Hotels, Resorts and Apartment Hotels
Section 1. Five Star Grading System. There are five (5) levels of
accommodation standards ranging from one to five stars. The star bands for Hotels,
Resorts and Apartment Hotels are as follows. 291
One Star: 25—40% achievement (251 to 400 points) — These enterprises
appeal to budget minded travelers. There is a limited range of facilities
and services.
2. Two Star: 40—55% achievement (401 to 550 points) — These enterprises
appeal to the tourists seeking more than basic accommodation. They
offer expanded facilities and higher level of comfort.
Three Star: 55—70% achievement (551 to 700 points) — These
enterprises offer a very' good level of accommodation. There are more spacious
public areas, higher quality facilities and a greater range of services.
 4. Four Star: 70—85% achievement (701 to 850 points) — These
properties are upscale in all areas. Accommodation is refined and stylish.
Service is responsive, often including an extensive array of facilities.
5. Five star: 85—100% achievement (851 to 1, 000 points) — These
properties reflect the characteristics of luxury and sophistication. The
facilities are world class in every manner and the meticulous service
exceeds all guest expectations.

290 Chapter 1 , Section 1, Rules and Regulations to Govern the Accreditation of Hotels, Tourist Inns,
Apartels, Resorts, Pension Houses and Other Accommodation Establishments.
291 Book Il, New Accreditation Standards for Accommodation Establishments — Hotels, Resorts and
Apartment Hotels.

158 ASPECTS AND HOSPITALITY

LEGAL IN TOURISM
Discussion of the Law
Classification of tourist accommodations is based on the following
dimensions or critena.292
a. Arrival and Departure
1. Appearance design and construction quality, and condition of the
building
2. Entrance, exit, and parking
3. Security

4. Service hours, size, and seating area of reception

5. Check-in process
6. Luggage and porter services

7. Staff appearance, service quality

8. Check-out process
9. Other departure aspects
b. Public Areas

1. Decoration design and quality, condition and maintenance, and

furniture quality and condition
2. Quality, condition, and cleanliness of public washroom
3. Room climate, temperature control quality, condition and maintenance,
lighting quality, condition, environmental protection, and cleanliness of
public areas
C. Bedroom

1. Room size
2. Availability of suites availability
3. Rooms for Persons with Disabilities (PWDs) availability
4. Space and comfort of bedroom
5. Sound proofing and noise levels of bedroom
6. Bed mattress quality and condition
ACCOMMODATION ESTABL€SHMÉNTS 163
 7. Bedding and linen quality and condition
8. Quality and condition of pillows

292 Book Ill, New Accreditation Standards for Accommodation Establishments — Hotels, Resorts and
Apartment Hotels.

CHA}YtER4 1

9. Bedroom lighting quality, condition, and environmental

protection
10. Quality and condition of bedroom curtains
11. Quality and condition of flooring coverings
12. Temperature control quality, condition, and maintenance
13. Quality and condition of bedroom furniture
14. Accessories and amenities
15. Bedroom cleanliness
d. Bathroom
1. Minimum requirements for a bathroom
2. Quality, condition, and maintenance of shower and bath
3. Quality, condition, and maintenance of basin
4. Quality, condition, and maintenance of toilet
5. Quality, condition, and maintenance of decoration
6. Quality and cleanliness of towels
7. Space and comfort
8. Overall cleanliness of bathroom
9. Availability of toiletries and amenities
10. Environmental protection provisions
Food and Beverage
1. Availability of restaurants and options for F&B
2. Quality of F&B service
3. Quality, condition, and maintenance of restaurant decoration

LEGAL IN TOURISM
 4. Quality and cleanliness of crockery, cutlery, and glassware
5. Space and comfort of restaurant
6. Quality of kitchen appliances
7. Cleanliness of kitchen
f. Amenities and Services
1. Guest services
2. Wellness services
3. General services
4. Conference and function venue

1 60 ASPECrs AND HOSPITALITY

g. Business Practices
1. Business processes
2. Barrier-free facilities for persons with disabilities
Examples of deluxe hotels are Solaire Hotel in Paranaque City, The
Peninsula Hotel in Makati City, EDSA Shangri-la Plaza Hotel in Pasig City, Marco
Polo Hotel in Davao City, and the Bellevue Hotel in Muntinlupa City. There are
also clusters of hotels within the same vicinity enjoying a common perimeter
boundary like City of Dreams in Paranaque City which houses several hotel brands.

There are hotels around the world which advertise themselves as six-star or
even seven-star hotels. However, the United Nations World Tourism Organization
only has a 5-level category of hotels worldwide and puts 5-star or deluxe as the
highest level. They have done so for marketing purposes only but as per the
UNWTO, these hotels are also regarded as 5-star or deluxe hotels. In the
Philippines, only Maxim Hotel in the Resorts World Complex in Newport City,
Parafiaque City is classified as marketing itself as a 6-star hotel.
Examples Of first-class hotels are Bayview Park Hotel in Manila, Linden Suites
Hotel in Pasig City, Luxent Hotel in Quezon City, Seda Hotel in Taguig City, Park
Inn Hotel in Davao, and Waterfront Hotel and Casino in Cebu City.
Examples of Standard hotels are Elizabeth Hotel in Baguio City, G Hotel in
Manila, Grand Men Seng Hotel in Davao City, Herald Suites in Makati City, Villa
Caceres Hotel in Naga City, and Kabayan Hotel in Pasay City.

CHAPFER4 LAWS ACCOMMODATION ESTABL{SHMENTS 165

 Examples of economy class hotels are Hotel Las Palmas in Manila, City
Savers Hotel in Quezon City, Laparilla Hotel in Nueva Ecija, and Orchid Garden
Suites in Pasay City.
Examples of apartels or serviced apartments are Ascott Hotel, Century
Citadel Inn, and Makati Executive Palace, and Asian Mansions all in Makati City.
Examples of pension houses are Malate Pension and Pension Natividad both
in Manila.
Resorts may be categorized as beach resort (located along the seashore),
inland resort (located within the town proper or city), island resort (located in
natural or man-made island within the internal waters ofthe Philippine archipelago),
lakeside or riverside resort (located along or near the bank of a lake or river), and
mountain resort (located at or near a mountain of hill and theme parks). 293
Examples of beach resorts are Boracay Regency Resort and La Carmela de
Boracay both in Aklan, Dos Palmas Resort in Palawan, Eskaya Beach Resort and
Spa in Bohol, and Acua Verde in Batangas.

293 Book Il, New Accreditation Standards for Accommodation Establishments — Hotels, Resorts and
Apartment Hotels.
1 REGULATING

LEGAL IN TOURISM
 Examples of inland resorts are Quan's Worth Farm Resort in Quezon, Racsos
Wildlife Resort in Iloilo, Sitio Lucia Resort in Bulacan, and Tiwi Hot Springs and
Resort in Albay.
Examples of island resorts are Verde Island Resort in Batangas, Cocobana
Resort in Malapascua Island in Cebu, and El Nido Miniloc Island Resort and
Amanpulo both in Palawan.
Examples of lakeside or riverside resorts are Lake Caliraya Resort, Hotel
La Corona de Pagsanjan, and Villa Escudero and Resort all in Laguna, and Club
Balai Isabel in Batangas.
Examples of mountain resorts are Camp John Hay in Baguio City, Banaue
International Hotel in Ifugao, Eden Nature Park and Resort in Davao City and Taal
Vista Hotel and Anya Resort both in Tagaytay City.
Examples of special interest resorts are Plantation Bay Resort in Mactan
Island, Pearl Farm in Samal Island, and Camsur Watersports Complex and Hotel in
Camarines Sur.126
Rules on the Operation and Management of Resorts
(a) Sanitation measures shall be adopted in accordance with the standards
prescribed under P.D. 856 Code on Sanitation of the Philippines.
(b) All resorts shall provide the services ofa sufficient number ofwell-trained
lifeguards duly accredited by either the Philippine National Red Cross, the
Water Life Saving Association of the Philippines or any recognized
organization training or promoting safety objectives, and adequate security
whenever there are guests.
(c) All resorts shall provide the services of a physician, either on-call or on full-
time basis, depending on their volume of operation and accessibility to
hospitals or medical centers. In addition, resorts shall employ adequate first
aiders who have completed a course in first aid duly certified by the National
Red Cross or any organization accredited by the same. Adequate first-aid
medicines and necessary lifesaving equipment shall be provided within the
premises.
(d) There shall be placed on a beach or lakeside resort an adequate number of
buoys which shall be spread within the area to be determined by the resort

126Chapter I, Section 8, Rules and Regulations to Govern the Accreditation of Hotels, Tourist Inns,
Apartels, Resorts, Pension Houses and Other Accommodation Establishments.

Aspecrs AND-HOSPITAI..ITY

167 LEGAL IN TOURISM

 owner or keeper as safe for swimming purposes, and in compliance with
existing regulations and/or local ordinances on the placing of such buoys.
Precautionary measure

(1) In no case shall the resort management allow swimming at the

beach front beyond 10:00 pm and appropriate notice shall be posted
to inform the resort guests of this regulation.

(2) Night swimming at the pool shall be allowed only if there are
adequate lifeguards on duty and when the pool premises are
suffciently lighted.
(3) Management shall post sufficient and visible signs in strategic areas
in the resort or at the beach to warn guests/customers of the
presence of artificial or natural hazards, danger or occurrences
thereat.
(f) Prohibited acts and practices

(1) No pets or animals shall be allowed to bathe/swim along beaches.

Likewise, pukot fishing and washing offish nets shall be strictly
prohibited in beach resorts.
(2) Resorts owners shall prohibit ambulant vendors from peddling their
wares within the resort premises in order to provide their guests a
certain degree of privacy to enable them to relax and enjoy their
stay thereat.
(3) Littering in resort shall be strictly prohibited. Resort owners shall
keep their premises clean and shall adopt their own anti-littering
measures.

(4) Without prejudice to existing ones, no resort shall be established or

constructed within a radius of five (5) kilometers from any
pollution-causing factory or plant.295
Motorist Hotel (Motel)
Aside from complying with the minimum requirements for the establishments,
operation and maintenance of a motel, all motels are required to keep a Motel Registry
Book stating the following particulars:
a. Full name;

168 LEGAL ASPECTS IN TOURISM AND

 b. Address; and

c. Number, date and place of issue of Residence Certificate Class A or

Driver's License or Passport.

In addition, the motel management is required to maintain a separate logbook of

the plate number of the vehicles or cars used for customers or guests coming into

295 Chapter I, Section 13, Rules and Regulations to Govern the Accreditation of Hotels, Tourist Inns,
Apartels, Resorts, Pension Houses and Other Accommodation Establishments.

4| REGUEMING

or leaving the motels.296 On the departure of the guests, the motel clerk shall record
in the Registry Book the date and hour of their departure. 297
No motel shall accept for lodging or accommodation any person below
18 years of age unless accompanied by a parent or guardian.298
Examples of motels are Wise Hotel, Sogo Hotel, Anito Lodge, Queensland, and
Victoria Court.
Accreditation Process
Filing of Application. Any person, partnership, corporation or other entity
desiring to operate a primary tourism enterprise as defined herein shall secure an
accreditation from the Department Application for accreditation shall be
accomplished online.
Documentary Requirements. The Department shall issue a List of
Documentary Requirements to be complied with by applicants as part of the
accreditation process.
By virtue of the Tourism Act of 2009, 299 accommodation establishments,
being classified as Primary Tourism Enterprises, are required to be accredited by the
Department of Tourism. Any person, partnership, corporation or other entity
desiring to secure an accreditation from the Department of Tourism shall
accomplish in duplicate and the file with the Department, the application prescribed
for such purpose.300
The application shall be accompanied by two copies of the following
documents:
(a) In case Of corporation or partnership, a certified true copy of the Articles of
Incorporation, its by-laws, or Articles of Partnership and Amendments

CHAPFER4 LAWS ACCOMMODATION ESTABL{SHMENTS 169

 thereof, duly registered with the Securities and Exchange Commission, and
Business Name Certificate; in case of single Proprietorship, Business Name
Certificate and amendments thereof, if any;
(b) Applicant's latest income tax return and audited financial statements for the
preceding year of its operation (not applicable for new establishments);
(c) List of the names of all officials and employees and their respective
designations, nationalities, home addresses; for alien personnel — valid

298 Section 19, ibid.

299 R.A. 9593, May 12, 2009. Section
300 23, ibid.

HOSPEIAIXFY

visa from the Bureau of Immigration and the appropriate permit from the
Department of Labor and Employment;
(d) Mayor's permit and/or municipal license; and
(e) Such other papers or documents as may be required from time to time by
the Department. 301

Inspection. An inspection team shall conduct an audit of the establishment to

etermine its classification. An oversight committee from the Department shall conduct
eriodic inspection of the classified establishment.
Validity of Accreditation. The Certificate of Accreditation shall be valid for a
eriod of two (2) years, unless sooner revoked by the Department. 302
Schedule of Fees. The Department shall issue a schedule of accreditation fees
to be implemented by these Rules.303
Cancellation and/or Downgrading of Accreditation
Grounds for Cancellation. Any of the following acts, omissions shall be
sufficient grounds for the cancellation of accreditation:
(1) Making any false declaration or statement or making use of any such
declaration or statement or any document containing the same or
committing fraud or any act of misrepresentation for the purpose of
obtaining the issuance of accreditation;
(2) Failure to comply with or contravene any of the conditions set forth in the
certificate of accreditation;
170 LEGAL ASPECTS IN TOURISM AND
 (3) Failure to meet the standards and requirements for the operation of the
establishment as prescribed in these rules and regulations;
(4) Allowing or permitting the establishment or its facilities to be used for
prostitution particularly those involving children or any illegal, immoral or
illicit activities; and
(5) Violation of or non-compliance with any of the provisions of these rules,
promulgated orders, decisions and circulars issued by the Department and
other concerned government agencies.304

Procedure for Cancellation and/or Downgrading of Accreditation. Assessors

shall submit a report with recommendations based on the inspection

301 Section 24. supra.

302 Book IV, New Accreditation Standards for Accommodation Establishments — Hotels, Resorts and
Apartment Hotels.
303 Ibid.
304 Section 33, ibid.

4| REGULATING

CHAPFER4 LAWS ACCOMMODATION ESTABL{SHMENTS 171

 findings to the Office of Tourism Standards and Regulation (OTSR). The OT shall
then send a letter to the concerned enterprise regarding its deficiencies specifying a
grace period of a minimum of three (3) months within which to rectify such
findings.
Non-compliance within the allotted grace period may result in the
cancellation and/or downgrading of accreditation of the concerned enterprise.
The Department shall likewise inform the concerned local government unit
regarding the accreditation status of the enterprise.127
Supervision o fAccredited Establishments
Display of DOT Accreditation Seal. The valid DOT accreditation seal s} be
displayed in a conspicuous place of the establishment.
Non-Transferability of DOT Accreditation Seal. The rights and privileges over
the accreditation shall be non-transferable.
Periodic Inspection. The Department may send an inspection team to the
establishment for the purpose of finding out whether it is being kept and/or managed in
a manner conformable to the standards set by the Department. The inspection shall be
conducted at a reasonable time of the day with due regard and respect accorded to the
right to privacy of parties concerned.
Defects and Deficiencies Found During the Inspection. When certain defects
and deficiencies have been found in the course of inspection, the Department shall
give direction to the keeper, manager, or operator to rectify the defects or deficiencies
within a reasonable period of time.

Penalty for Failure to Remedy the Defects, etc. If the management fails to
remedy the defects or deficiencies, the Department may withdraw the certificate of
accreditation of the establishment.
Advertisements. All DOT-accredited hotels, resorts, tourist inns, and apartment
hotels which shall advertise its business or services through print media must specify
in the advertisement item itself the DOT accreditation number.306
Responsibilities of Accommodation Establishments

127 Book V, New Accreditation Standards for Accommodation Establishments — Hotels, Resorts and
Apartment Hotfls. 306 Book VI, New Accreditation Standards for Accommodation Establishments — Hotels,
Resorts and
Apartment Hotels.
HOSPITALITY

172 LEGAL ASPECIS TOURtSM AND

 Accommodation establishments must exercise due diligence, not only in the
selection of its employees, but also in serving the needs of its customers. Failure to do
so warrants the conclusion that the management had been remiss in complying with
the obligations imposed upon hotelkeepers under the law.
Under Article 1170 of the New Civil Code, those who in the performance of
their obligations, are guilty of negligence, are, liable for damages. As to who shall bear the
burden of paying damages, Article 2180, paragraph (4) of the same Code provides that the
owners and managers of an establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions. Thus, if an employee is found negligent, it
is presumed that the employer was negligent in selecting and/or supervising him for it is
hand for the victim to prove the negligence of such employer [Campo, et al. v. Camamte
and Gemilga, 100 Phil. 459 (1956)]. It was held that if an act was consummated through
the negligence of the employees of an establishment, both the assisting employees and
owner and operator of the establishments should be held solidarily liable pursuant to
Article 2193 of the Civil Code [Article 2194]. The responsibility of two or more persons
who are liable for a quasi-delict is solidary.307 Application of the Law
Case: Maurice McLoughlin, an Australian businessman-philanthropist sued Tropicana
Copacabana Apartment Hotel (Tropicana) for the loss of his American and Australian
dollars deposited in the safety deposit box of Tropicana. Mr. McLoughlin was also
demanding for liquidating damageS, moral, and exemplary damages with attorney's
fees. It appears that the safety deposit box could only be opened through the use of two
keys, one of which is given to the registered guests, and the other remaining in the
possession of the management of the hotel. When a registered guest wished to open his
safety deposit box, he alone could personally request the management who then
would assign one of its employees to accompany the guest and assist him in
opening the safety deposit box with the two keys. Discuss the liability of the hotel to
Mr. McLoughlin.
Legal Opinion: The evidence reveals that two keys are required to open the safety
deposit boxes of Tropicana. One key is assigned to the guest while the other remains in
the possession of the management. If the guest desires to open his safety deposit box, he
must request the management for the other key to open the same. In other words, the
guest alone cannot open the safety deposit box without the assistance of the management
or its employees. Thus, in case of loss of any item deposit in the safety deposit box, i! is
inevitable to conclude that the management had at least a hand in the consummation of
the taking, unless the reason for the loss is force majeure. Noteworthy is the fact that the
employees of Tropicana had custody of the master key of the management when the loss
took place. Yet the management failed to notify Mr. MacLoughlin of the incident and
CHAPTER LAWS ACCOMMODAÜON
aited for him to discover the taking before is disclosed the matter of him. Therefore,
ropicana should be held

307 YHT Realty Corporation et al. v. Hon. Court ofAppeals, G.R. No. 126780, February 17, 2005.

aI 167
responsible for the damage suffered by McLoughlin by reason of the negligence
of its employees.
Under Article 1 170 of the New Civil Code, those who, in the performance of
their obligations, are guilty of negligence, are liable for damages. As to who shall bear
the burden of paying damages, Article 2180, paragraph (4) of the same Code
provides that the owners and managers off an establishment or enterprise are likewise
responsible for damages caused by their employees in the service of the branches in
which the latter are employed or on the occasion of their functions. Also, if an
employee is found negligent, it is presumed that the employer was negligent in
selecting and/or supervising him for it is hard for the victim to prove the negligence of
such employer. Thus, given the fact that the loss of Mr. McLoughlin's money was
consummated through the negligence of Tropicana's employees, both the assisting
employees and Tropicana, should be held solidarily liable pursuant to
Article 2193.308

National Building Code of the Philippines (NBCP)

The NBCP (P.D. 1906, February 19, 1977) was adopted in view of the
country's accelerating and physical development coupled with urbanization and
population growth, The NBCP contains up-to-date and modern technical knowledge
on building design, construction, use, occupancy and maintenance.
The Law
Section 104. General Requirements
(a) All buildings or structures as well accessory facilities thereto shall conform
in all respects to the principles of safe construction and must be suited to
the purpose for which they are designed.
(b) Buildings or structures intended to be used for the manufacture and/or
production of any kind of article or product shall observe environmental
safeguards.
(c) Buildings or structures and all parts thereof as well as all facilities found
therein shall be maintaining in safe, sanitary and good working condition.

Section 105. Site Requirements

174 LEGAL ASPECIS TOURtSM AND
 The land or site upon which will be constructed any building or
structure or any or ancillary or auxiliary facility thereto, shall be sanitary, hygienic or
safe. In the case of sites or buildings intended for use as human habitation or abode,
the same shall be at a safe distance, as determined by competent authorities,

308 YHT Realty Corporation et al. v. Hon. Court ofAppeals, G.R. No. 126780, February 17, 2005.

IN HOSPITALITY

CHAPTER LAWS ACCOMMODAÜON

from streams or bodies of water and/or sources of air considered to be polluted;
from a volcano or volcanic site and/or any other building considered to be potential
source of fire or explosion.
Discussion of the Law
The following laws, rules and regulations are vital in enforcing the National
Building Code of the Philippines, to wit;
(l) Code on Sanitation of the Philippines (P.D. 856). The law provides that no
establishment shall be operated and opened for public patronage without
a sanitary permit issued by the Secretary of Health or his duly
authorized representative. Under said law, such establishments must
provide adequate water supply, toilet and bath facilities, shall be kept
clean at all times, and with periodic insect and vermin control measured
to eradicate vectors of diseases.
Additional standards are provided as follows: (1) Animals, fowls, and pets
shall be housed in appropriate kennels or cages separate from living quarters; (2)
Employment from such establishments must first secure a health certificate from
the local health authority; (3) Customers shall be provided with clean linen such as
bedsheets, pillow cases, towels, and napkins at all times; and (4) When rooms or
cabins are vacated, their toilets or baths shall be sanitized and clean and fresh linen
shall be provided before the room or cabin is rented for occupancy.309
(2) Ecological Solid Waste Management Act of 2000 (R.A. 9003). The law
provides for the minimum standards for solid waste management, as
well as penalties for violation thereof.
(3) Fire Code of the Philippines (P.D. 1185). The law requires owners,
administrators or occupants of buildings, structures and their premises
or facilities and other responsible persons to comply with the following
as may be appropriate:

(a) A fire safety inspection shall be conducted as prerequisite to the

grants of permits and/or license by local governments and other
governments agencies concerned, for the: (l) Use or occupancy of
buildings, structures, facilities or their premises including the installation
of fire protection and fire safety equipment, and electrical system in any
building structure or facility; and (2) Storage, handling and/or use of
explosives or combustible, flammable, toxic, and other hazardous
materials;

CHAPTER LAWS REGULATING ACCOMMODATION

 309 Sections 64, 65, P.D. 856.

4| CSTAUOS}IMENVS 169

(b) Fire safety measures shall be required for the manufacture, storage handling
and/or use of hazardous materials involving: (I) Cellulose nitrate plastic of
any kind; (2) Combustible fibers; (3) Cellular materials such as foam,
rubber, sponge rubber and plastic foam; (4) Flammable and combustible
liquids or gases of any classification; (5) Flammable paints, varnishes, stains
and organic coating; (6) High-piled or widely spread combustible stock; (7)
Metallic magnesium in any form; (8) Corrosive liquids, oxidizing materials,
organic peroxide, nitro methane, ammonium nitrate, or any amount of highly
toxic, pyrophoric, hypergolic, or cryogenic materials or poisonous gases as
well as material compounds which when exposed to heat or flame become a
fire conductor, or generate excessive smoke or toxic gases; (9) Blasting
agents, explosives and special industrial explosive materials, blasting caps,
black powder, liquid nitro-glycerine, dynamite, nitrocelluloses, fulminates of
any kind, and plastic explosives containing ammonium salt or chlorate; (10)
Fireworks materials of any kind or form; (l l) Matches in commercial
quantities; (12) Hot ashes, live coals and embers; (13) Mineral, vegetable or
animal oils and other derivatives/by-products; (14) Combustible waste
materials for recycling or resale; (15) Explosive dusts and vapors; and (16)
Agriculture, forest, marine or mineral products which may undergo
spontaneous combustion;
(c) Fire safety measures shall be required for the following hazardous
operation/process: (l) Welding or soldering; (2) Industrial baking and drying;
(3) Waste disposal; (4) Pressurized/forced-draft burning equipment; (5)
Smelting and forging; (6) Motion picture projection using electrical arc
lamps; (7) Refining, distillation and solvent extraction; and (8) Such other
operations or processes as may hereafter be prescribed in the Rules and
Regulations; and
(d) Owners, occupants or administrator of buildings, structures and their premises or
facilities shall incorporate and provide therein fire safe construction,
protective and warning system, and shall develop and implement fire safety
programs, to wit: (l) Fire protection features such as sprinkler systems hose
boxes, hose reels or standpipe system and other firefighting equipment; (2)
Fire alarm systems; (3) Fire walls to separate adjoining buildings, or
warehouse and storage areas from other occupancies in the same building;

1 70 LEGAL ASPECTS AND

 (4) Provisions for confining the fire at its source such as fire-resistive floors
and walls extending up to the next floor slab or roof, curtain boards and
other fire containing or
TO(.ifQSM HOSi'iTA1-rry
stopping components; (5) Termination of all exists in an area
affording safe passage to a public way or safe dispersal area; (6)
Stairway, vertical shafts, horizontal exits and other means of egress
sealed from smoke and heat; (7) A fire exit plan for each floor of the
building showing the routes from each room to appropriate exits,
displayed prominently On the door of such room; (8) Self-closing
fire-resistive doors leading to corridors; (9) Fire dampers in
centralized air-conditioning ducts; (10) Roof vents for use by fire
fighters; and (11 ) Properly marked and lighted exits with provision
for emergency lights to adequately illuminate exit ways in case of
power failure.310
(4) Philippine Environmental Code (P.D. 1152). The Law provides for the
minimum standards for air quality management, water quality management,
land use management, natural resources management and conversation, and
waste management.
(5) Environmental Impact System (P.D. 1586) and its Implementing Rules and
Regulations (AO 2003-30) by the Department of Environment and Natural
Resources. Under the law, no person, partnership or corporation shall
undertake or operate any such declared environmentally critical project or
area without first securing an Environmental Compliance Certificate issued
by the President Of the Philippines through the Department of Environment
and Natural Resources. Hotels and resorts, being areas set aside as aesthetic
tourist spots are classified as projects located in Environmentally Critical
Areas.311
(6) Rules and Regulations to Govern the Accreditation of the Hotels, Tourist
Inns, Apartels, Resorts, Pension Houses and Other Accommodation
Establishments by the Department of the Tourism (DOT, August 26, 1992).
This involves the minimum for the operation, establishments and maintenance
of accommodation in order to be accredited by the Department of Tourism.
Accreditation by the Department of Tourism, - although not mandatory in
nature, increases the marketability of a tourism establishments.
(7) The Law to Enhance Mobility of Disabled Persons (B.P. 334) and its
Implementing Rules and Regulations. Under the law, no license or permit
for the construction, repair or renovation of public and private buildings for
CHAPTER4 LAWS REGULATING ACCOMMODAT(ON 1 71
 public use shall be granted or issued unless the owner or operator thereof
shall install and incorporate in such building or

310 Section 8, P.D. 1/85.

311 Article Il, Section 1, Scope of the EIS System, DENR Administrative Order No. 37, Series of
1996.
1 ESEABE!SHMENTS

1 72 LEGAL ASPECTS AND

 establishment such architectural facilities or structural features as shall
reasonably enhance the mobility of disabled persons as sidewalks, railing
and the like. In case of the parking place of such buildings or
establishments, the owner or operator shall reserve sufficient and suitable
space for the use of the disabled persons.312

Application of the Law

Case: Mr. Henry Tan wants to put up a building for his five-star hotel to be located in
the Makati area. What are the basic requirements in putting up the building?
Legal Opinion: Mr. Tan must first secure a building permit from the city government
unit concerned. In this regard, Mr. Tan must comply with the following legal
requirements:
(1) Building construction and design must comply under the specifications
provided under the National Buildings Code;
(2) Building construction and design must comply with the rules on
sanitation;
(3) Building must provide waste management facilities and equipment, fire
prevention and emergency facilities, and facilities for the disabled
persons; and

(4) Building must comply under the Environmental Impact System.

Building Permits
The Law
Section 301. Building Permits. No persons firm or corporation including any
agency or instrumentality of the government shall erect, construct, alter, repair, move,
convert or demolish any demolish any building or structure or cause the same to the
done without first obtaining a building permit thereof from the Building Official
assigned in the place where the subject building is located or the building work is to be
done.
Section 302. Application for Permits. In order to obtain a building permit, the
applicant shall file an application thereof in writing and on the prescribed form with
the Office of the Building Official. Every application shall provide at least the
following information:
(1) A description of the work to be covered by the permit applied for;

1 73 LEGAL ASPECTS IN TOURISM AND

 (2) Description and ownership ofthe lot on which the proposed work is to be
done as evidenced by TCT and/or copy of the contract of lease over the lot
ifapplicant is not the registered owner;

312 Section 1, B.P. 344.

HOSPITAL%TY

(3) The use of the occupancy for which the proposed work is intended; and
(4) Estimated cost of the proposed work.
To be submitted together with such applicant are at least five sets of
orresponding plans and specification prepared, signed and sealed by a duly licensed
chitect or civil engineer in case of architectural and structural plans, by a registered
mechanical engineer in case of mechanical plans, by a registered electrical engineer
case of electrical plans and by a licensed sanitary or master plumber in case of
umbing or sanitary installation plans.
Discussion of the Law
The above provision provides for the basic requirements for a building permit
be issued. The law explicitly provides that no persons, firm or association shall
nstruct or erect any building or structure without first securing a building permit to be
ued by the Building Official assigned in the place where the building or structure is
ated.

processing an application for the building permit, the Building Official shall see to it
t applicant satisfies and conforms with approved standard requirements on zoning
d land use, lines and grades, structural design, sanitary and sewerage, environmental
lth, electrical and mechanical safety, as well as with other rules and regulations
mulgated by the National Building Code of the Philippines.313
It must be emphasized that the building or structure shall be used or occupied
until the Building Official has issued a Certified of Occupancy. 314 General
Requirements of All Buildings by Use or Occupancy The Law
Section 704. Location on Property (a)
General.
No building shall be constructed unless it adjoins or has direct access to a public
space, yard or street on at least one of its sides.

1 74 ASPECTS IN TOVRiSM AND

 (b) Fire Resistance of Walls. Exterior walls shall have fire resistance and opening
protection x x x.
Discussion of the Law
Accommodation establishments belong to the Group B Occupancies under the
National Building Code. Accordingly, it shall consist of multiple dwelling units
including boarding or lodging houses, hotels, apartment buildings and other similar
313
Section 303, P.D. 1096. 314 Section 309, P.D. 1096.

4: | ESTABLISHMENTS

buildings which accommodate more than ten people. The foregoing provision give the
general requirement for the location of the property to be established.
Application of the Law
Case: Mr. Norman Ramos is very delighted to have bought @ 10,000 square mete lot
in Ilocos Norte at the rate of P400 per square meter. He intends to put up a five star
hotel in the property. Unfortunately, the said lot is located in such a way that does not
adjoin or it has no direct access to a public street. According to the Local Government
of Ilocos Norte, it will not issue a building permit to Mr. Ramos unless the building
that Mr. Ramos will erect shall adjoin a public street. What advice will you give Mr.
Tan?
Legal Opinion: Mr. Norman Ramos must acquire a road right of way for access o the
lot where the building shall be constructed so that the occupants of the would
have access of egress and ingress toward the public street. A road right of way: is
applicable when the land where the building is constructed does not have access the
public highway. This can be achieved by making arrangements with the owner o the lot
where the road right of way passes. Mr. Ramos may either purchase the right of way
or pay the corresponding indemnity to the owner of the lot where the roac right of way
passes.
Light and Ventilation
The Law
Article 801. General Requirements of Light and Ventilation
(a) Subject to the provisions of the Civil Code of the Philippines 0 Easements
of light and View, and the provisions of this part of the Code every
building shall be designed, constructed and equipped to provide adequate
light and ventilation.
CHAPTER4 LAWS REGULATING ACCOMMODAT(ON 1 75
(b) All buildings shall face a street or public alley or a private street which has
been duly approved.
Article 806. Size Dimension ofRooms
(a) Minimum sizes of rooms and their least horizontal dimensions shall b
followed:

1. Rooms for Hunlan Habitations — 6.00 square meters with a leas

dimension of2.00 meters;
2. Kitchens — 3.00 square meters with a least dimension of
1.50 meters; and
Bath and toilet — 1.20 square meters with a least dimension o
0.90 meter.

1 76 ASPECTS IN TOVRiSM AND

 Article 807. Air Space Requirements in Determining the Size of Rooms
(a) Minimum air space shall be provided as follows:
School Rooms — 3.00 cubic meters with l. 00 square meter of floor area
per person;
Workshops, Factories, and Offices — 12.00 cubic meters of air
space per person; and
3. Habitable rooms — 14.00 cubic meters of air space per person.
Article 808. Window Openings
(a) Every room intended for any use, not provided with artificial ventilation
system as herein specified in this Code, shall be provided with a window
or windows with a total free area of openings equal to at least 10 percent
of the floor area of room, and such window shall open directly to a court,
yard, public street or alley, or open water courses.
Article 811. Artificial Ventilation
(a) Whenever artificial ventilation is required, the equipment shall be
designed and constructed to meet the following minimum requirements in
air changes:

(b) For rooms entirely above grade and used as bakeries, hotel or restaurant
kitchens, laundries other than accessory to dwellings, and boiler rooms —
not less than ten changes ofairper hour shall be provided.
Discussion of the Law
Light and ventilation refers to an easement of natural light and allowance of
circulations of fresh air unobstructed by erections and construction. The foregoing
provision gives the minimum requirements to allow light and ventilation within the
building.
Application of the Law
Case: Ms. Lovely Sy wants to erect a three-star hotel located in Cebu City. She
proposed to the investors of the hotel that all the rooms will be provided with
technologically advanced, efficient, and adequate air-conditioning units with no
window openings. She proposed that expensive brightly cölored paintings will be
placed and installed inside the rooms to attract guests instead of placing window
opening to preserve the quality of the paintings that will be placed inside the
rooms. Should the proposal of Ms. Lovely Sy prosper?

LAWS REGULATING ACCOMMOOATtON 1 77

 Legal Opinion: Yes, Ms. Lovely Sy's proposal will prosper. According to the
National Building Code, window openings must be installed in rooms utilized for
human habitation in the absence of any artificial ventilation. Since the rooms will be
1 ESTAB1.tSHMEVtS

provided with technologically advanced, efficient, and adequate artificial

ventilation no window opening is necessary. As long as the rooms will be provided
with adequate light and ventilation, the proposal of Ms. Sy will prosper. Sanitation
The Law
Section 901. General Requirements.
Subject to the provision of Book 11 of the Civil Code of the Philippine
Property, Ownership and its Modification, all buildings hereafter erected, alte
ed, relocated or repaired for human habitation shall be provided adequate
water supply, plumbing installation, and suitable waste water treatment or disposal
storm water drainage, pest and vermin control, n abatement device, and such other
s requiredfor the protection and promo of health of persons occupying the premises
r living nearby. Discussion of the Law
Whenever available, the potable water requirements for a building for
abitation shall be supplied from existing municipal or city water system. In case of
water from underground sources, it must conform the criteria set in the latest
National Standards for Drinking Water. S design, construction and operation of deep
the abstraction of groundwater shall be subject to the provisions of the Water Code
ilippines. The w piping installations inside buildings and premises must conform to
sion the National Plumbing Code of the Philippines.128
Sanitary sewage from buildings shall be discouraged directly into the nea
nitary main sewer under existing municipal or city sanitary sewerage sys in
ce with the criteria set by the Code of Sanitation and the Natic Pollution Control
ion. All buildings located in areas where there are available sanitary sewerage
hall dispose their sewerage through septic Such sanitary plumbing installations must
to the provisions of the Natic Plumbing Code. Adequate provisions shall be made for
which shall no discharged to the sanitary sewer system.129130
All buildings with hollow and/or wood construction shall be provided witl
. Garbage bins and receptacles shall be provided with ready means for clear and with

128 Section 902, P.D. 1096.

129 Section 903 and 904, P.D. 1096. 317 Section
905, P.D. 1096.

130 ANO HOSPITALITY

LEGAL ASPECTS IN TOURISM
sitive protection against entry of pest and vermin. It is advisable that that dining rooms for
blic use must be provided with artificial ventilation. 317
Application Of the Law
Case: Mr. Paul Ching, a hotel guest in Alpha Hotel, a first-class hotel located in
Roxas Boulevard, observed that there is an obnoxious smell inside the toilet room
where he is occupying. He also observed that cockroaches and mice are coming
from the upper portion of his room. Did the hotel violate any provision under the
law?
Legal Opinion: Yes, Alpha Hotel violated the provision of the Code on Sanitation
of the Philippines (P.D. 856) and the National Building Code (P.D. 1096). Under the
said laws, such establishments must provide adequate toilet and bath facilities, shall
be kept clean at all times, and with periodic insect and vermin control measures to
eradicate vectors of diseases. An establishment with poor plumbing installation and
the wastewater treatment or disposal system must not be allowed to operate and no
sanitary permit from the Department of Health must be given to such establishments
until it has substantially complied with the requirements of the law on sanitation
such as pest and vermin control, adequate waste water treatment, and disposal
system.
General Design and Control Requirements
The Law
Section 2101. General Requirements. Buildings proposed for construction
shall comply with all the regulation and specifications herein set forth governing
quality, characteristics and properties of materials, methods of design and
construction, type of occupancy and classification.

All matters relative to the structural design of all buildings and other
structures not provided for in this Chapter shall conform with the provisions of the
National Structural Code of the Philippines, as adopted and promulgated by the
Board of Civil Engineering pursuant to Republic Act. No. 544, as amended,
otherwise known as the "Civil Engineering Law. '
Discussion of the Law
Subject to the provisions of Articles 684 and 686 of the Civil Code of the
Philippines on lateral and subjacent, the design and quality of materials used
structurally in excavation, footings and in foundations shall conform to accepted
engineering practice.318

LAWS REGULATING ACCOMMOOATtON 1 79

 Footings and foundations shall be of the appropriate type, of the adequate size,
and capacity in order to safely sustain the superimposed loads under seismic or any
condition of external forces that may affect the safety or stability of the structure. It
shall be the responsibility of the architect and/or engineer to adopt the type and
design of the same.319
318 Section 1202, P.D.
1906.
319 Section 1202 P.D. 1906.
1 ESTABHSHMEN+IS

Walls and partitions enclosing elevators and escalators shall be of not less
than the fire-resistive construction required under the Types of Construction.
Enclosing walls of elevator shafts may consist of wire glass set in metal frames on
the entrance side only. Elevator shafts extending through more than two storeys
shall be equipped with approved means of adequate ventilation to and through the
main roof of the building. Rubbish and linen chutes shall terminate in rooms
separated from the remainder of the building by a one-hour fire-resistive occupancy
separation. Openings into the chutes shall not be located in required exit corridors or
stairways.320
In all occupancies, floors above the first storey having an occupant load of
ore than 10 shall not have less than two exits. Each mezzanine floor used for other
orage purposes, if area is greater than 185 square meters or more than 18.00 meters
any dimension, shall have at least two stairways to an adjacent floor. Every storey
aving an occupant load of 500 to 999 shall have at least three exits. Every storey or
ortion thereof having an occupant load of 1,000 or more shall have at least four exits.
he maximum number of exits required for any storey shall be maintained until egress
provided from the structures. Basement or cellars and occupied roofs shall be
rovided with exits as required for storey. Floors above the second storey, basement
nd cellars used for other than service of the building shall have not less than two
xits.321 Where three or more exits are required, they shall be arranged a reasonable
stance apart so that if one becomes blocked, the others will be available.
Stairways serving an occupant load of more than 50 shall not be less than
1.10 meters. Stairways serving an occupant load of 50 or less may be 900
millimeters wide. Private stairways serving an occupant load of less than 10 may be
750 millimeters. Trim and handrails shall not reduce the required width by more
than 100 millimeters. Stairways shall have handrails on each side and every stairway
required to be more than 3.00 meters in width shall be provided with not less than
one intermediate handrail for each 3.00 meters of required width. Exits shall be

LEGAL ASPECTS IN TOURISM

illuminated at any time the building is occupied with lights having an intensity of
not less than 10.7 lux at floor level.322
Standard automatic fire extinguishing systems shall be installed in the
following places: (a) In every storey, basement or cellar with an area of 200 square
meters or more which is used for habitation, recreation, dining, study or work, and
which has an occupant load of more than 20 and (b) In all dressing rooms, rehearsal
rooms, workshops and other rooms with an occupant load of more than 10.323
All electrical systems, equipment and installation shall conform to the
provisions of the Philippine Electrical Code as adopted by the Board of Electrical
320 Section 1204, P.D. 1906.
321 Section 1207 (b) (j), P.D. 1906.
322 Section 1207 (e) P.D. 1906.
323 Section 1207 (a), P.D. 1906.

1 78 ANO

LAWS REGULATING ACCOMMOOATtON 1 81

 Engineering pursuant to R.A. No. 184, otherwise known as the Electrical
Engineering Law. All mechanical systems, equipment and installation shall
conform to the provisions of the Philippine Mechanical Engineering Code, as adopted
by the Board of Mechanical Engineering pursuant to Commonwealth Act No. 294 as
amended, otherwise known as the Mechanical Engineering Law.131
No signboard shall be erected or constructed as to unduly obstruct the natural
View of the landscape, distract or obstruct the view of the public as to
constitute traffic hazard, or otherwise defile, debase, or offend aesthetic and cultural
values and traditions.132 Sign structures shall be designed and constructed to
resist all forces in accordance with the National Structural Code for Buildings. 133 No
signs or sign structures shall be erected in such a manner that will interfere in any
way the free use of any fire escape, exit, and standpipe.134Application of the Law
Case: Emmanuel Zulueta contracted Mafialac Construction Co. to put up his four
storey motel in Mabini, Manila in accordance with the plans and specifications
prepared by the latter which acted as architects in the construction of the building. The
building was completed in June 1988. On July 16, 1990, an unusually strong
earthquake hit Manila and its environs and the building in question sustained major
damage. The front of the building buckled, causing the building to tilt forward
dangerously. On November 29, 1990, Emmanuel Zulueta commenced this action for
he recovery of damages arising from the partial collapse of the building against
Mafialac Construction Co. It was found that Manalac Construction Co. made
substantial deviations from the plans and specifications and had failed to observe the
equisite workmanship in the construction as well as to exercise the requisite degree of
supervision. It was also found that there were inadequacies or defects in the plans and
specifications prepared by them. Discuss the liability of the architect who constructed
he building.
Legal Opinion: The architect is liable for damage in accordance with Article 1723

of the Civil Code of the Philippines. Accordingly, the architect who drew up the
plans and specifications of the buildings is liable for damages if within 15 years from
the completion of the structure, the same should collapse by reason of a defect in
those plans and specifications135. Acceptance of the building after completion does

131Section 1301 and 1302, P.D. 1906.

132Section 2001, P.D. 1906.
133Section 2003, P.D. 1906.
134Section 2005, P.D 1906.
135Article 2000, Civil Code of the Philippines.
LAWS ACCOMMODXCION
not imply waiver of any of the causes of action by reason of any defect in the
building.136

Registration of Guests and Occupants

The Civil Code of the Philippines 137 gives provisions for necessary deposi
made by travelers in hotels or inns. This implies the need for the registration guests
and/or occupants in accommodation establishments. Accordingly, keepers hotels or
inns shall be responsible for the deposits given by the travelers or guest provide
notice was given with respect to the effects brought by these guests an that
hotelkeepers have taken the necessary precautions prescribed regarding the
safekeeping. 138 The liability of hotelkeepers extends not only to the effects lost
damaged in the hotel rooms but also those lost or damaged in hotel annexes, such
garage. 139 In this kind of deposit, the hotelkeeper cannot escape liability by posting
notices to the effect that he is not liable for the articles brought by the guest. An
stipulation limiting the liability of the hotelkeeper shall be void.140
The liability of the hotelkeepers shall extend to the following causes:
(1) In case the loss or injury is caused by his employees, as well as b
strangers,141 and
(2) In case the loss or injury is caused by the act of a thief or robber withou
the use of arms and irresistible force.142
However, the hotelkeepers shall not be liable in the following cases:
(1) The loss and injury is caused by force majeure like flood, fire, 143 robbed by
force or intimidation;144145 and
(2) The loss is due to the acts of the guest, his family, servants or visitors.338

136See Juan NakpiIQt al. v. The Court ofAppeals et al., G.R. No. L-47851, October 3 1, 1986.

CHAI'TER$ I REGUI,MING ESTABOSHMENVS 179

137See Articles 1998 up to 2004, inclusive.
138Article 1998, Civil Code of the Philippines.
139Article 1999, Civil Code of the Philippines.
140Article 2003, Civil Code of the Philippines.
141Article 2000, Civil Code of the Philippines.
142Article 2001, Civil Code of the Philippines.
LAWS ACCOMMODATION ESTABLISHMENTS
 The Law
DOT Memorandum Circular No. 2006-09
Series of2006

Adoption of Safety and Security Measures in Hotels, Resorts, and Other

Similar Accommodation Establishments

1. Guests' visitors and joiners shall be registered. The guest booking/ information
sheets shall be properly accomplished and verified through valid offcial
documents, like passport, company ID, driver's license, Social Security
System, etc.; and
2. Efficient recording of information on vehicles (make/model, color, plate number
and name for taxicabs) ferrying tourist/guests to and from the hotel shall
be provided.
Failure to comply with this Memorandum Circular shall be a valid ground to
review the accreditation of the establishment by the Department of Tourism.
Discussion of the Law
Under DOT Memorandum Circular No. 2006-09, Series of 2006, all DOT
accredited hotels, resorts, and other accommodation establishments are enjoined to
adopt and implement the mandatory requirement of guests and occupants. This is
in line with the Department's thrust of enduring safe, convenient, and enjoyable
stay and travel of both local and foreign tourists as mandated by Executive Order
120. Failure to comply shall be a ground to review the accreditation of such
establishments by the DOT.
National Homestay Program
The National Homestay Program is a program of the DOT which provides
travelers with comfortable accommodations with Filipino families in areas near
tourist attractions. 339
For purposes of accreditation by the Department of Tourism, the following are
the minimum requirements for the operation and maintenance of Homestay Sites:

143Article 2000, Civil Code of the Philippines.

144 Article 2001, Civil Code of the Philippines. 338
Article 2002, Civil Code of the Philippines.

145 AND HOSPITALITY

LEGAL ASPECTS IN TOURISM
 Homestay Sites:
1. There is prevailing peace and order situation in the area.
2. There are existing natural and man-made attractions in the community.
3, Site is easily accessible to tourists and with existing transportation service, good
road condition, and other basic community infrastructure.
4. The host community is willing to join the National Homestay Program.
5. There is a dearth of commercial accommodation facilities in the area to service
tourists.

339 Section I (i), Rules and Regulations to Govern the Accreditation ofTourism-Related Establishments.

CHA?VER4 1 REGC%XIING 81

Home Facilities:
1. Structures are of durable building materials and are in good, presentable
condition.
2. The surroundings are pleasant and healthful.
3. There shall be at least one (1) adequately furnished guestroom to
accommodate paying visitors.
4. The following shall be available: (a)extra bed/s; (b)adequate lighting
system; (c)running water or if not available, adequate supply of water,
(d)clean and well-maintained toilet and bathroom facilities; (e)meals at
reasonable rates; and ( electric fan or other means of ventilation.
Training
Family members shall have completed the Department's training workshop on
Homestay Program.146Waste Management
Under Presidential Decree No. 1152, also known as the Environmental Code of
the Philippines (June 6, 1977), the dumping or disposal of solid waste into the sea and
any body of water in the Philippines, including shorelines and river banks, where

146 Chapter 7, Section 9, Rules and Regulations to Govern the Accreditation of Tourism-Related
Establishments.
LAWS ACCOMMODATION ESTABLISHMENTS
these wastes are likely to be washed into the water is prohibited, 147148 and might be a
ground for the nonrenewal of license to operate within the local government unit
concerned.
In this regard, the preparation and implementation of waste management
programs shall be required of all provinces, cities, and municipalities. The
Department of Interior and Local Government shall promulgate the guidelines for the
formulation and establishments of waste management programs.
Accordingly, every waste management program shall include the following:
(a) an orderly system of operation consistent with the needs of the area
concerned;
(b) a_provision that the operation will not create pollution of any kind or will
constitute public nuisance;
(c) a system for a safe and sanitary disposal of waste;
(d) a provision that existing plans affecting the development, use and protection
of air, water or natural resources shall be considered;
schedules and methods of implementing the development, construction,
and operations plan together with the estimated costs; and
(O a provision for the periodic revision of the program to ensure its effective
implementation.

It is the responsibility of every province, city of municipality to provide

measures to facilitate the collection, transportation, processing and disposal of waste
within its jurisdiction in coordination with other government agencies concerned.343
On June 26, 2001, R.N. No. 9003, a\so So\W
Management Act Of 2000, was enacted to encourage industrial establishments,
through appropriate incentives other than tax incentives, to initiate, participate, and
invest in integrated ecological solid waste management projects to manufacture
environment-friendly products, to introduce, develop, and adopt innovative processes
that shall recycle and reuse materials, conserve raw materials and energy, reduce
waste, prevent pollution and to undertake community activities to promote and
propagate effective solid waste management practices.

147 Section 49, P.D. 1152. 342

Section 43, P.D. 1152.

148HOSPH'Ai.rry
LEGAL ASPECTS IN TOURISM
 Under the same law, the segregation of wastes shall primarily be conducted at
the source, to include household, institutional, industrial, commercial and agricultural
sources.344
The following shall be the minimum standards and requirements for
segregation and storage and solid waste pending collection.
(a) There shall be a separate container for each type of waste from all sources:
Provided, that in the case of bulky waste, it will suffice that same be
collected and placed in a separate designated area; and
(b) The solid waste container depending on its use shall be properly marked

or identified for on-site collection as "compostable," non-recyclable,"

"recyclable" or "special waste," or any other classification as may be
determined by the Commission.345

Furthermore, the following are considered prohibited acts in violation of R.A.

9003:
(1) Littering, throwing, dumping of waste matters in public places, such as roads,
sidewalks, canals, esteros or parks and establishment, or causing
or permitting the same;

343 Section 44, PD. 1152.

344 Section 21, R.A. 9003. 345 Section 22, R.A, 9003.

CHAPTER 4 | REGULXtLNC, 183

LAWS ACCOMMODATION ESTABLISHMENTS

(2) Undertaking activities or operating, collecting or transporting
equipmen in violation of sanitation operation and other requirements
or permits se forth in established pursuant;
(3) The open burning of solid waste;

(4) Causing or permitting the collection of non-segregated or unsorted

wastes;
(5) Squatting in open dumps and landfills;
(6) Open dumping, burying of biodegradable or non-biodegradable
material: in flood-prone areas;
(7) Unauthorized removal of recyclable material intended for collection b)
authorized persons;
(8) The mixing of source-separated recyclable materials with other solic
waste in any vehicle, box, container, or receptacle used in solid
waste{ collection or disposal;
(9) Establishment or operation of open dump;
(10) The manufacture, distribution, or use of non-environmentally
acceptable packaging materials;
(11) Importation of consumer products packaged in non-environmentally
acceptable materials;
(12) Importation of toxic wastes misrepresented as "recyclable" or "witb
recyclable content",
(13) Transport and dump lög in bulk of collected domestic, industrial,
commercial, and institutional wastes in areas other than centers 01
facilities as prescribed by law;
( 14) Site preparation, construction, expansion, or operation of waste
management facilities without an Environmental Compliance
Certificate required pursuant to Presidential Decree No. 1586 and
R.A. 9003 and not coforming with the land use plan of the LGU;

(15) The construction of any establishment within two hundred (200)

meters from open dumps or controlled dumps, or sanitary landfill;
and

LEGAL ASPECTS TOURISM ANO

 (16) The construction or operation of landfills or any waste disposal
facility on any aquifer, groundwater reservoir, or watershed area
and/or portions thereof.346

184 HOSPITALITY

Security and Safety

DOT Memorandum Circular No. 2006-09 Series of 2006 (August 23,
2006) constitutes the Adoption of Safety and Security Measures in hotels,
resorts, and other similar accommodation establishments. This is in line with
the Department's thrust of ensuring the safe, convenient and enjoyable stay
and travel of both and foreign tourists as mandated by Executive Order 120.
Accordingly, failure to comply with such Memorandum Circular shall be a
ground for the review of the accreditation of the accommodation establishment
concerned.
The following constitutes guidelines on safety and security measures:
(1) Guests' visitors and joiners shall be registered. The guest booking/
information sheets shall be properly accomplished and verified
through valid official documents, like passport company ID,
driver's license, Social Security System ID, and the like;
(2) Efficient recording Of information on vehicles (make/model, color,
plate number and name for taxi cabs) ferrying tourist/guest to and
from the hotel shall be provided;
(3) Effcient ID system for all personnel shall be established;
(4) Proper selection of manpower and security personnel shall be
conducted;
(5) Crisis management team whose members have continuous training
on hotel security and emergency response, both on man-made
and natural disasters shall be organized. The response shall also
include evacuation and first aid;
(6) Security spotters shall be provided to monitor movement and other
activities of guests/visitors, hotel staff loiterers. Premier roving
guard shall also be detailed and establish a record scheme to
monitor his task.
LAWS ACCOMMODATION ESTABLISHMENTS
) All public areas of the establishment shall be provided with an electronic
surveillance system, fully equipped with modern and high-resolution
imaging CCTV gadgets manned by a security officer.
(8) Electronic access control device shall be provided in the elevator
for high-rise hotels and other similar accommodation
establishments;
(9) Hotel managers and/or security officers shall undergo annual
training program on security and emergency procedures in the
coordination with the Association of Hotel Security Officers of the
Philippines, Inc. (AHSOP) or any concerned government agency;
and

1 REGULATING 1 85

(10) Linkages with local PNP Commands, hospitals, and other

concerned agencies shall be institutionalized to respond to
emergency situation.
Application of the Law
Case: Annie, who works at the reception of the Philippines Hotel (a five-star
hotel located in Roxas Boulevard), received a phone call from an unknown
person threatening that a bomb had been planted near the hotel and was about
to explode, As an employee of the Philippines Hotel, what must Annie do?
Legal Opinion: Annie should:
(a) Keep the caller on the line and record the conversation, nothing down,
or remembering the exact words of the person making threat.
(b) Try to know when the bomb is set to explode, where it is, what it looks
like, who placed it, and the reason for planting it.
(c) Take note of the time and duration of the call.
(d) Take note of the background noises and voice characteristics (male
or female, young, middle-aged or old), tone, and accent.
The switchboard operator, should there be one, should be instructed to
turn on the tape recorder, if available, to record the caller's voice
print.

AL IN TOUR\SM AND
 (f) Upon receipt of the bomb threat, the person receiving the call (Annie)
shall immediately notify the chief administrator of the establishment, who
in turn shall direct all occupants to stay outside in a safe holding area at
least 300 feet away from the building. In this regard, the administrator or
operator/owner must also notify the PNP (which can be contacted through
1 17). In the meantime that the PNP elements are being awaited, security
officer/guards should secure all entrances of the building to prevent any
person from entering the building. If more than one threat is made in a
mouth, the operator/owner should make arrangement with the telephone
company to monitor and trace the telephone calls for a period of time.

The administrator or operator/owner should be made available, if

requested by the PNP elements, to assist in the search for the bomb. Nobody
should be allowed to get inside the building unless declared safety by bomb
disposal team.347

347 Primer on Bomb Threat, National Police Commission, Philippine National Police, Police Region
Office 3, Camp Oliv San Fernando City, Pampanga.

1 86 HOSPITALITY

Anti-Photo and Video Voyeurism Act 2009

The Law
Section 4. Prohibited Acts. — It is hereby prohibited and
declared unlawful for any person:
(a) To take photo or video coverage of a person or group of persons
performing sexual act; to capture an image of the private area of a
person/s such as the naked or undergarment clad genitals, pubic
area, buttocks or female breast without the consent of the person/s
involved;
(b) To copy or reproduce such photo or video or recording of sexual act or
any similar activity;
(c) To sell or distribute, such photo or video or recording of sexual ac
(d) To publish or broadcast, such sexual act or any similar activity through
VCD/DVD, Internet, cellular phones and other similar means or device.

LAWS ACCOMMODATION ESTABLISHMENTS

 Discussion of the Law
R.A. No. 9995, also known as the Anti-Photo and Video Voyeurism
Act of 2009 penalizes "photo or video voyeurism" which means the act of
aking photo or video coverage of a person or group of persons performing
sexual act or any similar activity or of capturing an image of the private area of
a person or persons without the latter's consent, under circumstances in which
such person/s has/have a reasonable expectation of privacy, or the act of
selling, copying, reproducing, broadcasting sharing, showing or exhibiting the
photo or video coverage or recordings of such sexual act similar activity
hrough VCD/DVD, Internet, cellular phones and similar means or device
without the written consent of the person/s involved, notwithstanding that
consent to record or take photo or video coverage of same was given by such
person.
pplication of the Law
se: Mr. Jerry Culala, manager of the Vicso Resorts located in the Visayas,
alled CCTV cameras in all the private rooms of the resorts to maintain security
safety of all tourist guests while inside their private rooms. Accordingly,
h CCTV camera are to be installed and all activities inside the private rooms
l be recorded. Is Mr. Jerry Culala liable under the Anti-Photo and Video
eurism Act of 2009?
gal Opinion: Yes, Mr. Culala is liable under the Anti-Photo and Video
eurism Act of 2009 as he will take video coverage of a person or group of
ons under circumstances in which such person or persons have reasonable
ectation of privacy inside their rooms. Accordingly, the penalty of
risonment of not less than

CHAjyrER4 1 187

three (3) years but not more than seven (7) years and a fine of not less than
PI 00,000 but not more than P500,000, or both. The discretion of the court
shall be imposed upon any person found guilty of violating the said law.

As part of your comprehensive review, try to answer the following questions:

1. What is a hotel? How are hotels classified?
2. What is a resort? What are the different kinds of resorts?
AL IN TOUR\SM AND
 3. What is an apartel or serviced apartment? How does it differ from a
hotel?
4. What is a motel? How does it differ from a hotel?
5. What is a pension house? How does it differ from a hotel?
6. Discuss the relation of the following laws on the enforcement of the
National Building Code with respect to the operation and construction
of accommodation establishments.
a) Code of Sanitation in the Philippines
b) Philippine Environment Code
c) Fire Code of the Philippines
d) Environmental Impact System
7. What is the rationale of the National Homestay Program of the Department
of Tourism?
8. What is the importance of accreditation of accommodation
establishments by the DOT?
9. Enumerate at least five (5) examples of security measures enforceable
in a hotel or resort.
10. Why is waste management important in an accommodation
establishment? l l . What are important pointers in recruiting staff
for a tourist accommodation?
12. In the case of a hotel employee caught peeping on female guests
swimming at the resort's pool area, is there a law violated?
13. What are the grounds for cancellation of DOT accreditation of a tourist
accommodation?
14. What is the sound hotel policy on joiners and visitors of hotel guests?
What possible problems may happen with the non-implementation of
such hotel policy?
15. What law justifies the need for provisions in buildings such as hotels
and resorts for facilities for persons with disabilities? Give some
examples of manifestations of these facilities.

1 88 HOSPITAEiVY

LAWS ACCOMMODATION ESTABLISHMENTS

16. Enumerate facilities normally find in a five-star hotel but not in Other
categories of hotels.
17. Should local government officials be directly involved in the accreditation
process of hotels and other tourist accommodation establishments in their city
or province?
18. Since the accreditation of all primary tourist establishments and entities such as
hotels is now mandatory by virtue of R.A. 9593, should the business permit of
establishments who fail to seek DOT accreditation be renewed?
19. Discuss ways to ensure safe water within an accommodation establishment.
What are the possible sanctions to accommodation establishments not providing
safe water to their guests?

ACCOMMODMION ESTABL[SHMENTS
 Bumping Off Hotel Guests
office manager or concietge. Find out how he/she handles a
hotel overbooking situation. What approach does he/she apply in
orderfor worsefile a lawsuit against the hotel? What are the
important things room reservations in order to prevent such
a confirmed room rsservation
situation? Ifa guest has and was bumped off, is the hotel liable?
guaranteed room reservation
What if the guest has a and was bumped off,' is the hotel liable?

a hotelfront due
to an complain or

CHAPTER 4 | REGULATING 1 89

Internet Research
Hotel Hopping
Within one day, organize a class tour of two to
three hotels in the city. Observe keenly the facilities and
services offered by the hotels. When you get back in class,
discuss all your observations on quality and safety standards,
waste management, security systems, communications and
records handling, and guest complaints handling.
Differentiate the hotels visited and attempt to use the New
Standards of Accreditation of Tourist Accommodations by
the DOT and perform a mock assessment in teams.

Extra Person Charge

Attempt to call or book for a hotel or resort room for one night and checkout how much each
establishment change for an extra or third person in a guestroom. Are the changes fair enough or are
they prohibitive? Are there hotels or resorts which do not impose any extra charge? Plot the charges in

190 LEGAL ASPECTS IN TOURISM AND HOSPITALITY

an Excel spreadsheet according to classification of hotel or resort and do a comparative analysis. What
conclusions can you make?

CHAPTER 5
LAWS REGULATING TRAVEL
AND TOUR SERVICES
With the advancement of technology, travelers can now book
their arrangements online. While this provides quicker and
cheaper access to good tour packages, the travel and tour sector
players need to re-think their business models.
(Paul So, President, Greater Manila Travel Association)
 Case of Rampant Sex Tours in the 1970s
In the 1970s, many travel agencies and tour operators were clandestinely
engaged in sex tours wherein the focal point of the group tour packages was neither the
beautiful tourist attractions of the country nor the renowned hospitable service of
Filipinos, but the incorporation of illicit liaisons with young Filipino women in the tour
package. Some of these women were even recruited from the rural areas of the country.
Prostitution became rampant not only in Manila but also in other cities like Olongapo
and Cebu. To some extent, minors were also exploited. The clientele coming from the
Middle Eastern, European, and Asia-Pacific countries trooped in busloads. The largest
contingent came from the Japanese market. The country was depicted as a prime
destination for this type of tour packages during that decade. In this present decade, the
limelight on this type of tours has been taken away from the Philippines by other more
open countries like Thailand, India, Latin American and Eastern European countries.
In the latter part of the current decade, 2016—2020, the country saw a proliferation of
prostitution dens specifically catering to executive and employees of Chinese POGOs
(Philippine Offshore Gaming Operators).

Questions
What are the social costs of this type of tourism product?
Does it fit well in the Philippine culture and tradition?
What are your impressions of a travel agency or tour operator engaged in such trade?
What measures can the government undertake to prevent a repeat of this era?

191

192 LEGAL ASPECTS IN TOURISM AND HOSPITALITY

 What laws can safeguard the ethical conduct of travel agencies and tour
operators ?
What government agencies are responsible in the prevention of sex tours and
apprehensions of violators of the law?

Learning Objectives
Enumerate the procedure in setting up a travel agency
Identify the responsibilities of a legitimate travel agency of tour operator
Differentiate ethical from unethical practices by travel agencies and tour operators
Give examples of issues, concerns, and problems travel agencies and tour operators may have in
the conduct of their business

As part of our tourism industry, the pivotal role of travel agencies is regarded as
revenue support of the nation's economy. Considering that our tour tourism industry
has already become a matter of public interest, it calls for its promotion and regulation
by our government.149
The laws regulating travel and tour services in this chapter involve
implementing rules and regulations by the Department of Tourism and Supreme Court
decisions which define the nature of the business of a travel agency and tour operator.
A background on the validity of e-ticketing in booking customers by virtue of R.A.
8792, also known as the Electronic Commerce Law is also included.
Under the Tourism Act 2009 150 travel and tour services which include inbound
travel agencies and tour operators, local tour operators and tour guides are classified as
Primary Tourism Enterprises. Accordingly, Primary Tourism Enterprises shall be
periodically required to obtain accreditation from the DOT as the quality of their
facilities and standard of services. In other words, accreditation shall now be
mandatory for travel and tour services.
Nature and Description of the Business
The Law
Tour Operator shall mean an entity which may either be a single
proprietorship, partnership or corporation regularly engaged in the business of

149 Geraldez v. Hon. Court ofAppeals and Kenstar Travel Corporation, G.R. No. 108253, February 23,
1994.
150R.A. 9593, May 12, 2009.
extending to individuals or groups, such services pertaining to arrangements and
bookings for transportation and/or accommodation, handling and/or conduct of
inbound tours whether or not for a fee, commission, or any of the compensation.

194 LEGAL ASPECTS IN TOURISM AND HOSPITALITY

 Tour Guide shall mean an individual who guides tourists, both foreign and
domestic, for a fee, commission, or any other form of lawful remuneration. 350
Discussion of the Law
The travel agency 's covenant with its customers is to make travel
arrangements in their behalf. A travel agency's services include procuring tickets
and facilitating travel permits or visas as well as booking customers for tours. The
relation of a travel agency with respect to a common carrier is that it merely acts as
an agent of the common carrier.351
Under R.A. No. 8239, also known as the Philippine Passport Act of 1996,
renewal of application for the issuance of passport may be filed by any licensed
travel agency duly accredited by the Department of Foreign Affairs, provided that
the agent shall be responsible for the authenticity of the supporting documents
being presented to meet the requirements for the application of passports.352
Application of the Law
Case: Giancarlo Capco will be traveling to the United States to compete in an
international business plan competition in Boston, Massachusetts. His old passport
will be expiring soon and he needs a renewal of his old US multiple entry visa.
Can Giancarlo avail of the services of a travel agency? What services can a travel
agency offer to him?
Legal Opinion: In order to save time and to be properly guided, Giancarlo can
avail of the following services of a travel agency: (a) passport renewal assistance;
(b) US visa renewal assistance; (c) airline ticketing; and (d) hotel reservations.
Accreditation of Travel Agencies ahd Tour Operators
The Law
Section 2. Who May Apply for Accreditation. The following may apply for
accreditation as tour operator and travel agency:
a. A resident Filipino citizen;
b. A partnership organized under the laws of the Philippines, at least 60%
of its capital being owned by Filipino citizens; and
c. Corporations organized under the laws of the Philippines, at least 60%
of the subscribed common or voting shares of stocks of which is owned
by Filipino citizens and the composition of its Board of Directors
being at least 60% Filipinos.

350 Section I, Rules and Regulations to Govern the Accreditation of Travel and Tour Services.
351 Estela L. Crisostomo v. Court ofAppeals & Caravan Travel & Tours International, Inc.,
LAWS TOUR SERV}CES
 G.R. No. 138334, August 25, 2003. 352
Section 6, R.A.8239.

CHAtVVER5 1 REGÜLAi1NG TRAV%C ASI) 1 93

Section 3. For purposes of accreditation, the following are the supporting

documents to be submitted with the applications:
a. In case of a single proprietorship, a business name certificate and all
amendments thereto; in the case of partnership or corporations, a
certified true copy of the articles of partnership/incorporation and its
by-laws and amendments thereto, duly registered with the Securities
and Exchange Commission;
b. Complete list of its executive officers and employees, tour guide and
travel representatives, if any, indicating therein their nationality, homes
address and experience, including names and establishments
previously or currently affiliated with, position and length of service
showing of the following:
In the case of the manager, proof that he has at least three (3) years
managerial experience in tour operations or has earned a degree
in Bachelor of Science in Tourism or has successfully
completed a tour operator 's course; and
2. Proof that, at least, two (2) of the permanent staff have at least two
(2) years experience in the tour operations.
c. For alien officers and employees, valid visa from the Bureau of
Immigration and the proper permit from the Department of Labor and
Employment.
Contract of lease or contract to lease the office space intended for the use of
the agency, or in the absence thereof; a sworn statement by the lessor
that said agency is lessee of his building stating the area thereof.
e. Mayor 's permit/Municipal license;
Latest Tax Return and Audited Financial Statements reflecting a minimum
working capital of Five Hundred Thousand (P500, 000) Pesos;
An annual performance report on the sales production and a tariff sheet
detailing services, rates validity, terms/conditions and responsibilities; and
h. Such other documents that the Department may require from time to time.

196 LEGAL ASPECTS IN TOURISM AND HOSPITALITY

 Section 4. Additional Requirements for Tour Operator Using a Motor
Vehicle. No tour operator shall use any motor vehicle while conducting tours or
transporting tourists unless such motor vehicle is accredited with the Department
and sporting a tourist plate.
Section 5. Minimum Office Requirements. The tour operator shall comply
with the following office requirements:
a. It shall be located in a commercial district and not in a residential
district; and
b. It shall be easily identifiable and shall be used exclusively for the tour
operation business.

Discussion of the Law

The foregoing provisions provide for the minimum requirements for the
accreditation and operation of a travel agency and/or tour operator by the
Department of Tourism, Take note of the investment limitation of foreigners in
engaging as a travel agency or tour operators in the Philippines.
Accreditation under the International Air Transport Association (IATA)
IATA accredits two distinctive types of travel agencies — Airline
Appointed Agencies holding ticket stock or capable of e-ticketing; and all other
categories of travel agencies called Travel Sales Intermediary (TSI) Agencies.
Essential to both programs is a set of objectives with appropriate business
standards that travel agencies must meet.353
Airline Appointed Services
When a travel agency is appointed by the airline through International
Association of Travel Agents Network (IATAN), the owner enters into an Agency
Agreement with one or more of IATAN's 79 customer airlines. Each airline sets its
own standards for appointing travel. agencies and each airline may select any
number of appointment criteria. Travel agencies receive remuneration, generally in
the form of commissions, on the sale of air transportation services. The rate of
commission is set between the individual agency and each airline.
Any travel agency holding standard and/or airline ticket stock or capable of
e-ticketing may apply as IATA Airline Appointed Agency. The Standards for
accreditation will be based on the following:

(a) Managerial Qualifier — a full-time person authorized to make managerial

decisions and exercise daily supervision of the location, and who has
LAWSREGULATING TOUR SERVICES
 had: at least two (2) years full-time employment within the last ten (10)
years in a managerial position at an accredited agency, or
corporate travel department or in a passenger air transportation sales
capacity at an airline; or

353 International Association of Travel Agents Network. Accessed February 2014. www.iatan.org.

1 nAVEL AND 195

198 LEGAL ASPECTS IN TOURISM AND HOSPITALITY

 at least three (3) years full-time employment within the last ten (10)
years as a sales counselor at an accredited agency, or corporate travel
department or in a passenger air transportation sales capacity at an
airline; or at least four (4) years full-time employment within the last
ten (10) years in a managerial position in a travel-related business (such
as hotel, cruise line, or tour operator) that offers travel services to the
general public.
(b) Technical Qualifier — a full-time person who performs or supervises the
performance of all technical aspects of selling commercial air
transportation (i.e., making reservations, issuing tickets, assigning seats,
generating other traffic documents, etc.). He must have at least:
one year full-time experience in this field within the last three years at
an accredited agency, or an airline, or a corporate travel department; and
has successfully passed the Certified ARC Specialist (CAS) test
administered by the Airlines Reporting Corporation (ARC).
(c) Premises
(d) Financial Capability (e) Security Standards
Travel Sales intermediary (TSI)
A Travel Sales intermediary(TSI) is a business (proprietorship, partnership,
or corporation) that is engaged in the sale and/or brokerage of travel-related services
such as cruises, tours, hotels, car rental, bus, and rail transportation. TSIs do not hold
airline agency appointments or issue airline tickets.
Any business who wish to obtain accreditation by IATAN as a TSI is required
to meet the following standards:
(a) of the business has been registered with IATAN for two (2)
of the past three (3) years and was eligible for an IATAN ID Card and
earned at least $20,000 in each of those two (2) years from the sale of
travel-related services; or the business is considered a "Homebased Travel
Agency" (operating from your residence in accordance with local and state
laws) and the owner has invested or has committed to invest a minimum of
$10,000 in a travel business; or the business has been in operation for a
least one (l) year immediately prior to application and produced at least
$200,000 in gross travel income or $200,000 in gross travel sales in the
previous twelve (12) months; or the business has been in operation less

1.EGAI

199 ASPECTS TOURISM AND HOSPITALITY

 than one (l) year and the owner has invested or has committed to invest a minimum
of $25,000 in the travel business has been in operation less than one (l) year and the
owner has invested or has committed to invest a minimum of $25,000 in the travel
business;
(b) That the gross travel income and gross travel sales represent no more
than 15% of personal travel (applicant and family);
(c) Proof of legal form of the business and of a business bank account;
(d) Two (2) letters of recommendation from national and international industry
suppliers or from a national travel association;
Proof of the business listing in a telephone or equivalent directory, website
home page or advertisement showing how customers could contract the
business;
(f) Proof of a valid and relevant errors and omission insurance policy in the
name of the business;
(g) Proof that the business and location are in compliance with all federal,
state, country and local laws, including but not limited to zoning,
registration, and business license;
(h) Proof of Sellers of Travel State Registration;
(i) Certification that there are no pending or unsolved complaints at the state
or local consumer affairs office; and
(j) Personnel Qualifier — Each TSI location must be managed by a person
who devotes substantially all of his time to the affairs of the business and
has had at least two (2) years (reduced to one [1] year if the person has
successfully completed an undergraduate degree in travel and tourism or
has earned certification as a Certified Travel Counselor, a Certified
Travel Industry Executive, or as a Certified Travel Associate) full-
time or equivalent experience within the last three (3) years ina travel
sales capacity at an accredited agency, corporate travel department,
airline, cruise line, hotel, car rental, railroad, bus company, tour
operator, or other travel-related business.

Application of the Law

Case: Oswald Tan wants to put up his own self-managed travel agency, Sunflower
Travel, as a single proprietorship during the month of January. He has practically
complied with all the requirements except one. His bachelor's degree is Chemical
Engineering at the Mapua Institute of Technology. This may pose a problem in his
200 ASPECTS HOSPITALITY
application for accreditation with the Department of Tourism. Why is this a problem
What is your recommended solution?
I I (Y

Legal Opinion: For DOT accreditation purposes, it is desirable for an entrepreneur of

a travel agency to be a B.S. Tourism graduate. However, an acceptable qualification
for travel agency owners is a completion of a seminar on travel agency operations.
Alternatively, Mr. Tan can hire a manager who has either B.S. Tourism degree or has
three-year managerial experience in a travel agency. Accreditation of Tour Guides
The Law
Section 9. Requirements for Issuance of Accreditation. An applicant for
accreditation as tour guide shall submit the following:
(a) Proof that the applicant has passed a seminar for tour guides duly
conducted by the Department of Tourism or other agencies duly
authorized by the Department to conduct the seminar; provided, however,
that this requirement maybe waived by the Department where the
applicant possess special academic or professional qualifications relevant
to tourism;
(b) Certificate of good health issued by any duly accredited government
physician;
(c) Clearance from the National Bureau of Investigation; In the case of alien
applicants, valid visa from the Bureau of Immigration and the proper
permit from the Department of Labor and Employment;
(d) Mayor 's permit/municipal license;
(e) Latest Income Tax Return; and
(f) Such other documents that the Department may require from time to
time.
Discussion of the Law
The above are the minimum requirements for accreditation as a tour guide by
the Department of Tourism. It is vital that an accredited tour guide must have passed
a seminar for tour guides duly conducted by the Department of Tourism of its duly
authorized agencies.
Application of the Law
Case: Arturo Corpuz is a recent graduate with a degree in B.S. Tourism currently
seeking employment with Rajah Tours as a tour guide. He has just completed the
required seminar for tour guides and secured his NBI clearance. Upon receiving the
CHAPTERS LAWS REGULATING TOUR SERVICES
results of his medical examination, he learned that he has Hepatitis B, hence, was
unable to seek a clean bill of health. Can Arturo proceed with his desire to seek
accreditation as a licensed tour guide? How can Arturo fulfill his dream career?
Legal Opinion: No, Aryuro has not fully complied with two vital requirements —
the medical or health clearance from a duly accredited government physician and

LEGAL TOURISMAND

202 ASPECTS HOSPITALITY

the mayor's permit. In order to pursue such career goal, Arturo simply has to first
improve his health and seek a medical clearance from a competent accredited
government physician.
Responsibilities of Business Entities Engaged in Travel and Tour Services
Travel agencies need to take necessary precaution by exercising prudence and
due diligence at all times. Under the present state of the law; extraordinary diligence
is not required in travel or tour contracts. However, the travel agency, acting as a tour
operation, must nevertheless be held to strict accounting for contracted services,
considering the public interest in tourism, whether in the local or in the international
scene.
Moreover, a tour guide is supposed to attend to the routinary needs of the
tourists, not only when the latter would ask for the assistance but at the moment such
need becomes apparent. In other words, the tour guide, especially by reason of his
experience in previous tours, must be able to anticipate the possible needs and
problems of the tourists instead of waiting for them to bring it to his attention. While
this is stating the obvious, it is the tour guide's duty to see to it that basic personal
necessities such as soap, towels, and other daily amenities are provided by the hotels.
It is also expected of such tour guide to see to it that the tourists are provided with
sanitary surroundings and to actively arrange for medical attention in case of
accidents, illness, or discomfort.
Failure to exercise prudence and due diligence in the supervision of its
employees may hold the tour operator liable for moral and exemplary damages, by
reason ofthe anxiety caused to tourist, Especially when misrepresentations were made
on tour packages, or by reason of incompetence or lack of experience of tour guides
who have not traveled yet in places of which tour packages are being offered?354
Application of the Law
Case: LydiaGeraldez engaged the services of Kenstar Travel Corporation (Kenstar)
for Ixer trip to Europe. Ms. Geraldez came to know about Kenstar from numerous
advertisements in newspapers of general circulation regarding tours in Europe with
its enticing slogan: "Let your heart sing."
The advertisements read are as follows: "Filipino Tour Escort! She will
accompany you throughout Europe. She speaks your language, shares your culture
and feels your excitement. She won't be alone because you will also be accompanied
by a European tour manager! You get the best of both worlds. Having done so many
tours in the past with people like you, he knows your sentiments, too. So, knowledge
about Europe, there is hardly a question he can't answer."

CHAPTER LAWS REGULATING AND TOUR

 354 Geraldez v. Hon. COurt ofAppeals and Kenstar Travel Corporation, G.R. No. 108253,
February 23, 1994.

5| TRAVEV SERVIOiS 199

To the dismay of Ms. Geraldez, the experience of her trip in Europe has been
full of deceptions or misrepresentations of a serious character. During the tour, Ms.
Geraldez was very uneasy and disappointed when it turned out that, contrary to what
stated in the brochure, there was no European tour manager for their group of tourist;
the hotels in which she was registered were not first class; the UGC Leather Factory
which was specifically added as a highlight of the tour was not visited, and the Filipino
lady tour guide by Kenstar was a first-timer and was performing her duties and
responsibilities as such for the first time. Discuss the liability of the travel agency.
Legal Opinion: For failure to exercise diligence and prudence in the selection of its
employees (tour guides), the travel agency must be liable for the serious anxiety
caused to Ms. Geraldez. Such misrepresentations made by Kenstar in newspapers
which enticed Ms. Graldez to accept the travel agency's offer constitute fraud which
should entitle the tourist for moral and exemplary damages. 355 Prohibition against
Engaging in Recruitment Activities The Law
Article 26. (Labor Code of the Philippines). Travel agencies are prohibited to
recruit. Travel agencies and sales agencies of airline companies are prohibited from
engaging in the business of recruitment and placement of workers for overseas
employment whether for profit or not. Discussion of the Law
In addition, the Rules and Regulations Governing Overseas Employment
provide for the following who are disqualified to participate in the recruitment and
placement of Filipino workers overseas:
(1) Travel agencies and sales agencies of airline companies;
(2) Officers or members of the Board of any corporation or members in a
partnership engaged in the business of a travel agency; and
(3) Corporations and partnerships, when any of its officers, member of t,he
board or partner, is also an officer, member of the board or partner of a
corporation or partnership engaged in the business of a travel agency.356
E-Ticketing and E-Commerce
E-ticketing (ET) is one of the most significant opportunities to reduce cost and
improve passenger convenience. It reduces ticket processing charges, eliminates the
HOSPITALITY
need for the paper and allows greater flexibility to the passenger and the travel of
agent to make changes on the itinerary.

355
356 Section 2, Rules and Regulations Governing Overseas Employment.

Under R.A. No. 8792 (June 14, 2000), also known as the Electronic Commerce
Act, an "electronic document" refers to information or the representation of
information, data, figures, symbols or other modes of written expression, described or
however represented, by which a right is established or an obligation extinguished, or
by which a fact may be proved and affirmed, which is received, recorded, transmitted,
stored, processed, and retrieved electronically.151

The confirmation document in e-ticketing constitutes an electronic document by

which a right is established or an obligation is extinguished. It is already equivalent to
a passage or airline ticket in a contract of carriage which can be classified as the best
evidence in proving that a contract of carriage exists.152
Consequently, electronic documents shall have the legal effect, validity, or
enforceability as any other documents or legal writing provided the said electronic
document maintains its integrity and reliability and can be authenticated so as to be
usable for subsequent reference. For evidentiary purposes, an electronic document
shall be the functional equivalent of a written document under existing laws. 359 Online
Tour Packages
Currently, there is no law regulating tour packages. However, fraudulent
selling of bogus tour packages and other forms of misrepresentation of tour packages
online constitute swindling, a crime punishable under Article 316, paragraph 5 (other
forms of swindling) of the Revised Penal Code.

151Section 5 (e), R.A. 8792.

152 Refer to Sweet Line, Inc. v. Teves, G.R. No. L-37750, May 19, 1978. 359
Section 7, R.A. No. 8792.

I TRAVEL SERVICES 201

CHAPTERS REGULATfNG AND
3. W
ho may apply for DOT accreditation for a travel agency or tpur operator? What
are the requirements?
4. Who may apply for DOT accreditation for tour guides? What are the
requirements?
5. What is the minimum working capital for a travel agency or tour operator?
6. What is an IATA-accredited agency?
7. It is important for travel agencies and tour operators to keep their promises to

HOSPITALITY
 clients as per advertisement. What are the consequences of not keeping
that promise or obligation? Why is it important not to overpromise?
8. What services can a travel agency or tour operator offer its clients?
9. Can a travel agency also recruit manpower for employment in our
countries?
10. How important is recruitment of the right staff in a travel agency or tour
operator?
l l. What are the desirable traits or characteristics of the professional tour guide?
12. What are the implications of e-ticketing to the traditional business of
travel agencies.
13. Discuss the importance of e-ticketing in terms of cost and validity.
14. What is the standard for tipping tour guides?

Class Activities
Canceling a Trip
Have you planned for a trip that was
What were the circumstances and for the
cancellation? Where you able to get money
canceled?
reasonsback? Surf the Internet and try to find
your cancellation
out policy of five or more travel
the and compare each of them. Which ones
agenciesacceptable and fair policies on cancellation
have andrefund and which ones don have. Report
findingsyour in class.

Under the Table Dealings

The Tourism class of Prof Lulu Pascasio planned an educational tour of Coron,
Palawan utilizing Wonder Travel services. hi the bidding process, the travel agency promised to

allot six (6) slots free of charge for the adviser and chaperones which are
trip. At
sufficient for 90 students joining the the Manila South Port, Pascasio
along with
brought her onboard. the Superferry her entire i.e., her husband and
family, the
three kids. Divide into three groups to brainstorm on questions: (a)
class three
Was the travel agent right in
allowing for
unethical
(c) Suggest
CHAPTER
in schools. AND
 If you were to organize a tour for 40
Australian senior citizens who are coming to the
Philippines for the first Ome and you, along with
one colleague, are to do the tour guiding at Paoay,
Ilocos Norte for four days, inclusive of bus travel,
present in class a tour plan comprising of an Ms. Pascüsio to utilize the slots allocated
itinerary and things you have to remember to make teacher-chaperones for her family? (b) What
the trip memorable, organized, and safe. What laws practices can you identifyfrom this case? a
do you need to observe? Stir/ the Internet and learn goodprocess for bidding group tours
more about Paoay, Ilocos Norte to help you in
planning.
202 LEGAL ASI'ECTS IN TOURISM AND HOSPITALITY

Internet Research
 5 | CAWS TRAWL. TOUR senvtct;s

CHAPTER AND