Prepared and Compiled by:

OCTAVIO M. PAGALILAWAN
 PROGRAM OUTCOMES
• Identify and demonstrate content/discipline, proficiencies and skills that are
relevant to the operational areas in Tourism
• Choose experiential learning opportunities in the field of Tourism that can
maximize and develop professional judgments and skills in terms of leadership.
• Effectively communicate
• Make decisions and evaluate information with the use of critical thinking abilities
and problem-solving skills.
• Improve the awareness about the importance of community service, ethical
values, and life-long learning.

COURSE DESCRIPTION & OVERVIEW

This course aims to develop the student’s competence in Tourism- as future
practitioners. It will discuss the different laws relevant to this field and to analyze the rights
of both the workers and the customers in the industry. This subject also provides topics
that are necessary in this program.
This instructional material (module) contains topics and practical use of the legal
aspects based on situations that will exercise the critical thinking abilities of the students.
It will also assess and evaluate student’s learning and ability to comprehend, analyze and
understand through his/ her own learning output.

COURSE OUTCOMES
• To demonstrate the knowledge obtained about the concepts of legal aspects in
Tourism.
• To analyze and to recognize the legal issues affecting the workplace especially in
tourism industry.
• To identify the rights and responsibilities of both the worker and the customer in
the industry.
• To investigate and identify the possible hazards that could arise to a negligent
breach of duty within the tourism industry.
• To interpret the general application of the laws discussed in this course.
• To identify the different kinds of laws relevant to the tourism, travel and hospitality
industry
• To explain the concept of tourism law
• To recognize the different laws in obligations and contracts and to enumerate
possible applications of those in the tourism, travel and hospitality industry

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 TABLE OF CONTENTS
I. Introduction……………………………………………………………………3

II. The Philippine Constitution………………………………………………….7

III. Law on Obligations and Contracts…………………………………………22

IV. Law on Partnership and Corporation………………………………………36

V. Law on Sales, Agency, and Credit Transactions…………………………78

VI. The Tourism Public Sector………………………………………………….97

VII. Laws regulating Accommodation Establishments………………………124

VIII. Laws Regulating Travel and Tour Services……………………………...144

IX. Laws Regulating Restaurants and other

Tourism-oriented Establishments……………………………………….154

References. …………………………………………………………………….…182

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 LESSON 1
INTRODUCTION TO THE LEGAL
ASPECTS IN TOURISM

• Identify the different kinds of laws relevant to the tourism, travel and hospitality
industry
• Explain the concept of tourism law
• Enumerate important sources of tourism law
• Give examples of applications of tourism law

“Ignorantia juris non excusat.” Ignorance of the law excuses no one. without
law, our world would be very unstable with anarchy in our streets this would be
difficult to achieve. (Legal doctrine from the Roman law)

Definition of Law
In its general and abstract sense (derecho), it is the science of moral laws founded
on the rational nature of man that governs his free activity for the realizations of the
individual and social ends of life under an aspect of mutual conditional dependence.
In its specific and concrete sense (ley), it is defined as a rule of conduct, just and
obligatory, promulgated by legitimate authority, and of common observance and benefit.

Kinds of Law
For our purposes, the different kinds of law are classified as follows:
As to purpose:
(1) Substantive law- a law which 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 which provides the method of aiding and protecting certain
rights.

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As to scope:
(1) General or Public law- a law which applies to all of the people of the state or to
all of particular class of persons in the state, with equal force an obligation.
Examples: criminal law, international law, political law.

a) Criminal law- a law dealing with crimes and their punishment, as well as the
procedure for that purpose.
b) International law- Body of rules or principles of action governing the
relations between states
c) Political law- law regulating the relations staying with the inhabitants of a
territory to the sovereign.

(2) Special or Private law- a law which relates to particular people or things of class.
Examples: civil law, maritime law, mercantile law

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.
b) Maritime law- the law dealing with commerce by sea, involving regulation of
ships and harbors and status of seaman.
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 establishment of countries to attract tourists.
The World Tourism Organization defines terrorism as the activities of person
traveling to and staying in places outside their usual environment for not more than one
consecutive year for leisure, business, and other purposes.
Tourism law may be defined as the 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.

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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.
All things been 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 imposed by the different government agencies in order to promote tourism
development for national interest. Hence, there is a need to study the different principles
and statutes governing tourism development.
This module 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.

Guide Questions:
Try to answer the following questions to give you a better understanding of the laws
discussed in this chapter.
1. How would you define the law?
2. What are the different kinds of low according to scope?
3. What are the different kinds of low according to purpose?
4. What is general or public law? Give examples.
5. What is criminal law?
6. What is international law?
7. What is political law?
8. What is special or private law? Give examples.
9. What is civil law?
10. What is maritime law?
11. What is mercantile law?
12. What is tourism law?
13. Why is the reason law important?
14. Where can tourism law be applied? Give some examples.
15. What are the various sources of tourism law?
16. If our society did not have any law, what could possibly happen? Identify some
possible scenarios of a lawless society.

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 17. If tourism, travel and hospitality industry did not have any tourism law, what could
possibly happen to the industry? Identify some possible scenarios of the tourism,
travel in hospitality industry without tourism law.
18. What is the Philippine constitution?
19. What are the statutes and legislative enactments?
20. What are judicial decisions or jurisprudence?

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 LESSON 2
THE PHILIPPINE CONSTITUTION

• Identify important provisions in the Philippine constitution related to tourism and

travel
• Enumerate the rights of travelers as well as entities engaged in the entire tourism,
travel in hospitality industry
• Organize industry research

The Philippine Constitution

“It is the right of every Filipino to travel. Traveling is one of the most enriching
experiences in life. It allows one to discover new places, interesting people and noble
ideas.” (Dr. Amparo Santos, Former president, Tourism Educators in schools, colleges
and universities.)

The Law
The constitution is defined as the original and fundamental principles of by which
a system of government is created and according to which a country is governed. 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,
by which those powers are distributed among several departments for their safe and
useful exercise for the benefits of the body politic.
Article III (Bill of Rights) and Article XII (National economy and patrimony) are
some of the constitutional provisions related to tourism which may be given preferential
attention.

The Bill of Rights

Section 1. 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.

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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.
According to Justice Malcolm, liberty means “the measure of freedom which may
be enjoyed in a civilized community consistently with a peaceful enjoyment of life freedom
in others.” Liberty includes the right to be free to use his follow this 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 that purpose, to enter into all contracts which may be proper,
necessary, and essential to his carrying out these purposes to successful conclusion.
Liberty is freedom to do right and never wrong; it is guided by reason and the upright and
honorable conscience of the individual.
Property is defined as anything which is or may be the object of appropriation.
Anything which has money value in which is supposed to be within the Commerce of man
Is embraced in the term property. The right to earn one's daily and the right to engage in
business or likewise property.
Equal Protection of the law means; persons similarly 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.
Due process of law is a law which hears before it condemns: which precedes
upon inquiry and renders judgment after trial. Due process of law does not necessarily
mean a judicial proceeding in the regular courts. The guarantee of due process, viewed
in its procedural aspect, requires no particular form of procedure. It implies due notice to
the individual of the proceedings, and 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. It means essentially a fair and impartial
trial and reasonable Opportunity for the preparation of the defense.
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 be lawfully acquired over the person of the defendant or
over the property which is subject of the proceedings; (3) the defendant must be given an
opportunity to be heard; (4) judgment must be rendered upon lawful hearing.

Application of the law

Case: Congressman Peter Genuino, A Filipino citizen, has been accused of tax evasion
and being investigated for dealing prohibited drugs in the United States of America. It is
currently residing in the Philippines so that he can pursue his alleged illegal businesses

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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 that he will be investigated under US jurisdiction. Pending the evaluation
of his extradition, he demanded for his extradition papers from the US government
through the Philippine government so that he can already filed his opposition in the
Philippine courts without need of being extradited to the United States of America. 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 the 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 Of Persons Who Have
Committed Crime In A Foreign Country” signed into law on January 13, 1977] which
implements the RP- US extradition treaty provides the time in an extradite 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
extradite a right to notice and hearing during the evaluation stage of an extradition
process. A different interpretation will be dangerous as this will be an opportunity for the
extradite to flee with the investigation during the evaluation of the extradition process is
pending.

The Law
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 the law.
(2) Any evidence obtained in violation of this or the preceding section shall be
inadmissible for any proceeding.

Discussion of the Law

The forms of correspondence and communication that are covered in this 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 in proposal to commit rebellion, Inciting to rebellion, sedition, conspiracy to

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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 this evidence in any administrative or criminal
proceeding.

Application of the Law

Case: The National Bureau of Investigation 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. Wiretapping devices were installed. The
adjacent suite was reserved for NBI agents on a stakeout. Was the operation legal and
justified?
The Legal Opinion: The operation is considered illegal in Violation of Republic Act 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 authorize
wire taps under the law. It is a rule of statutory construction that laws must be strictly
construed, and what the law excludes must not include.

The Law
For a labor-intensive industry like the tourism, travel and hospitality industry, It is
common to have disputes between the labor sector and management. Likewise, depiction
of women and children in an exploitive 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 for the
government for redress of grievances.

Discussion of The Law

Speech, expression, and press include every form of expression, whether oral,
tape, CD or DVD recorded.
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 the material

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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 is prohibited by law; (c) the work as a whole lacks serious literary, artistic, political
or scientific value.
It is worth considering the pronouncement of the Supreme Court and obscenity as
in the case of People of the Philippines vs. Marina Padan Y Alova ET al G.R. No. L-7295.
Thus:
“x.x.x. 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. In those cases, one might yet claim that there was involved the element of art;
the Connoisseur 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 lasciviciousness, can have no redeeming feature. In it, there is no room for art. One
can see nothing in it but clear unmitigated obscenity, indecency, and an offense to public
morals, inspiring and causing as it does, nothing but lust and lewdness, and exerting a
corrupting influence specially on the youth of the land.

Application of the Law

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 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 vs. The Court of Appeals, GR No. 80806,
October 5, 1989.)

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The Law
Every person has to the right to travel and reside anywhere he chooses.
Section 6. The liberty of abode and of changing the same within the limits
prescribed by law 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.
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 of 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 if he can
be allowed to leave for the United States which is "relative to his business transactions
and opportunities" since he is already released on bail and his bail bond has been
approved by the Court. May the Court deny Mr. Bondoc's request without violating 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 of the state of the burden of keeping him, pending the trial,
and at the same time, to put him as much as under the power of the court as it he were
in custody of the proper officer, and to secure his appearance so as to answer the call or
the court and do what the law may require of him. The condition imposed upon Mr. 5ondoc
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 vs. The Court of Appeals, G.R.
No. L-62100, May 30, 1986)

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The Law
Once again, the labor-intensive nature ot the tourism, travel and hospitality industry
elicits the possibility of unions and associations being formed to protect 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

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 rules and regulations prohibiting government employees to strike.
(See Social Security System Employees Association (655EA) et al. vs. 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 is a hardworking and very idealistic employee. He
has seen many abuses 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 believes that this is
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 serious charges resulting in his dismissal from the hotel.
Did the hotel management do the right thing? Did the hotel management violate any 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 IIl of the Philippine
Constitution. This may be construed as union-busting
In the case of Lopez Sugar Corporation vs. 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 supervisors 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 will not

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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 CBA with the
employer.

The Law
The tourism, travel and hospitality industry 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 which they shall
be provision 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
contract with its terms. A law changing the terms of the a legal contract between parties,
either in the time or mode of performance, or imposes new conditions, or dispenses with
those 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.
However, not all impairment of the contractual provisions violate the Constitution.
The Supreme Court has pronounced that a valid exercise of police power of the state is
superior 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 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.

Application of the Law

Case: The Philippine Airlines (PAL) and the Chamber of Real Estate Builders, Association
(CREBA) filed a Petition to the Supreme Court questioning the validity of Republic Act
No. 716 (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 correct?

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Legal Opinion: The contention of PAL and CREBA is incorrect. Republic Act 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 vs. Secretary of Finance, G.R. No. 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.
In the grant of rights, privileges and concessions covering national economy
and patrimony, the State shall give preferences 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 of Ichong
vs 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 out also the mental ability or faculty of
our people.
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
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
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competence and efficiency. It certainly does not mandate the pampering and preferential
treatment to Filipino citizens or organizations that are incompetent or inefficient, since
such an indiscriminate preference would be counterproductive and inimical to the
common good. In the granting of economic 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.

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 fayor of the Filipino Corporation valid?
Legal Opinion: Yes. Article XIl Section 10 of the 1987 Constitution explicitly states that
the granting of privileges involving national patrimony shall give preference to qualified
Filipinos.
As held in the case of Manila Prince Hotel vs. 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 site 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 Memory of a City. During World War II 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 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 had bore mute 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 struggle for sovereignty,

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 independence and nationhood. Verily, Manila Hotel has become 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 11. No franchise, certificate, or any other form of authorization for 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 or 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 public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such
corporation or association must he citizens of the Philippines.

Discussion of the Law

The highlights of the above provision are as follows:
The first sentence provides that public utility franchises will be granted only to
citizens of 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 franchises
"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:
“(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, sub-way motor vehicle,

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 either for freight or passenger , or both with class, express service, steamboat, or
steamship line, pontine, 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

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, the Civil Aeronautics
Board 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. This regard, Philippine Airlines, Inc. (PAL) is now
questioning the authority of the Civil Aeronautics Board in issuing a temporary permit on
the ground that Grand Air does not possess a legislative franchise authorizing to engage
in air transportation service within the Philippines or elsewhere. Such franchise is,
allegedly, a requisite for the issuance of a Certificate of Public Convenience or Necessity
by the respondent Board, as mandated under Section 11, Article XIl of the Constitution.
Does CAB have the authority to issue a Certificate of Public Convenience and
Necessity in favor of GrandAir even it no franchise has been issued yet to the latter in
accordance with Section 11, Article XIl of the 1987 Constitution?

Legal Opinion: Yes, CAB has the authority to issue a Certificate of Public Convenience.
The Civil Aeronautics Board has jurisdiction over Grand Air's Application for a Temporary
Operating Permit. The Board is expressly authorized by Republic Act 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 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

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not interfere with the exercise of that discretion when it is just and reasonable and founded
upon a legal right.

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 scientists to artists.
There is a provision in the law that limits the practice of professions. This may shortly
change because of 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 of 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

The above constitutional provision mandates that the practice of a profession is
reserved exclusively to citizens of the Philippines, The Foreign Investment Negative List
specifically provides that foreign investors are prohibited in engaging in such undertaking.
In addition, the State shall prioritize Filipino talents for employment 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.

Application of the Law

Case: Mr. John Tan is looking for a Chief Executive Officer who will manage his 5-star
hotel in the Roxas Boulevard area. He is also looking for a legal counsel who will take
charge in 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 for a Chief Executive Officer, Mr. Tan may or may not employ
Filipino citizens. It is true that priority should be given to Filipino citizens in Mr. Tan' s
choice as Chief Executive Officer. However, this will hold true only if there are enough

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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 the Department of Labor and Employment.

Guide Questions
Try to answer the following questions to give you a better understanding of the
laws discussed in this chapter.
1. How important is the right to travel? What happens when a person's right to travel is
suspended or curtailed?
2. Does the President of the Philippines have the right to ban a former dictator from
returning back to the country?
3. Why is "due process" and the "equal protection" clause important in the tourism, travel
and hospitality industry?
4. Does an administrative school official have the right to ban students with pending
administrative cases from traveling within and outside the country?
5. Is it lawful for hotel managers to allow telephones tapped in hotel rooms to protect itself
from impending entrance of potential terrorists within the building?
6. What is your understanding of the principle of "hold-departure order" as a deprivation
of the right of a person to travel?
7. Enumerate the different administrative agencies with authority to grant a “hold-
departure order” against a person in the interest of national security and safety.
8. What are the grounds for granting a “hold-departure order”?
9. What is a strike? What is the rationale why government employees, though they may
be allowed to form unions, are prohibited to conduct strikes?
10. Can a general manager of a hotel have the right to join, assist and form a labor
organization?
11. Is it valid to employ the foreigners as a general managers of deluxe hotels in relation
to Section 14, Article XII of the 1987 Constitution?
12. Can restaurant and night clubs have fashion shows wherein models don very
revealing attires?
13. Can a hotel have more than one union?

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14. What are the advantages and disadvantages of having a union?
15. Is the right to travel of Filipinos absolute? What are the exceptions to the right to travel
of a person?

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 LESSON 3
LAW ON OBLIGATIONS
AND CONTRACTS

• Identify the different kinds of obligations and contracts

• Enumerate the ways of extinguishing an obligation
• Enumerate possible applications of contracts in the tourism, travel and hospitality
industry

“The ethical basis of business is integrity, an ethical aspect that unites both
private morality and public and professional ethics.” (Don Schley, Colorado
Technical University)

The Law
A person desiring to engage in a business in 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 law on obligations and contracts.

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.
Every obligation has four definite elements, without which no obligation can exist,
to wit: (1) an active subject, also known as the oblige 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 the prestation which is an object or undertaking to
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give, to do or not to do; (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 important to identity 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 in:
a) Obligations to give a determinate thing:
1. To deliver the thing which he has obligated himself to give.
2. To take care of the thing with the proper diligence of a good father of a family.
3. To deliver all its accessories and accession
4. To pay damages in case of breach of obligation.

b) Obligations to do:
1. If the debtor fails to do what he is obliged to do, it will be done at his expense
2. If the work is done in contravention of the tenor of the obligation, it will be re-done at
debtor's expense.
3. If the work is poorly done, it will be re-done at debtor's expense.

The sources of liability (for damages 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 (ie. common
carrier) is culpa contractual, the lack of diligence or carelessness. 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

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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. She was however told by the Alitalia personnel there at Milan
that her luggage was "delayed inasmuch as the same (was) in one of the succeeding
flights from Rome to Milan.:
Her luggage consisted of two (2) suitcases: one contained her clothing and other
personal items; the other. her scientific papers, slides and other research material. 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 suitcases 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 suitcases were, in fact, located and forwarded to Ispra,
Italy, but only on the day after her scheduled appearance and participation at the U.N.
meeting there. Of course, Dr. Pablo was no longer there to accept delivery; she was
already on her way home to Manila. And for some reason, the suitcases were not actually
restored to Prof. Pablo by Alitalia until eleven (11) months later.
Is Dr. Pablo entitled to damages for the negligence committed by Alitalia?
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, which
gradually turned to 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 real
shocked and distraught and confused." Certainly, the compensation for the injury suffered
by Dr. Pablo cannot under the circumstances be restricted to that prescribed by the
Warsaw Convention for delay in the transport of baggage"

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 official delegate of the Republic to a conference in
Tokyo, an agent of North-west 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, respondent had no
choice but to obey. Is Mr. Cuenca entitled to damages for culpa contractual?

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Legal Opinion: Yes, Mr. Cuenca is entitled to nominal damages, At any rate, considering
that petitioner's agent had acted in a wanton, reckless and oppressive manner, said
award may, also, be considered as one for exemplary damages.
(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:
• When the law expressly provides that demand is not necessary;
• When the contract expressly stipulates that demand is not necessary;
• When time is of the essence;
• When demand would be useless.

(4) Contravention of the tenor of the obligation. Performance in contravention of the tenor
or of the obligations means where performance is contrary to what is agreed upon or
stipulated thus making the debtor liable for damages.

Case: Mr. Rafael Carrascoso is a civil engineer who was a member of a group of 48
Filipino pilgrims that left Manila for Lourdes on March 30, 1958. On March 28, 1958, Air
Prance, through authorized agent, Philippine Airlines, Inc., issued to Mr. Carrascoso a
'first class' round 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. Carrascos0, 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 first class 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, 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 passenger and air
carrier, adherence to the ticket so issued is desirable.

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 Lastly, passengers do not contract merely for transportation. They have to be
treated by the carrier's employees with kindness, respect, courtesy 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 towards 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 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 this legal precept."

The Law
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

A pure 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 Ariel
promises to pay Brenda P1,000.
A conditional obligation is one whose consequences are subject in one way, or
another to the fulfilment of a condition, Example: Carol promises to pay B P1, 000.00 if
Darren remains to become an outstanding employee of the hotel for the month of May
An obligation with a period is one whose consequences are subject in one way or
anotherto the expiration of the said period or term. Example: Alfredo (the owner of the
hotel) promise to pay Britney (employee of the hotel) P5,000.00 on or before December
30, 2007 as part of the staff incentive program.

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 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 a duty on the
part of each of the latter to render entire compliance of the entire obligation. 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 entirety, the
prestation constituting 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 only when
the obligation expressly so states or when the law or nature of the obligation requires
solidarity.

Application of the Law

Case: Mr. Danny Ramos, owner of Danny's Grill (a fine dining restaurant), entered into a
contract with Chona Romulo and Michael Aldeguer (proprietors of CM Wine Company)
with the following stipulation:
“In case of failure to deliver the agreed 150 bottles of Emperor's White Wine on or
before December 30, 2007, Chona Romulo and Michael Aldeguer shall be liable to Dan
Ramos, joint and severally, for damages in the total amount of P100,000.00.”
“CM Wine Company was not able to fulfill their obligation to Mr. Ramos. 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. Ramos only hold Mr. Aldeguer liable for
damages?
Legal Opinion: In this situation, Mr. Danny Ramos may at his option hold either Chona
Romulo or Michael Aldeguer, or both liable when filing a case in court for damages
incurred.
Any 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.

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:

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 “Whereas the undersigned are, respectively, owners of large amounts of stock in
JR & Co., Inc.; and,
“Whereas it is recognized that the success of said corporation depends, now and
for at least one year net following, in the larger stockholders retaining their respective
interests in the business of 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 the sum of one thousand
(P1,000) pesos as liquidated damages, unless previous consent in writing to such sale,
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 liquidated damages in the amount of P1,000.00?
Legal Opinion: Yes, Mr. Lambert is entitled to the liquidated damages in the amount of
P1,000.00 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,
and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep, 33; Palacios vs. Municipality of Cavite, 12
Phil. Rep, 140; Gsell vs. Koch, 16 Phil. Rep. 1). 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.
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.

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 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 condonations or remission of the debt:
(4) By the confusion or merger 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,
fulfilment of a resolutory condition, and prescription, are governed elsewhere in this Code
(1156a).

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 event 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. 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.
Fortuitous event, also known as force majeure or caso fortuito, are terms which
exempt an obligor from liability. These are extraordinary events not foreseeable or
avoidable, events that could not be foreseen, or which, though foreseen, were inevitable.
(Article 1174, Civil Code of the Philippines.) 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.

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 Fortuitous events may be produced by two general causes: (1) by Nature, such as
earthquakes, storms, floods, epidemics, tsunami, etc., (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 vs. 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.

Application of the Law

Case: On November 6, 1968, Philippine Airlines (PAL's) Fokker Friendship PIC-536 left
Mactan City for the City of 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 agents
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 take-off, 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,
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
thern 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 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, St, one of the passengers of the plane filed an action
against Philippine Airlines 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 City to Manila, as well as moral and exemplary damages, attorney's fees

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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, Philippine Airlines 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 Philippine Airlines (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 passengers 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 outraged world
opinion may have minimized hijackings but all these have proved ineffective against truly
determined hijackers. World experience shows that if a group of armed hijackers want to
take over a plane in flight, they can elude the latest combined government and airline
industry measures. And 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 e 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 the gunshot wounds. The lives of the rest of the
passengers and crew were more important than their properties. Cooperation with the
hijackers until they release their hostages at the runway end near the South
Superhighway was dictated by the circumstances.
(Note: In Gacal vs. Philippine Airlines, 55300, March 15, 1990 it was held that Philippine
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 and there been a more thorough frisking of
passengers and inspection of baggages as authorized by KA No. 6235. But the incident
in question occurred during Martial Law where there was a military take-over of airport
security including the frisking of passengers and the inspection of their luggage

31| P a g e
preparatory to boarding domestic and international flights. In fact, military take-over was
specifically announced and rendered it impossible for PAL to perform its obligations in a
normal manner and obviously it cannot be faulted with negligence in the performance of
duty taken over by the Armed Forces of the Philippines to the exclusion of the former.)

Contracts

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

Discussion of the Law

The essential elements of a contract are as follows:
(a) 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 absolute;
(b) Object certain, which is the subject matter of the contract; and
(c) Cause of the obligation which is established.

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 Some writers
believe that such contract suppresses 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. Its validity and performance cannot be left to the will of only
one of the parties.
(2) Autonomy of Contracts. Parties are free to stipulate terms and provisions in a
contract, as long as these terms and provisions are not contrary to law, morals, good
customs and public policy.

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(3) Relativity of Contracts. Contracts are binding only upon 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.
(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; (b) contracts covered under the Statute of Frauds.
(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 said
in the courts of law.

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 remaining 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 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 Hotel from any
liability arising from any loss in the 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 lost;
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 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 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. It the guest desires to open his

33| P a g e
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. With more reason that access to the safety 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 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 at least 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 paving damages, Article 2160, 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. 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 lhable
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 hotel keeper cannot free himself from responsibility by postings
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 the former
as set forth 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 with public interest. Catering to
the public, hotelkeepers are bound to provide not only lodging for hotel guests and
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 in so-called "undertakings" that ordinarily appear in prepared forms
imposed by hotelkeepers on guests for their signature.

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Guide Questions:
Try to answer the following questions to give you a better understanding of the
laws discussed in this chapter.
1. What are the different kinds of obligations?
2. What is the difference between fraud and negligence?
3. What are the different kinds of damages which might be recovered by the active subject
(creditor) under the Civil Code of the Philippines/ cite the pertinent provisions under the
Civil Code of the Philippines/
4. Enumerate ways in which an obligation may be extinguished.
5. What is force majeure? Give examples.

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 LESSON 4
LAW ON PARTNERSHIP
AND CORPORATION

• Differentiate the various kinds of partnerships and corporations and the

responsibilities of partners and incorporators
• Identify the requirements in the formation and dissolution of partnerships and
corporations

For any partnership to work, the element of trust is essential and is more important than
the resources or skills that the partners actually bring into the business. For corporations,
good governance and transparency is essential because of public trust. (Professor Frank
Cavico, Nova Southwestern University.)

LAW ON PARTNERSHIP
The Law
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.

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 of a partnership 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, wherein no one can become a partner in a partnership without the
consent of all the partners.
The essential requisites of a partnership are:

36| P a g e
(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 the 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 of one partner as agent
4. Difficulty in severing partnership ties

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 it none do you experience
business establishments forming a universal partnership.

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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.

(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

(3) According to 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 of the particular undertaking specified will cause the automatic
dissolution of the partnership.

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 the
immovable properties and signed by the parties, otherwise the partnership
is void.
(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;
(b) file for record the certificate in the Office of the Securities and Exchange
Commission. Failure to comply with the foregoing formal requirements
will only make the partnership a General Partnership.
The succeeding pages show a sample each of the Article of Partnership for both
a general partnership and a limited partnership.

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 (Articles of Partnership General Partnership)
ARTICLES OF PARTNERSHIP
Of
__________________________________________

KNOW ALL MEN BY THESE PRESENTS:

That we, ___Partner 1___, (single/married/widow), and ___Partner 2___,
(single/married/widow), and ___Partner 3___, (single/married/widow), all Filipinos, of
legal ages, and residents of _______________, Philippines, have on this day,
covenanted to establish a partnership, in accordance with the laws of the Republic of the
Philippines;

AND WE HERBEY CERTIFY:

1. That the names and addresses of the respective partners are as follows:
Name Address
______________ ___________________
______________ ___________________
______________ ___________________
2. That the name of this partnership shall be ___________________ and it
shall exist for _________ (____-) years from the execution of this
instrument, unless the partners mutually agree in writing to a shorter period.
Should the partnership be terminated by unanimous vote, the assets and
cash of the partnership shall be used to pay all creditors, with the remaining
amounts to be distributed to the partners according to their proportional
share.
3. That the capital of this partnership shall be __________ (P___________),
Philippine Currency, broken down, in contributions, as follows:
Name of Partner Contribution
_________________________ P____________________
_________________________ P____________________
_________________________ P____________________
The partnership shall maintain a capital account recorded for each partner;
should any partner’s capital account fall below the agreed to amount, then
that partner shall (1) have his hare of partnership profits then due and

39| P a g e
 payable applied instead to his capital account; and (2) pay any deficiency to
the partnership if his share of partnership profits is not yet due and payable
or, if it is, his share is insufficient to cancel the deficiency,
4. That the purpose(s) for which this partnership is established (is/are) as
follows:
__________________________________________________________
5. The partners shall provide their full-time services and best efforts on behalf
of the partnership. No partner shall receive a salary for services rendered
to the partnership. Each partner shall have equal rights to manage and
control the partnership and business. Should there be differences between
the partners concerning ordinary business matters, a decision shall be
made by unanimous vote. It is understood that the partners may elect one
of the partners to conduct the day-to-day business of the partnership;
however, no partner shall be able to bind the partnership by act or contact
to any liability exceeding Pesos: ______________
(P_________________).
6. That the profits and losses shall be divided among the partners pro rata, in
proportion to their respective contributions.
7. In the event a partner withdraws or retires from the partnership for any
reason, including death, the remaining partners may continue to operate the
partnership using the same name. A withdrawing partner shall be obligated
to give prior written notice of (his/ her) intention to withdraw or retire and
shall be obligated to sell (his/her) interest in the partnership.
8. No partner shall transfer interest in the partnership to any other party without
the written consent of the remaining partner(s), The remaining partner(s)
shall pay the withdrawing or retiring Partner, or to the legal representative
of the deceased or disabled partner, the value of his interest in the
partnership, or (a) the sum of his capital account, (6) any unpaid loans due
him, (c) his proportionate share of accrued net profits remaining
undistributed in his capital account, and (d) his interest in any prior agreed
appreciation in the value of the partnership property over its book value.
9. A partner who retires or withdraws from the partnership shall not directly or
indirectly engage in a business which is or which would be competitive with
the existing or then anticipated business of the partnership for a period of
__________________ (____) years within the City/Province of where the
partnership is currently doing or planning to do business.

IN WITNESS WHEREOF, we have hereunto set our hands this _______________ at

_____________________, Philippines.

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 (SIGNATURES OF PARTNERS)
SIGNED IN THE PRESENCE OF:
___________________________ ___________________________
REPUBLIC OF THE PHILIPPINES)
CITY/ MUNICIPALITY OF ______) SS.

ACKNOWLEDGEMENT
Before ME, a Notary Public for and in the (Province/City/Municipality) of __________,
personally appeared the following persons, with their respective Community Tax
Certificates as follows:
Name C.T.C. No. Date/ Place Issued
1. __________________ ___________________ _________________
2. __________________ ___________________ _________________
3. __________________ ___________________ _________________

WITNESS MY HAND AND SEAL this ______________ at ___________,

Philippines.

41| P a g e
 NOTARY PUBLIC
Doc. No. ____________;
Page No. ___________;
Book No. ___________;
Series of ___________;

(Articles of Partnership- Limited Partnership)

ARTICLES OF PARTNERSHIP
Of
_____________________________, LTD.

KNOW ALL MEN BY THESE PRESENTS:

That we, ___Co-Partner 1___, (single/married/widow), and ___Co-Partner 2___,
(single/married/widow), and ___Co-Partner 3___, (single/married/widow), all Filipinos, of
legal ages, and residents of _______________, Philippines, have on this day,
covenanted to establish a limited partnership, in accordance with the laws of the Republic
of the Philippines, under the following terms and conditions:

AND WE HERBEY CERTIFY:

1. That the name of this CO-Partnership shall be ___________, Ltd. And it
shall exist for ______________ (___) years from the execution of this
instrument, with the right of transfer or retirement of any partner provided
written notice and approval are made to and by others;
2. That the names and addresses of the respective partners are as follows:
Name Address
______________ (General Partner) ___________________
______________ (Limited Partner) ___________________
______________ (Limited Partner) ___________________
3. That the initial capital of this Co-partnership shall be __________
(P___________), Philippine Currency, broken down, in contributions, as
follows:

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 Name of Partner Contribution
_________________________ P____________________
_________________________ P____________________
_________________________ P____________________
4. That the purpose(s) for which this partnership is established (is/are) as
follows:
__________________________________________________________
5. Co-Partner 1 shall be designated as the General Manager of the
Partnership, who shall perform such acts and enter into transactions as may
be necessary, in the name of the partnership, for the conduct of its business;
and who shall receive a monthly salary of P_______________.
6. That the profits and losses shall be divided among the partners as follows:
Name
___________________________ (50%)
___________________________ (25%)
___________________________ (25%)

IN WITNESS WHEREOF, we have hereunto set our hands this _______________ at

_____________________, Philippines.

(Signatures of Partners)
SIGNED IN THE PRESENCE OF:
_____________________ ____________________
(Acknowledgment)

Obligations of the Partners

(1) Where contribution is money or property. If a partner promises to contribute 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.
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

43| P a g e
 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
(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.
(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
risks in consequence of its management.
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 the
formation, conduct, or liquidation of the partnership or from any use by him of its
property.
(5) Sharing of 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. A stipulation which
excludes one or more partners from any share in the profits or losses is void," but
an industrial partner shall not be liable for losses. 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 and equitable under the circumstances. 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 manifestly 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.
(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 assign his share in the profits to a third person." 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

44| P a g e
 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. However, powers of the managing partner appointed
after the formation of the partnership can be revoked anytime. If two or more
partners are appointed managing partners, each one may separately execute all
acts of administration but if opposed, the majority among the managing partners
shall prevail; if there is no majority, the partners owning controlling interest will
decide.
(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.
All partners are liable solidarily with the partnership for: (a) wrongful acts
and omissions causing loss to a non-partner 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 and (b) when he takes part
in the control of business. 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.

Application of the Law

Case: Sometime in June 1986, Fernando Sandoval and Naomi Reyes where introduced
to each other by Melv Ziobal regarding a lending business venture proposed by Naomi.
It was verbally agreed that Fernando will act as financer Naomi and Mely take charge of
solicitation of members and collection 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, represented by Cesar Santos, was entitled to Php 1.31 commission per thousand
paid daily to Fernando Sandoval. Naomi kept the books as representative of Fernando
Sandoval in doing business tor Discovery Hotel and Suites. 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.

45| P a g e
1) Who are the partners in the lending business venture? How are they classified?
2) Was 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 financier of the partnership; (b) Naomi Reyes, an industrial 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
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.

Dissolution and Winding Up of a Partnership

The Law
Article 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(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
agreement term or particular undertaking is specified;
(c) By the express will of all the partners who have not assigned their interests or
suffered them to be charged for their separate debts, either before or after the
termination of any specified term or particular undertaking:
(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 it unlawful for the business of the partnership to be
carried of any partner at any time on or for 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

46| P a g e
 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 or 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:
(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 tends to affect prejudicially 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 only be carried on at a loss; and
(6) Other circumstances render dissolution equitable.
On the application of the purchaser of a partner's interest under Articles 1813 or
1814:
(1) After the termination of the specific term or particular undertaking:
(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 the case of a limited partnership, the same is dissolved: (1) in case of retirement, death,
insolvency, insanity or civil interdiction of a general partner: (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

47| P a g e
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 such a case, an amendment of the certificate of limited
partnership shall be executed and recorded at the Securities and Exchange Commission.
On the other hand, the death of all of the limited partners shall dissolve the partnership
unless a substituted limited partner will be admitted to all the rights of a limited partner
who has died or has assigned his interest in the partnership," in such a case an
amendment of 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. Take note the amendment of the certificate of limited partnership must
comply substantially 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 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 disp0se of such
property by any act or any conveyance inter vivos.
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.
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
which 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 P750,000 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 Mr. Donald Ramses.
Upon the closure of the restaurant, Mr. Donald Ramses was demanding for the return or

48| P a g e
his capital contribution of P250,000. When was the partnership dissolved? Is it possible
for Mr. 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, Mr. Donald Ramses cannot be entitled for the amount of
P250,000.00. 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 first be compensated. After all
the creditors have been paid, whatever is left of 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' share 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.

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 to the contrary:
xxx.
(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 only to a
general partnership. There is a different process for the liquidation of a limited partnership.

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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 P10,000. The partnership is
indebted to the following: (a) Xeres-P60,000; (6) Yangco P20,000; and (c) Christine
(partner of ABC Company)-P10,0000. Gross capital upon dissolution is P250,000. In case
of liquidation, how much should Xeres recover? In case ot 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.
Legal Opinion:
Gross Capital P250,000
Those owing to creditors
Xeres P60,000
Yangco P20,000
P80,000
P170,000
Those owing to partners
other than capital and profit
Christine P10,000 P10,000
P160,000
Those owing to partners with respect
to their capital
Angela P50,000
Boni P20,000
Christine P10,000 P80,000
P80,000
Those owing to the partners with respect to profits
Angela – 5/8 of P80,000 - P50,000
Boni - 2/8 of P80,000 - P20,000
Christine- 1/8 of P80,000 - P10,000
P80,000

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Xeres may recover a total amount of P60,000.00. Yangco may recover a total amount of
P20,000.00. Christine may recover a total amount of P30,000.00.

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 to creditors, in the order of priority as provided by law, except those to
limited partners on account of their contributions, and to general partner
2) Those to limited partners in respect to their share of the profits and other
compensation by way of income on their contributions;
3) Those to limited partners in respect to the capital of their contributions;
4) Those to general partners other than for capital contribution;
5) Those to general partners in respect to profits; and
6) Those to general partners in respect to capital.

Discussion of the Law

The above provision expressly provides for priority in the distribution of assets after
dissolutions of a limited partnership. Those due to creditors under No. 1 Article 1863 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=
P60,000.00; (b) Xtian-P30,000; (c) Christine = (limited partner) P20,000; and (d) Angela
= (general partner) P10,000. 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.
Boni is entitled to get P57,000.00 for his return of capital. Angela should get a total
amount of P67,500.00. Christine cannot get any share in the profits because the amount
of liabilities is more than the claims of the partners

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Legal Opinion:
Step 1: Determine if there are remaining profits.
Gross Capital P300,000.00
Liabilities P110,000.00
(Winona, Xtian & Christine) P190,000.00

Less: Capital Contribution (P65,000 x 3) P195,000.00

Profits P 5,000.00

Step 2: Liquidate the partnership

Gross Capital P300,000.00
Outside Creditors
Winona (Outside Creditor) P60,000
Xtian (Outside Creditor) P30,000
Christine (Limited Partner) P20,000 P110,000.00
P190,000.00
Return of Capital of Limited Partner
Christine P65,000.00
P125,000.00
Other creditors
Angela (General Partner) P10,000.00
P115,000.00
Return of Capital of General Partner
Angela P57,500
Boni P57,500
P115,000.00
Case: Angela, Boni and Christine formed AB Ltd. Angela and Boni are general partners
who contributed P45,000.00 each; and Christine, the limited partner contributed
P60,000.00, The partners' profit and loss sharing distribution are as follows: (a) Angela-

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25%; (b) Boni-50% (c) Christine 25%. Total assets consisting of cash upon dissolution is
P430,000.00 and the liabilities are the following: (a) Angela general partner) P20,000; (b)
Christine (limited partner) P50,000; (c) Diane (outside creditor)- P100,000; and (d) Edgar
(outside creditor) P50,000. Liquidate.
Legal Opinion:
Step 1: Determine if there are remaining profits
Assets P430,000.00
Less: Liabilities P220,000.00
P210,000.00
Less: Capital Contribution P150,000.00
Profits P60,000.00

Step 2: Liquidate the partnership

Assets P430,000.00
Outside Creditors
Dianne= P100,000
Edgar= P50,000
Christine(limited partner)= P50,000
P200,000.00
P230,000.00
Christine’s share in the profits (25% of P60,000) P15,000.00
P215,00.00
Christine’s share in the capital contribution
(P60,000) P60,000.00
P155,000.00
Inside creditors (General Partner) Angela P20,000.00
P135,000.00

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General Partners’ share in the Profits
A (25% of P60,000) P15,000
B (50% of P60,000) P30,000 P45,000.00
P90,000.00
General Partners’ share in the Capital Contribution
A (P45,000)
B (P45,000) P90,000.00
0

Law on Corporation
The Law
Sec, 2, Corporation defined. -A corporation is an artificial being created by
operation of late, having the right of 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.
"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 under which they are created.

Kinds of Corporation
(a) 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. "A stock corporation is organized
for profit. The governing body of a stock corporation is usually the Board of Directors.
(b) Non-stock Corporation- one where no part of its income is distributable as dividends
to its members, trustees, or officers, subject to the provisions of the Code on dissolution.

54| P a g e
A non-stock corporation is one not organized for profit. The governing body is usually the
Board of Trustees.
(c) Corporation De Jure - a corporation organized in accordance with the requirements of
law.
(d) De Facto Corporation - a corporation where there exists a flaw in its incorporation.
(e) 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
(f) 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.
(g) Corporation Sole- one organized for the purpose of administering and managing, as
trustee, the affairs, property and temperatures of any religious denomination, sect or
church. In this corporation, there is only one incorporator.
(h) Eleemosynary Corporation-one organized tor a charitable purpose.
(i)Domestic Corporation- a corporation formed, organized and existing under the laws of
the Philippines.
(j) Foreign Corporation- a corporation formed, organized or existing under any laws other
(those of the Philippines and whose laws allow Filipino citizens and corporations to do
business in their own country or state.

Advantages of a Corporate Organization

1. Strong separate juridical personality
2. Limited liability to investors
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

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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 of stock subscribed by them.
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.
5. A partnership may be organized by only two persons; while a corporation requires
at least five but not more than 15 incorporators to organize.
6. A partnership has no right of succession, while a corporation has such right
7. In a partnership, a partner cannot transfer his interest in the partnership without
the consent of all the partners because the partnership is based 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.
8. A partnership may be established for any period of time stipulated by the partners,
while a corporation may exist for a term of 50 years to be extended for another
term not exceeding 50 years.
9. A Partnership may be dissolved at any time by the will of any or all of the partners,
while 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); and
3) Formal organization and commencement of the business operations (Sec. 22).

Steps in Incorporation
I. Drafting and execution of the articles of incorporation by the incorporators. The
person chosen as temporary treasurer pending incorporation must execute an
Affidavit showing at least 259% of the entire authorized capital stock has been
subscribed and at least 25% of the subscription has been paid to the corporation.
The authorized capital stock refers to the net worth of the corporation as appearing
in the Articles of Incorporation. The subscribed capital stock is the amount in the
capital stock which has been subscribed by the incorporators or stockholders,

56| P a g e
 whether fully paid or not. The paid-up capital refers to the amount of capital stock
actually paid by the incorporators or stockholders which in no case must not be
less than P5,000.00.
II. Filing with the Securities and Exchange Commission of the articles of incorporation
together with the following
a) Treasurer's affidavit showing at least 25% of the authorized capital stock has been
subscribed and at least 25% of the subscription has been paid;
b) By-laws may be filed together with the articles of incorporation which must be: (i)
approved and signed by all of the incorporators; (ii) submitted to the Securities and
Exchange Commission together with the Articles of Incorporation.
(Note: The by-laws may also be filed within one (1) month after receipt of the official
notice of the issuance of its certificate of incorporation by the Securities and
Exchange Commission, in which case it shall be approved by an affirmative vote
of the stockholders representing at least a majority of the outstanding capital stock
and certified by the majority of the board of directors. Failure to file the same within
the period prescribed shall constitute a ground for the Securities and Exchange
Commission to revoke the franchise of the corporation under PD 902-A.)
III. Payment of the filing and publication fee (Section 139, Corporation Code);
IV. The issuance by the Securities and Exchange Commission of the certificate of
incorporation.

Contents of the Articles of Incorporation

(1) The name of the corporation. The name of the corporation must not be similar or
confusingly similar to other corporations registered at the Securities and Exchange
Commission. It must not also be patently deceptive, confusing or contrary to
existing laws.
(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. The term of the corporation shall be
for 50 years which can be extended for another 50 years.
(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. The following are the minimum qualifications of
incorporators:
(a) A natural person;
(b) Not less than five (5) but not more than (15) incorporators
(c) Of legal age;
(d) Majority must be residents of the Philippines;
(e) Must own at least one (1) share of the capital stock of the
corporation.

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 (6) The names, nationalities and residencies of the incorporating board of directors
until the first regular directors or trustees are duly elected and qualified. The
following constitutes the minimum qualification of a board of director:
a) He must own at least one share in his own name. If he ceases to
own at least one share in his name, he automatically ceases as a
director.
b) Majority of the corporate directors must be residents of the
Philippines.
c) He must not have been convicted by final judgment of an offense
carrying an imprisonment exceeding 6 years or an offense
constituting a violation of the Corporation Code.
(7) The authorized capital stock, and the amount subscribed and paid by the
stockholders/incorporators. It is important that at least 25% of the authorized
capital stock is subscribed and 25% of the subscribed capital stock is paid which
in no case the paid up capital must not be less than P5,000.

Sample Format:
(Articles of Incorporation- Airline Transportation Business)
ARTICLES OF INCORPORATION
OF
Airlines, Inc.
KNOW ALL MEN BY THESE PRESENTS:
That we, all of whom are of legal age and residents of the Philippines, Filipinos, have on
this day, voluntarily associated ourselves together for the purpose of forming a stock
corporation under the laws of the Republic of the Philippines:
AND WE DO HEREBY CERTIFY:
FIRST: That the name of the Corporation shall be _____________ Airlines, Inc.
SECOND: That the specific purposes for which said Corporation is formed are:
To engage in the business of transporting and carrying by air, passengers, cargo,
and mail, or other specialized functions, such as medical air transport or oil platform
servicing; acquiring and maintaining airplanes, acquiring and operating airport facilities,
acquiring passengers or freight, managing staff, and operating flights (whether domestic
or international).
THIRD: That the place where the principal office of the corporation is to be
established or located is at _________________, Philippines.

58| P a g e
 FOURTH: That he term for which the Corporation is to exist is _________ (___)
years from and after the date of issuance of the Certificate of Incorporation.
FIFTH: That the names, nationalities and residence of the incorporators are as
follows:
Name Nationality Residence
______________________ ____________________ ___________________
______________________ ____________________ ___________________
______________________ ____________________ ___________________
SIXTH: That the number of directors of the Corporation shall be five (5) and that
the names, nationalities and residence of the Directors of sad Corporation who shall act
as such until their successors are elected and have qualified as provided for in the by-
laws are as follows:
Name Nationality Residence
______________________ ____________________ ___________________
______________________ ____________________ ___________________
______________________ ____________________ ___________________
SEVENTH: That the authorized capital stock of the Corporation is _____________
(P___________) pesos in lawful money of the Philippines, divided into ____________
(____________) shares with the par value of __________ (P_________) Pesos per
share.
EIGHT: That the authorized capital stock of the corporation has been fully
subscribed representing the sum of _________________ (P___________) Pesos,
Philippine Currency, and at least twenty-five (25%) per cent of the total subscription has
been paid as follows:
Name No. of shares subscribed Amount Paid-in
______________________ ____________________ __________________
______________________ ____________________ __________________
______________________ ____________________ __________________
(Here, it is important that 60% of the authorized capital stock is owned by Filipino
citizens)

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 NINTH: That ________________ has been elected by the subscribers as
Treasurer of the corporation to act as such until his/ her successor is duly elected and
qualified in accordance with the by-laws, and that as such treasurer, (he/she) has been
authorized to receive for and in the name and tor the benefit of the corporation, all
subscriptions paid by the subscribers.
TENTH: That no transfer of stocks or interest therein which will reduce the
ownership of Filipino citizens to less than the percentage of the capital stock required by
law shall be allowed or permitted to be recorded in the Corporate Books and this
restriction shall be indicated in all the stock certificates issued by the corporation.
ELEVENTH: That the corporation manifests its willingness to change its corporate
name in the event another person, firm or entry has acquired a prior right to use the said
firm name or one deceptively or confusingly similar to it.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this
__________________, at the City of _______________, Philippines.
(Signatures of all Incorporators)
SIGNED IN THE PRESENCE OF
______________________ ______________________
(Acknowledgment)
(Acknowledgement by Individuals – Multi-Part Instrument)

REPUBLIC OF THE PHILIPPINES)

City/Municipality of __________) SS.

ACKNOWLEDGEMENT
BEFORE ME, a Notary Public for and in the (Province/City/Municipality) of
___________, personally appeared the following persons, with their respective
Community Tax Certificate as follows:
Name C.T.C. No. Date/ Place Issues
1.____________________ _____________ ____________________
2.____________________ _____________ ____________________
3.____________________ _____________ ____________________
All known to me and to me known to be the same persons who executed the foregoing
instrument which they acknowledged to me to be their free and voluntary act and deed,

60| P a g e
consisting of only ___________ (_______) page/s, including this page in which this
Acknowledgement is written, duly signed by them and their instrument witnesses on each
and every page hereof.
WITNESS MY HAND AND SEAL this ________ at __________, Philippines.
Notary Public
Doc. No. __________;
Page no. __________;
Book no. __________;
Series of __________;

(Articles of Incorporation- Hotel Business)

ARTICLES OF INCORPORATION
OF
____________________ Hotel Corporation

KNOW ALL MEN BY THESE PRESENTS:

That we, all of whom are of legal age and residents of the Philippines, Filipinos, have on
this day, voluntarily associated ourselves together for the purpose of forming a stock
corporation under the laws of the Republic of the Philippines:
AND WE DO HEREBY CERTIFY:
FIRST: That the name of the Corporation shall be _____________ Hotel
Corporation.
SECOND: That the specific purposes for which said Corporation is formed are:
To engage in the business of providing lodging, meals and other related services
to the travelling public on a commercial basis.
THIRD: That the place where the principal office of the corporation is to be
established or located is at _________________, Philippines.
FOURTH: That the term for which the Corporation is to exist is _________ (___)
years from and after the date of issuance of the Certificate of Incorporation.

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 FIFTH: That the names, nationalities and residence of the incorporators are as
follows:
Name Nationality Residence
______________________ ____________________ ___________________
______________________ ____________________ ___________________
______________________ ____________________ ___________________
SIXTH: That the number of directors of the Corporation shall be five (5) and that
the names, nationalities and residence of the Directors of sad Corporation who shall act
as such until their successors are elected and have qualified as provided for in the by-
laws are as follows:
Name Nationality Residence
______________________ ____________________ ___________________
______________________ ____________________ ___________________
______________________ ____________________ ___________________
SEVENTH: That the authorized capital stock of the Corporation is _____________
(P___________) pesos in lawful money of the Philippines, divided into ____________
(____________) shares with the par value of __________ (P_________) Pesos per
share.
EIGHT: That the authorized capital stock of the corporation has been fully
subscribed representing the sum of _________________ (P___________) Pesos,
Philippine Currency, and at least twenty-five (25%) per cent of the total subscription has
been paid as follows:
Name No. of shares subscribed Amount Paid-in
______________________ ____________________ __________________
______________________ ____________________ __________________
______________________ ____________________ __________________
NINTH: That ________________ has been elected by the subscribers as
Treasurer of the corporation to act as such until his/ her successor is duly elected and
qualified in accordance with the by-laws, and that as such treasurer, (he/she) has been
authorized to receive for and in the name and tor the benefit of the corporation, all
subscriptions paid by the subscribers.
TENTH: That no transfer of stocks or interest therein which will reduce the
ownership of Filipino citizens to less than the percentage of the capital stock required by

62| P a g e
law shall be allowed or permitted to be recorded in the Corporate Books and this
restriction shall be indicated in all the stock certificates issued by the corporation.
ELEVENTH: That the corporation manifests its willingness to change its corporate
name in the event another person, firm or entry has acquired a prior right to use the said
firm name or one deceptively or confusingly similar to it.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this
__________________, at the City of _______________, Philippines.
(Signatures of all Incorporators)
SIGNED IN THE PRESENCE OF
______________________ ______________________
(Acknowledgment)

(Treasurer’s Affidavit with Authority to

Examine Bank Account)

REPUBLIC OF THE PHILIPPINES)

City/Municipality of __________) SS.
x---------------------------------------------x

TREASURER'S AFFIDAVIT
I, ________________, Filipino, of legal age. (single/ married/widow), and a
resident of Philippines, after being sworn to in accordance with law, depose and state:
That I have been elected by the subscribers of Name of Corporation Inc. as
Treasurer thereof, to act as such until my successor has been duly elected and qualified
in accordance with the by-laws of the corporation, and that as such Treasurer, I hereby
certify under oath that at least twenty-five (250) percent of the authorized capital stock
has been subscribed and at least twenty-five (250) percent of the subscription has been
paid and received by me in cash for the benefit and credit of the corporation.
This is also to authorize the Securities and Exchange Commission (SEC) and
Bangko Sentral ng Pilipinas (BSP) to examine and verify the deposit in the _____Name
of Bank Branch____) in my name as Treasurer-in-Trust for Name of Corporation Inc. in
the amount of _____________ (P_________) representing the paid up capital of the said
corporation which is in the process of incorporation. This authority is valid and inspection

63| P a g e
of said deposit may be made even after the issuance of the Certificate of incorporation to
the corporation. Should the deposit be transferred to another bank prior to or after
incorporation, this will also serve as authority to examine the pertinent books and records
accounts of the corporation as well as supporting papers to determine the utilization and
disbursement of the said paid-up capital.
TREASURER-IN-TRUST
SUBSCRIBED AND SWORN to before me, this __________, by _____________ who
exhibited to me (his/her) Community Tax Certificate No. ___________ issued at
____________ Philippines on ___________.
NOTARY PUBLIC
Doc. No. __________;
Page no. __________;
Book no. __________;
Series of __________;

(Undertaking to Change Corporate Name)

________Date_______

The Honorable Commissioner

Securities and Exchange Commission
SEC Building, EDSA
Greenhills, Mandaluyong
Metro Manila
Sir:
In connection with the registration of the Articles of Incorporation of Name
of_Corporation Inc., the undersigned representative and on behalf of the organizers
thereof, hereby manifest our willingness to change its corporate name in the event that
another person, firm or entity has acquired a prior right to the use of the said firm name
or one deceptively or confusingly similar to it.
Very truly yours,
Corporate Legal Counsel

64| P a g e
 (By-Laws-Stock Corporation)
BY-LAWS
OF
____________________, INC.

ARTICLE I
SUBSCRIPTION, ISSUANCE AND TRANSFER OF SHARES

Section 1. Subscriptions. Subscribers to the capital stock of the corporation shall pay
to the corporation the subscription value or price of the stock in accordance with the terms
and conditions prescribed by the Board of Directors. Unpaid subscriptions shall not earn
interest unless determined by the Board of Directors.
Section 2. Certificate. Each stockholder shall be entitled to one or more certificates for
such fully paid stock subscription in his name in the books of the corporation. The
certificates shall contain the matters required by law and the Articles of Incorporation.
They shall be in such form and design as may be determined by the Board of Directors
and numbered consecutively. These certificates which must be issued in consecutive
order, shall bear the signature of the President mutually countersigned by the Secretary
or Assistant Secretary, bear the and signature sealed with the corporate seal.
Section 3. Transfer of Shares. Subject to the restrictions, terms and conditions
contained in the Articles of Incorporation, shares may be transferred, terms and
conditions contained by delivery of the certificates duly endorsed by the stockholders,
sold, ceded, assigned or pledged legally authorized person. The transfer shall be valid
and binding on the corporation only upon record thereof in the books of the corporation,
cancellation of the certificate surrendered to the Secretary, and issuance of a new
certificate to the transferee
No shares of stock against which the corporation holds unpaid claim shall be
transferable in the books of the corporation.
All certificates surrendered for transfer shall be stamped "Canceled" on the face
thereof together with the date of cancellation and attached to the corresponding stub with
the certificate book.
Section 4. Lost Certificates. In case any certificate for the capital stock of the
corporation is lost, stolen, or destroyed, a new certificate may be issued in lieu thereof in
accordance with the procedure prescribed under Section 73 of the Corporation Code.

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 ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Regular Meetings. The regular meetings of stockholders, for the purpose of
electing directors and for the transaction of such business as may properly come before
the meeting, shall be held at the principal office on the ______________ of each year, if
a legal holiday, then on the following day.
Section 2. Special Meeting. The special meetings of stockholders, for any purpose or
purposes, may at any time be called by any of the following: (a) Board of Directors, at its
own instance, or at the written request of stockholders representing a majority of the
outstanding capital stock, (b) President.
Section 3. Place of Meeting. Stockholders' meetings, whether regular or special, shall
be held in the principal office of the corporation or at any place designated by the Board
of Directors in the city or municipality where the principal office of the corporation is
located
Section 4. Notice of Meeting. Notices for regular or special meetings of stockholders
may be sent by the Secretary by personal delivery or by mail at least two (2) weeks prior
to the date of the meeting to each stockholder of record at his last known post office
address or by publication in a newspaper of general circulation. The notice shall state the
place, date and hour of the meeting, and the purpose or purposes for which the meeting
is called. In case of Special meetings, only matters stated in the notice can be subject of
motions or deliberations at such meeting
When the meeting of stockholders is adjourned to another time or place, it shall
not be necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the adjournment
is taken. At the reconvened meeting, any business may be transacted that might have
been transacted on the original date of the meeting
Section 5, Quorum. Unless otherwise provided by law, in all regular or special meeting
holders, a majority of the outstanding capital stock must be present or represented in
order to constitute a quorum. If no quorum is constituted, the meeting shall be adjourned
until the requisite amount of stock shall be present.
Section 6. Conduct of Meeting. Meeting of the stockholders shall be presided over by
the Chairman of the Board, or in his absence, the President, or if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the stockholders. The
Secretary shall act as Secretary of every meeting, but if not present, the chairman of the
meeting shall appoint a secretary of the meeting. The chairman of the meeting may
adjourn the meeting from time to time, without notice other than announced at the
meeting.

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Section 7. Manner of Voting. At all meetings of stockholders, a stockholder may vote in
person or by proxy executed in writing by the stockholder or his duly authorized attorney-
in-tact. Unless otherwise provided in the proxy, it shall be valid only for the meeting at
which it has been presented to the Secretary
All proxies must be in the hands of the Secretary before the time set for the
meeting. Such proxies filed with the Secretary may be revoked by the stockholders either
in an instrument in writing duly presented and recorded with the Secretary prior to a
scheduled meeting or by their personal presence at the meeting.
Section 8. Closing of Transfer Books of Fixing of Record Date. For the purpose of
determining the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof or to receive payment of any dividend, or of
making a determination of stockholders for any proper purpose, the Board of Directors
may provide that the stock and transfer books be closed for a stated period, but not to
exceed, in any case, twenty (20) days. If the stock and transfer books be closed for the
purpose of determining stockholders entitled to notice of, or to vote at, a meeting of
stockholders, such books shall be closed for at least ten (10) working days immediately
preceding such meeting. In lieu of closing the stock and transfer books, the Board of
Directors may fix in advance a date as the record date which shall in no case be more
than twenty (20) days prior to the date on which the particular action requiring such
determination of stockholders is to be taken, except in instance where applicable rules
and regulations provided otherwise.

ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers of the Board. Unless otherwise provided by law, the corporate
powers of the corporation shall be exercised, all business conducted and all property of
the corporation controlled and held by the Board of Directors to be elected by and from
among the stockholders. Without prejudice to such general powers and such other
powers as may be granted by law, the Board of Directors shall have the following express
powers:
a) From time to time, to make and change rules and regulations not inconsistent
with these by-laws for the management of the corporation's business and affairs
b) To purchase, receive, take or otherwise acquire in any lawful manner, for and
in the name of the corporation, any and all properties, rights, interest or
privileges, including securities and bonds of other corporations, as the
transaction of the business of the corporation may reasonably or necessarily
require, for such consideration and upon such terms and conditions as the
Board may deem proper or convenient;

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 c) To invest the funds of the corporation in another corporation or business or for
any other purposes other than those for which the corporation was organized,
whenever in the judgment of the Board of Directors the interests of the
corporation would thereby be promoted, subject to such stockholders' approval
as may be required by law;
d) To incur such indebtedness as the Board may deem necessary and, for such
purpose, to make and issue evidence of such indebtedness including, without
limitation, notes, deeds of trust, instruments, bonds, debentures, or securities,
subject to such stockholders’ approval as may be required by law, and/or
pledge, mortgage, or otherwise encumber all part of the properties and rights of
the corporation; provided that the borrowing shall be sourced from not more than
nineteen (19) lenders;
e) To guarantee and secure payment of, for and in behalf of the obligations of other
corporations or entities in which it has lawful interest;
f) To make provisions tor the discharge of the obligations of the corporation as
they mature, including payment tor any property, or in stocks, bonds,
debentures, or other securities of the corporation lawfully issued for the purpose;
g) To sell, lease, exchange, assign, transfer or otherwise dispose of any property,
real or personal, belonging to the corporation whenever in the Board’s judgment,
the corporation’s interest would thereby be promoted;
h) To establish pension, retirement, bonus, profit-sharing, or other types of
incentives or compensation plans for the employees, including officers and
directors of the corporation and to determine the persons to participate in any
such plans and the amount of their respective participation;
i) To prosecute, maintain, defend, compromise or abandon any lawsuit in which
the corporation or its officers are either plaintiffs or defendants in connection
with the business of the corporation, and likewise, to grant installments for the
payments or settlement of whatsoever debts are payable to the corporation;
j) To delegate, from time to time, any of the powers of the Board which may
lawfully be delegated in the course of the current business or businesses of the
corporation to any standing or special committee or to any officer or agent and
to appoint any persons to be agents of the corporation with such powers
(including the power to sub delegate), and upon such terms, as may be deemed
fit;
k) To implement these by-laws and to act on any matter not covered by these by-
laws provided such matter does not require the approval or consent of the
stockholders under any existing law, rules or regulation.
Section 2. Election and Term. The Board of Directors shall be elected during each
regular meeting of stockholders and shall hold office for one (1) year and until their
successors are elected and qualified.
Section 3. Vacancies. Any vacancy occurring in the Board of Directors other than by
removal by the stockholders or by expiration of term, may be filled by the vote of at least

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a majority of the remaining directors, if still constituting a quorum; otherwise, the vacancy
must be filled by the stockholders at a regular or at any special meeting of stockholders
called for the purpose. A director so elected to fill a vacancy shall be elected only for the
unexpired term of his predecessor in office
Any directorship to be filled by reason of an increase in the number of directors
shall be filled only by an election at a regular or at a special meeting of stockholders duly
called for the purpose, or in the same meeting authorizing the increase of directors if so
stated in the notice of the meeting
The vacancy resulting from the removal of a director by the stockholders in the
manner provided by law may be filled by election at the same meeting of stockholders
without further notice, or at any regular or at any special meeting of stockholders called
for the purpose, atter giving notice as prescribed in this by-laws.
Section 4. Meetings. Regular meetings of the Board of Directors shall be held once every
quarter of the year on such dates and at such times and places as the Chairman of the
Board or in his absence, the President, or upon the request of a majority of the directors
and shall be held at such places as may be designated in the notice.
Section 5. Notice. Notice of the regular or special meeting of the Board specifying the
date and place of the meeting, shall be communicated by the Secretary to each director
personally or by telephone, telex, telegram, facsimile or by written or oral message. A
director may waive this requirement, either expressly or impliedly
Section 6. Quorum. A majority of the number of directors as fixed in the Articles of
Corporation shall constitute a quorum for the transaction of corporate business and every
decision of at least a majority of the directors present at a meeting at which there 1s a
quorum shall be valid as a corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the Board.
Section 7. Conduct of the Meetings. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his absence, the President or if none
of the foregoing is in office and present and acting, by any other director chosen by the
Board. The Secretary shall act as secretary of every meeting if not present, the Chairman
of the meeting shall appoint a secretary of the meeting
Section 8. Compensation. By resolution of the Board, each director shall receive a
reasonable per diem allowance for the attendance at each meeting of the Board. AS
compensation, the Board shall receive and allocate an amount of not more than ten
percent (106) of the net income before income tax of the corporation during the preceding
year. Such compensation shall be determined and apportioned among the directors in
such manner as the Board may deem proper, subject to the approval of stockholders
representing at least a majority of the outstanding capital stock at a regular or special
meeting of the stockholders.

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 ARTICLE IV
OFFICERS
Section 1. Election/Appointment. Immediately after their election, the Board of
Directors shall formally organize by electing the Chairman, the President, one or more
Vice-Presidents, the Treasurer, and the Secretary, at said meeting.
The Board may, from time to time, appoint such other officers as it may determine
to be necessary or proper. Any two (2) or more positions may be held concurrently by the
same person except that no one shall act as President and Treasurer or Secretary at the
same time.
Section 2. Chairman of the Board. The Chairman of the Board of Directors shall preside
at the meetings of the directors and the stockholders. He shall also exercise such powers
and perform such duties as the Board of Directors may assign to him.
Section 3. President. The President, who shall be a director, shall be the Chief Executive
Officer of the corporation and shall also have administration and direction of the day-to-
day business affairs of the corporation. He shall exercise the following functions:
a) To preside at the meetings of the Board of Directors and of the stockholders in the
absence of the Chairman of the Board of Directors;
b) To initiate and develop corporate objectives and policies and formulate long range
projects, plans and programs for the approval of the Board of Directors, including those
for executive training development and compensation;
c) To have general supervision and management of the business affairs and property of
the corporation;
d) To ensure that the administrative and operational policies of the corporation are carried
out under his supervision and control;
e) subject to guidelines prescribed by law to appoint, remove, suspend or discipline
employees of the corporation, Prescribe their duties and determine their salaries
f) To oversee the preparation of the budgets and the statement of accounts of the
corporation:
g) To prepare such statements and reports of the corporation as may be required of him
by law
h) To represent the corporation at al functions and proceedings
i) To execute on behalf of the corporation all contracts, agreements and other instruments
affecting the interests of the corporation which require the approval of the Board of
Directors, except as otherwise directed by the Board of Directors;
j) To make reports to the Board of Directors and stockholders;

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k) To sign certificates of stock;
l) To perform such other duties as are incident to his office or are entrusted to him by the
Board of Directors;
The President may assign the exercise or performance of any of the foregoing
powers duties and functions to any other officer(s), subject always to his supervision and
control
Section 4. The Vice-President(s). If one or more Vice-Presidents are appointed, he /
they shall have such powers and shall perform such duties as may from time to time be
assigned to him/them by the Board of Directors or by the President.
Section 5. The Secretary. The Secretary must be a resident and a citizen of the
Philippines. He shall be the custodian of and shall maintain the corporate books and
record and shall be the recorder of the corporation's formal actions and transactions. He
shall have the following specific powers and duties:
a) To record or see to the proper recording of the minutes and transactions of all meetings
of the directors and the stockholders and to maintain minute books of such meetings in
the form and manner required by law;
b) To keep or cause to be kept record books showing the details required by law with
respect to the stock certificates of the corporation, including ledgers and transfer books
showing all shares of the corporation subscribed, issued and transferred;
c) To keep the corporate seal and affix it to all papers and documents requiring a seal,
and to attest by his signature all corporate documents requiring the same;
d) To attend to the giving and serving of all notices of the corporation required by law or
these by-laws to be given;
e) To certify to such corporate acts, countersign corporate documents or certificates, and
make reports or statements as may be required of him by law or by government rules and
regulations;
f) To act as the inspector of the election of directors and, as such, to determine the number
of shares of stock outstanding and entitled to vote, the shares of stock represented at the
meeting, the evidence of a quorum, the validity and effect of proxies, and to receive votes,
ballots or consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote. The Secretary may
assign the exercise or performance of any or all the foregoing duties, powers and
functions to any other person or persons, subject always to his supervision and control;
g) To perform such other duties as incident to his office or as may be assigned to him by
the Board of Directors or the President.

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Section 6. Treasurer. The Treasurer of the corporation shall be its chief fiscal officer and
the custodian of its funds, securities and property. The Treasurer shall have the following
duties:
a) To keep full and accurate accounts of receipts and disbursements in the books of the
corporation:
b) To have custody of, and be responsible for, all the funds, securities and bonds of the
corporation
c) To deposit in the name and to the credit of the corporation, in such bank as may be
designated from time to time by the Board of Directors, all the moneys, funds, securities,
bonds and similar valuable effects belonging to the corporation which may come under
his control;
d) To render an annual statement showing the financial condition of the corporation and
such other financial reports as the Board of Directors, the Chairman, or the President,
may from time to time require;
e) To prepare such financial reports, statements, certifications and other documents
which may, from time to time, be required by government rules and regulations and to
submit the same to the proper government agencies;
f) To exercise such powers and perform such duties and functions as may be assigned
to him by the President.
Section 7. Term of Office. The term of office of all officers shall be for a period of one
(1) year and until their successors are duly elected and qualified. Such officers may
however be sooner removed for cause.
Section 8. Vacancies. If any position of the officers becomes vacant by reason of death,
resignation, disqualification or for any other cause, the Board of Directors by majority vote
may elect a successor who shall hold office for the unexpired term.
Section 9. Compensation. The by-laws officers shall receive such remuneration as the
Board of Directors may determine. All other officers shall receive such remuneration as
the Board of Directors may determine upon recommendation of the President. A director
shall not be precluded from serving the corporation in any other capacity as an officer,
agent, or otherwise, and receiving compensation therefor.

ARTICLE V
OFFICE
Section 1.Office. The principal office of the corporation shall be located at the place
stated in Article IIIl of the Articles of Incorporation. The corporation may have such other

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branch offices, either within or outside the Philippines, as the Board of Directors may
designate or as the business of the corporation may, from time to time require.

ARTICLE VI
AUDIT OF BOOKS, FISCAL YEAR AND DIVIDENDS
Section 1. External Auditors. At the regular stockholders meeting, the external auditor
or auditors of the corporation for the ensuing year shall be appointed. The external auditor
or auditors shall examine, verity and report on the earnings and expenses of the
corporation and shall certify the remuneration of the external auditor or auditors as
determined by the Board of Directors.
Section 2. Fiscal Year. The fiscal year of the corporation shall begin on the first day of
January and end on the last day of December of each year.
Section 3, Dividends. Dividends shall be declared and paid out of the' unrestricted
retained earnings which shall be payable in cash, property or stock to all stockholders on
the dine stock held by them, as often and at such times as the Board of Directors basis
of outstanding stock held by them, as often at such times as the Board of Directors may
determine and in accordance with law and applicable rules and regulations.

ARTICLE VII
AMENDMENTS
Section 1. Amendments. This by-laws may be amended or repealed by the affirmative
vote of at least a majority of the board or Directors and the stockholders representing a
majority of the outstanding capital stock at any stockholders meeting called for the
purpose. However, the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors by the affirmative vote of stockholders representing
not less than two-thirds of the outstanding capital stock; provided, however, that any such
delegation of powers to the Board of Directors to amend, repeal or adopt new by-laws
may be revoked only by the vote of the stockholders representing a majority of the
outstanding capital stock at a regular or special meeting

ARTICLE VIII
SEAL
Section 1. Form and Inscriptions. The corporate seal shall be determined by the Board
of Directors.

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 ARTICLE IX
ADOPTION CLAUSE
The foregoing by-laws was adopted by all the stockholders of the corporation on
__________________ at the principal office of the corporation.
IN WITNESS WHEREOF, we, the undersigned incorporators present at said meeting and
voting thereat in favor of the adoption of said by-laws, have hereunto subscribed our
names this_____________ at __________ City, Philippines.
(SIGNATURES OF ALL INCORPORATORS)

Liability of the Board of Directors

(1) Concept- Being a juridical entity, the corporation can only act through the board of
directors which exercises almost all corporate powers, laws, down all corporate business
policies and is responsible for the efficiency of management under Sec. 23 of the
Corporation Code.
(2) Remedies in Case of Mismanagement- In the event of mismanagement or abuse of
powers, the remedy of the stockholders shall be:
a. Receivership
b. Injunction if the act has not yet been done
c. Dissolution if abuse amounts to a ground for quo warranto but the Solicitor
General refuses to act
d. Derivative suit or complaint filed with the ordinary courts. (Regional Trial
Court)
(3) Solidary Liability- Directors or trustees shall be solidarily liable for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other
persons when:
a. They willfully and knowingly vote for or assent to patently unlawful acts of
the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation; or
b. They acquire any personal or pecuniary interest in conflict with their duty as
such directors or trustees.
(4) Disloyalty of a Director- Where a director, by virtue of his office acquires for himself a
business opportunity which should belong to the corporation, thereby obtaining profits
which should belong to the corporation, he must account to the latter for all such profits
by refunding the same.

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Principle of the Trust Fund Doctrine
The subscription to the capital of a corporation constitutes a fund to which creditors have
a right to look for satisfaction of their claims.

Application of the Law

Case: On November 23, 2007, Alfa Hotel Corporation through its board of directors
executed a Voting Trust Agreement transferring the beneficial ownership of its shares in
trust to Bank of the Philippines, Inc. by reason of the loan obtained by the former from the
latter. Under Section 59 of the Corporation Code of the Philippines: "Voting Trusts One
or more stockholders of a stock corporation may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote and other rights pertaining to the
shares for a period not exceeding five (5) years at any one time: Provided, that in the
case of a voting trust specifically required as a condition in a loan agreement, said voting
trust may be for a period exceeding (5) years but shall automatically expire upon full
payment of the loan. x xx."
By its very nature, a voting trust agreement results in the separation of the voting
rights of a stockholder from his other rights such as the right to receive dividends, the
right to inspect the books of the corporation, the right to sell certain interests in the assets
of the corporation and other rights to which a stockholder may be entitled until the
liquidation of the corporation. However, in order to distinguish a voting trust agreement
from proxies and other voting pools and agreements, it must pass three criteria or tests,
namely: (1) that the voting rights of the stock are separated from the other attributes of
ownership; (2) that the voting rights granted are intended to be irrevocable for a definite
period of time; and (3) that the principal purpose of the grant of voting rights is to acquire
voting control of the corporation. (5 Fletcher, Cylopedia of the Law on Private
Corporations, Section 2075 [1976] p. 331 citing Tankersly vs. Albright,374 E Supp. 538)
Under Section 59 of the Corporation Code, a voting trust agreement may confer
upon a trustee not only the stockholder's voting rights but also other rights pertaining to
his shares as long as the voting trust agreement is not entered "for the purpose of
circumventing the law against monopolies and illegal combinations in restraint of trade or
used for purposes of fraud." The law simply provides that a voting trust agreement is an
agreement in writing whereby one or more stockholders of a corporation consent to
transfer his or their shares to a trustee in order to vest in the latter voting or other rights
pertaining to said shares for a period not exceeding five years upon the fulfillment of
statutory conditions and such other terms and conditions specified in the agreement. The
five-year period may be extended in cases where the voting trust is executed pursuant to
a loan agreement whereby the period is made contingent upon full payment of the loan.
still pending after said period, then the stockholders should meet and transfer all the rights
of action to the trustee so that he can continue the case until its termination. Finally, it has
been held that even after the lapse of the 3-year liquidation period, the officers and

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directors of the defunct corporation are the proper parties in interest insofar as they may
be held personally liable for the unpaid deficiency tax assessment made against the
defunct corporation.

Government Requirements in Doing Business as a Partnership or Corporation

Requirements for Registration of Business Name under DTT
• For Partnership- Articles of Partnership; Birth Certificate of all the Partners with
their 2X2 pictures
• For Corporation Articles of Incorporation; By-laws; Certificate of Incorporation;
Birth Certificates of all the Incorporators with their 2X2 pictures

Requirements for Acquiring a Business Permit with the City or Municipal Mayor
• Barangay/Police Clearance
• Certificate of Registration with the DTI
• Articles of Partnership; Articles of Incorporation and By-laws
• Payment of Fees (depending on the capital stock or amount of capital declared)

Requirements for Registration of Business under the Bureau of Internal Revenue

• To acquire a Tax Identification Number
• Business Permit from the Local Government Unit Concerned
• Certificate of Registration with the DT
• Articles of Partnership; Articles of Incorporation and By-laws
• P500 Annual Registration Fee

Requirements for Registration of at the Social Security System

To acquire an SSS Number and Phil Health Number
Business Permit from the Local Government Unit concerned;
Certificate of Registration with the DTI
Articles of Partnership; Articles of Incorporation and By-Laws

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Guide Questions
Try to answer the followings questions to give you a better understanding of the laws
discussed in this chapter
1. What is the concept of partnership?
2. How does a partnership differ from a corporation?
3. What are the different kinds of partnership?
4. What are the advantages of a partnership? What are the disadvantages of a
partnership?
5. What are the advantages o a corporation? What are the disadvantages of a
corporation?
6. What are the formalities in forming a partnership?
7. What is the concept of a corporation?
8. What are the different kinds of corporation?
9. Explain the trust fund doctrine with respect to the liability of the corporation to third
persons.
10. What are the formalities required in forming a corporation?
11. What are the steps in creating and organizing a corporation?
12. What is the main function of a board of director in a stock corporation?
13. What are the liabilities of the board of directors?
14. What are the qualifications of a board of director in a stock corporation?
15. What are the government requirements in forming a corporation?
16. What is the difference between a general partnership and a limited partnership?
17. What are the contents in the articles of incorporation?
18. What are the usual contents of a corporation's by-laws?
19. Explain the process of dissolving a partnership
20. Explain the process of dissolving a corporation.

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 LESSON 5
LAW ON SALES, AGENCY AND
CREDIT TRANSACTIONS

• Describe and explain the nature of sales transactions

• Identify the functions and operation of agencies in the industry
• Identify ways of handling credit transactions

Agents should ideally work for the best interest of the client. Because of the trust given,
agents initiate actions, administer and collect on behalf of the client. (Elizabeth Weintraub)

LAW ON SALES
In the tourism, travel and hospitality industry, agreements arising from 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 you 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

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 any interest therein; and Sale of chattels or goods for a price not less than
P500.00)
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
(2) Bilateral -because it gives 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
(5) Commutative-because what the vendor (seller) delivers is considered equivalent of
the price paid by the vendee (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.

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-A sale between husband and wife in violation of
Article 1490 is inexistent and void from the beginning because such contract is
expressly prohibited by law
(b) The following persons cannot acquire by purchase even at public auction
or judicial auction, either in person or through the mediation of another
[i] The guardian, the property of the person or persons who may be under
his guardianship;
[ii] Agents, the property whose administration or sale 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
administrations
[iv] Public officers and employees, the property of the State or any of the
subdivision thereof, or of any government owned or controlled
corporation, or institution, the administration of which has been
entrusted to them; x xx.
[v] Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the
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 functions.
[vi] Any others especially disqualified by law

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

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 Johnny Uy (their
unborn son) as the buyer in the contract of sale. Accordingly, Johnny 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.
(2) Object or Subject Matter-The requisites are as follows: (a) it must be existing"
or possible (b) it must be licit; 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 or 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.

Application of the Law

Case: Mr. Danilo Santos bought 10 boxes of Fundador Brandy at a price of P10,000
pesos per box from his supplier, Mr. John Smith, proprietor of Exquisite Wines & Brandy,
Inc. Determine the requisites of such contract of sale.
Legal Opinion: The consent refers to the meeting of minds as when Mr. John Smith (the
seller) offered ME Danilo Santos to sell the 10 boxes of Fundador Brandy at a price of
P10,000 pesos per box and when Mr. Danilo Santos agreed to buy the said 10 boxes of

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Fundador Brandy at the price of P10,000 pesos per box. The object or subject matter
refers to the 10 boxes of Fundador brandy and the price of P10,000 pesos per box. As to
the seller, the cause is the price of P10,000 pesos 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 perfection 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 a 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 manner 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.

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 he thing is lost after perfection but before delivery. The seller bears the 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 res perit 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 determinate object there is also an
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.

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Application of the Law
Case: On September 14, 1979, Spouses 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 installments.
For this purpose, Spouses Bernal executed 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. the latter being the assignee of Union Motor Corporation. To
effectuate the sale as well as the assignment of the promissory note and chattel
mortgage, Spouses Bernal were required to sign a notice of assignment, a deed of
assignment, a sales invoice, a registration certificate, an affidavit, and a disclosure
statement. A down payment worth Ten Thousand Thirty-Seven Pesos (P10,037.00) 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 res perit domino. The registration certificate, receipt and sales
invoice were merely signed as part of the processing and tor 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 nor that ownership has 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.

Sale of Personal Property Payable in Installments

It is possible that in buying personal properties used for public transportation or
delivery of goods (ie, 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
installments.
The Law
Article 1484. Ina contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies:

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(1) Exact fulfillment of the obligation should the vendee fail to pay
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(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 installments. 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 above provision to apply, the following requisites must concur:
(1) Contract must be of sale (absolute sale, not a contract to sell or a contract of loan
or a pacto de retro transaction where redemption is effected in installments)
(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)
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 P2,000,000.00 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 PAMECA'S failure to pay, DBP extra judicially foreclosed the chattel
mortgage, and, as sole bidder in the public auction, purchased the foreclosed properties
for a sum of P322,350.00. 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 with 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?
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 a debt, or for the performance of
some other obligation 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,

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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 cover two or more installments, this
provision is specifically applicable to a sale on installment.

Case: On July 15, 1963, Ruperto G. Cruz purchased on installments from the Far East
Motor Corporation, one (1) unit of Isuzu Diesel Bus for P44,616.24, Philippine Currency,
payable installments of P1,487.20 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 of P44,616.24. 1o 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 tor his obligation besides the
chattel mortgage, of which Cruz agreed. The additional security is 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
Deeds of Chattel Mortgage and in the Deed of Real Estate Mortgage to Filipinas
Investment & Finance Corporation, with due notice of such assignment to Ruperto Cruz.
Mr. Cruz defaulted in the payment of the promissory note as he made no payment on any
of the instalments stipulated in the promissory note, except for the payment of P500.00
In this regard, Filipinas Investment and Finance Corporation took steps to
foreclose the chattel mortgage on the bus. The proceeds of the sale ration took steps to
foreclose the chattel mortgage was 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 for this will be in violation of Article 1484 (3), Civil Code of the Philippines. This
vision prevents mortgages from seeing the mortgaged property, buying it at foreclosure
for a low price and then bringing Suit against the mortgagor 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).

Double Sale
Caution should be practiced by real estate developers engaging 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 of a real property to different
vendees shall be brought before the courts of law.

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The Law
Article 1544. 1f 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 first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person 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 the 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 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, Gregonio, Filomeno Domingo offered no objection as evidenced by
their Joint Affidavit dated 14 August 1957. e deed of sale was not registered with the
Office of the Register of Deeds of lsabela. However, Giron declared the property for
taxation purposes in her name on March 1964. In a Deed of Sale dated 15 June 1976,
the Madrid brothers conveyed all their rights and interests over Lot No. 7036-A (including
the supposedly share of Rizal Madriarca which was already sold to Giron) to Paciano
Marquez (hereafter, Marquez), which the former confirmed on 28 February 1983. The
deed of sale in favor of Marquez was registered with the Office of the Register of Deeds
of Isabela on 2 March 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.

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 Pacto de Retro Sale (Conventional Redemption)
The Law
Article 1601. 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 stipulations which may have been agreed upon. (1507)

Discussion of the Law

As between an absolute sale and a 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. But although the right of the
vendee is strictly without limitation, it is subject to a resolutory condition; hence, all the
acts of disposition that he may make pending the condition are as revocable as is his
right.
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.
The 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 Michael Aldeguer, is an owner of a real property where his 5-star hotel is
also erected. By reason of his dire need of money, he sold his real property together with
the 5-star hotel to Don Victor Diangson. By this reason, Mr. Aldeguer executed a contract
of sale of his 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

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when should Mr. Aldeguer have the privilege to redeem his property from Don Victor
Diangson?
Legal Opinion: Mt Aldeguer may redeem his property within a period of four years from
the date of contract, in the absence of any agreement.

Obligations 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 xx.
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).
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 revert 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: (1) 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 return of the goods, or on the
expiration of a reasonable time when no time has been fixed."
In a C.O.D 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 CLE (Cost, Insurance and Freight) agreement, delivery to the buyer is

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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.
FO.B. (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 of destination," without expense to the
buyer " F.O.B “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 f.o.b. point is on the buyer. Where the shipment is "EO.B.
destination point" the seller is required to bear the transport until the buyer's point of
destination. If no designation in the FO.B. 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 to the vendor, such vendor
shall answer for the eviction even though nothing has been said in the contract on the
subject.
The requisites of eviction are: (1) vendee is deprived of the thing purchased wholly
or partially; (2) the 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
tor eviction at the instance 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 redhibitoria) and
demanding a proportionate reduction of the price (accion quanti minoris) with damages
in either case. Generally, the period of prescription is six months." However, in redhibitory
actions against on the faults or defects of animals, the period is forty days. The period
must be counted from the date of delivery to the vendee.

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 Obligations 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.
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 (NSM) 1s the supplier of fresh seafood products of Taal
Vista Hotel in Tagaytay City. The purchasing manager of the hotel ordered 100 kilos of
tiger prawns, 60 Kilos of Lapu-lapu, 40 kilos ot Pacific Lobster, 120 kilos of oysters, and
80 kilos of milkfish. NSM delivered substandard seafood items on the agreed date of
delivery. The contract between the hotel and NSM clearly states that NSM must deliver
high quality seafood products to the hotel at all times. Can the hotel reject the deliveries?

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If the hotel is forced to accept the deliveries as commitment has been made on the menu
tor 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, tourism and hospitality 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 the
hotel, tourism and hospitality industry.

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.
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 a 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 in that the basis of
agency presentation, 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 an agency relationship is the agent's power to bring
about business relationship between his principal and third persons. The agent is

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destined to execute Juridical acts (creation, modification or extinction of relations 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 59% 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$785.00 or P20,881.00
(at the then prevailing exchange rate of P26.60). She gave Caravan Travel through
Meriam US$300 or P7980.00 as partial payment and commenced the trip in July 1991.
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 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 & Tours International Inc. a common carrier? What is the nature
of the business of travel agencies such as Caravan Travel & 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

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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 &
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 arrangements in 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 efforts 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.
Case: On September 18, 1981, Darie Chiok (Chiok) purchased from China Airlines, Ltd
(CAL for brevity) an airline passenger transportation covering Manila-Taipei-Hong-Kong-
Manila. Said ticket was exclusively endorseable to Philippine Airlines. Ltd. (PAL).
Subsequently, on November 2 1981, Chiok took his trip from Manila to Taipei using
the CAL ticket. When he arrived in Taipei, he went the CAL office and confirmed his Hong
Kong to Manila trip on board PAL flight No. PR 311. 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. PR
311 and attached its own sticker. On November 24, 1981, 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. PR 311 was cancelled because
of a typhoon in Manila. He was then informed that all the confirmed ticket holders of PAL
Flight No. PR 311 were automatically booked for its next flight, which was to leave the
next day He then informed PAL personnel that, being the founding diirector 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 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 Fight No. PR 307.
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 R/C Kenny at 1005H No such name in computer for 311/24 and
307/25 Nov;. Carmen sought to recover his luggage but found only 2 which were placed
at the end of the passengers line. Realizing that his new Samsonite luggage was missing
which contained cosmetics worth HK$14,128.80, Chiok complained to Carmen.
Thereafter, Chiok proceeded to PAL's Hong Kong office and confronted PAL's
reservation officer, Carie Chao (hereafter referred to as Chao), who previously confirmed

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his flight back to Manila. Chao told Chiok that his name 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. PR 311 scheduled to depart that evening.
Later, Chiok went to the PAL check-in counter and it was Carmen who attended to him.
As 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) $2,000.00; (b)
HK$2,000.00: (c) Tapei $8,000.00; (d) P2,000.00; (e) a three-piece set of gold (18 karats)
Cross pens valued at P3,500; (f) a Cartier watch worth about P7,500.00; (g) a tie clip with
a garnet birthstone and amend worth P1,800.00; and (h) a [pair of] Christian Dior reading
glasses. Subsequently, he was placd 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 acted as an
issuing agent tor 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 (LATA In American Airlines vs. Court of
Appeals, [(384 Phil. 227, March 9, 2000) it was ruled that 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 vs Court of Appeals [285 SCRA 450, January 29, 1998] was held liable, even

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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 vs. Court of
Appeals, [238 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 undertake to carry the passengers to one of their destinations.

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
An association or cooperative qualifies 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 exquisites 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
ii) 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, machineries
and work premises actually and directly used by the contractor in the performance or
completion of the job, works, 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.
Failure to qualify 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 the same manner and extent as the matter were directly
employed by him.
In legitimate labor contracting the law creates an employer-employee
relationship for a limited purpose, i.e., to ensure at the employees are paid their
wages. The principal employer becomes jointly and severally liable with the job

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 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 it such employees had been directly
employed by the principal employer.

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 on 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 real estate mortgage are as follows:
(1) It must be constituted to secure the performance of the principal obligation
(2) The mortgagor 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 tor the purpose.
(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 immovable.

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Guide Questions:
Try to answer the following questions to give you a better understanding of the laws
discussed in this chapter.
1. What is the concept of a contract sale?
2. What are the characteristics of a contract of sale?
3. What are the essential requisites of a contract of sale?
4. Discuss the rule in case of sale of personal property payable in installment.
5. Discuss the concept of pacto de retro sales.
6. What is a contract agency?
7. Discuss the liability of the principal and agent in a contract of agency.
8. Discuss the concept of a contract of simple loan (mutuum).
9. What is the concept of pactum commissorium?
10. What is a real estate mortgage? Distinguish a real estate mortgage from a chattel
mortgage.
11. What is commodatum?
12. Distinguish legitimate labor contracting from labor-only contracting.
13. What constitutes “substantial investment”?
14. What are the actions to breach of contract sales?
15. When is a defect considered redhibitory?

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 LESSON 6
THE TOURISM PUBLIC SECTOR

• 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 the public service as a career in the industry.

The responsibility of the government in developing, organizing, promoting its tourism industry is
of primary importance to the Philippines. In order for the government to be more effective,
partnerships with the private sector need to be fostered and cooperation from local communities
need to be worked out. (Richard Gardon, former Secretary of Tourism).

THE LAW
Department of Tourism
The Department of Tourism (DoT) was created by virtue of Presidential Decree
No. 189. It is the primary policy-making planning, programming, coordinating and
administrative entity of the executive branch of government in the development of the
tourism industry, both domestic and international.
The DOT has the following major functions:
a. Supervise all activities of the government which concern tourism.
b. Effect 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. Formulate an integrated program of promotion and publicity designed to attract
and induce people abroad to visit the Philippines, patronize things which are
Philippine- made, and to enhance the prestige of the Filipino people and the
Republic;
d. Review all tourism projects which may 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

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 Incentives Act, as amended by Presidential Decree No. 92, before the Board
of Investments may take action on them;
e. Represent the Government in all such 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. Accredit travel agents, tour operators, and tour guides;
g. Classify and accredit hotels, resorts, inns, motels, hotels, restaurants and other
related facilities and services which cater to foreign and domestic tourists and
in addition, formulate 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 efficiency; and
h. Perform such other functions as may be provided by law

Discussion of the Law

The power to regulate, license and supervise tour operators and accommodation
facilities have now been devolved to the local government units." 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 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.

Application of the Law

The Malate Tourist Development Corporation (MTDC), a corporation engaged in
the business of operating hotels, motels, hostels and lodging houses, built and opened
Victoria Court in Malate which was licensed as a motel although duly accredited with the
Department of Tourism as a hotel. On March 30, 1995, an ordinance was passed
prohibiting the establishment or operation of businesses providing certain forms of
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 28 June 1993, MIDC questioned the validity 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

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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.

The Law
Philippine Tourism Authority
Presidential Decree 564 (October 2, 1974) was enacted revising the charter of the
Philippine Tourism Authority which was originally created under Presidential Decree No.
189 dated May 11, 1973. Strengthening the Philippine Tourism Authority (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 by PD. 1183 as
amended by PD. 1205, Batas Pambansa Blg. 38, and EO. 283 on travel tax. Payment of
travel taxes are coursed thru the Bureau of Internal Revenue.

Discussion of the Law

Currently, the PTA has the following general powers:
a. To implement policies and programs of the Department of Tourism 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;
f. To coordinate, assist and implement tourism-related plans or operations of local
governments, governmental agencies public corporations and, where clearly
necessary and feasible, those of private entities so as to make possible the

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 accelerated and balanced growth and development of tourism in the Philippines
which is responsive to the needs of targeted travel markets here and abroad.

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, Babag and Sirao
including the prop0sed Lusaran Dam in the City of Cebu and in the municipalities of Argao
and Dalaguete in the province of Cebu as tourist zones. The heirs of Mr. Ardona are also
seeking relief in order to restrain the Philippine Tourism Authority from enforcing the
expropriation of their lands which have been declared as tourist zones under
Proclamation No. 2052. The heirs of Mr. Ardona are claiming that the property in question
have 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 of Cebu as tourist
zones is a valid exercise of eminent domain by the Philippine Tourism Authority
notwithstanding the claim that certificates of land transfer and emancipation patents 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,
conservation and development of the national patrimony, public interest, and general
welfare, among others.

The 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 this purpose.
Hence, Presidential Decree No. 1616 (April 10, 1979) creating The Intramuros
Administration was created charged with such vital role and responsibility
The Intramuros Administration (IA) shall be responsible for the orderly restoration
and development of Intramuros as a monument to the Hispanic period of Philippine
history. It shall also ensure that the general appearance of Intramuros shall conform to
Philippine-Spanish architecture of the Sixteenth to the Nineteenth Century.

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 The IA has the following functions
a. Formulate, coordinate and/e execute policies on the implementation of projects
and activities of the government affecting or relating to Intramuros;
b. Enter 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. Acquire through sale, expropriation or other means, hold real and personal
property as it may deem necessary or convenient in the successful prosecution of
its work, and lease mortgage, sell, alienate, or otherwise dispose of such personal
and real property;
d. Receive, take and hold 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. Initiate, plan, undertake and supervise the restoration, upkeep and maintenance
of the 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;
f. Prepare, adopt, revise 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:
1. Land use allocation, use of buildings, their height, dimensions, architectural
style and designs and other specifications of the building construction to be
undertaken therein;
2. Traffic management, street usage and other related matters;
3. Size and character of display signs, advertising billboards, and 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 of archaeological findings and discoveries.
g. Expropriate properties within Intramuros;
h. Sponsor, conduct, or otherwise assist and support festivals and cultural activities
in Intramuros, and charge and collect admission fees to the restored gates and
other attractions operated by the Administration;
i. Give grants, contributions and donations for the restoration, repair or
maintenance of historic structures in Intramuros, including San Agustin Church,
and of structures outside of Intramuros which are of similar nature and character
as those which existed in Intramuros, for the conduct of historical, architectural,
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 archaeological and other research and for other purposes in furtherance of its
objectives
j. Prescribe and collect reasonable amounts to be charged as filing tees, 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

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 about to erect
before he plans to put up his building within the Intramuros Area. 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 placed their

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preservation, restoration and/or reconstruction under the supervision and control of the
National Historical Institute in collaboration with the Department of Tourism. Hence, the
National Historical Institute 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 National Historical Institute has been given
the authority for the preservation, restoration, and/or reconstruction of several historic
sites and buildings. All monetary contributions and donations to the archives of the
National Historical Institute are tax exempt and deductible from the taxable income of the
donor.
Today, the National Historical Institute (NH) continues to be the lead government
agency where matters of history and culture are concerned. It continues to conceive
programs and projects for the publics 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 preservation of these sites as well as the relics and memorabilia
found in these places. It maintains a conservation center manned by personnel well
trained for the job and also provides training services and technical assistance to both
government and private sectors.

National Center for Culture and Arts (NCCA)

Republic Act 7356 has been enacted in order to create the mandate of the National
Center for Culture and Arts. Its functions are as follows:
• Formulate policies for the development of culture and the arts;
• To coordinate and implement the overall policies and program of attached
agencies on the development of culture and arts as stated under Executive Order
No. 80;
• Administer the National Endowment Fund for Culture and the Arts;
• Encourage artistic creation within a climate of artistic freedom;
• Develop and promote the Filipino national culture and arts; and
• Preserve Filipino cultural heritage.
By virtue of the Republic Act 8492, the National Museum has now been detached from
the National Commission of Culture and 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 specimens and cultural and historical artifacts.

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The Philippine Convention & Visitors Corporation (PCVC)
The Philippine Convention & Visitors Corporation (PCVC) is a non-stock, non-profit
government corporation attached to the Department of Tourism (DOT), tasked with
promoting the country as an ideal tourism, convention and incentive travel destination. Its
Conventions and Incentive Travel Unit (CIT) provides comprehensive information,
assistance and guidance to meeting planners and incentive travel organizers who seek
an ideal venue for their meetings and incentive groups.

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 National Economic
Development Authority 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.

Philippine Amusement and Gaming Corporation (PAGCOR)

PAGCOR is a government owned and controlled corporation existing under
Presidential Decree No.1869 1Ssued 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 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 other
forms of amusement and recreation including games of chance, which may be
allowed by law within the territorial jurisdiction of the Philippines and which will: xxx
(3) minimize, if not totally eradicate, the coils, malpractices and corruptions that

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 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.

Department of Environment and Natural Resources (DENR)

As provided under Section 4 of Executive Order 192, the Department of
Environment and Natural Resources is mandated to be the primary government agency
responsible for the conservation, 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 conservation, development and management of the environment through
strategic alliances and partnerships, relevant policies and programs, and appropriate
information technology towards sustainable development.
The powers and functions of the DENR, per Section 5 of E.O. 192, are as follows:
• Advise 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;
• Formulate, implement and supervise the government's policies, plans and
programs pertaining to the management, conservation, development, use and
replenishment of the country's natural resources.
• Promulgate rules and regulations in accordance with law governing the exploration
development, conservation, extraction, disposition, use and such other
commercial activities tending to cause the depletion and degradation of our natural
resources;
• Exercise 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;
• Undertake exploration, assessment, classification and inventory of the country's
natural resources using ground surveys, remote sensing and complementary
technologies;

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 • Promote proper and mutual consultation with the private sector involving natural
resources development, use and conservation;
• Undertake geological surveys of the whole country including its territorial waters;
• Establish policies and implement programs for the:
a. 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
b. Equitable distribution of natural resources through the judicious
administration, regulation, utilization, development and expansion of natural
resource-based industries;
c. Promotion, development and expansion of natural resource-based
industries
d. Preservation of cultural and natural heritage through wildlife conservation
and segregation of national parks and other protected areas;
e. Maintenance of a wholesome natural environment by enforcing
environmental protections laws; and
f. Encouragement of greater people's participation and private initiative in
natural resource management.
• Promulgate rules and regulations necessary to:
a. Accelerate cadastral and emancipation patent surveys, land use planning
and public land titling:
b. 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
c. Expedite mineral resources surveys, promote the production of metallic and
non-metallic minerals and encourage mineral marketing
• Regulate the development, disposition, extraction, exploration and use of the
country's forestland and mineral resources;
• Assume responsibility for the assessment, development, protection, conservation,
licensing and regulation as provided for by 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 dose collaboration between the government and the
private sector; the effective and efficient classification and sub-classification of
lands of the public domain; and the enforcement of natural resources laws, rules
and regulations;
• Promulgate rules, regulations and guidelines on the issuance of co-production,
joint venture or production sharing agreements, licenses, permits, concessions,
leases and such other privileges and arrangement concerning the development,
exploration and utilization of the country's natural resources and shall continue to
oversee, supervise and police our natural resources; to cancel or cause to cancel

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 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
conservation of natural resources and supportive of the national interest;
• Exercise 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;
• Implement measures for the regulation 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.
• Promulgate 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;
• Promulgate policies, rules and regulations for the conservation of the country's
genetic resources and biological diversity, and endangered habitats; which will be
presented the Cabinet for the President's approval;
• Formulate an integrated, multi-sectoral, and multi-disciplinary National
Conservation Strategy, which will be presented to the Cabinet for President's
approval;
• Exercise other powers and functions and perform such other acts as may be
necessary proper or incidental to the attainment of its mandates and objectives.
Under Republic Act 9147 or known as the Wildlife Resources Conservation and
Protection Act (July 30, 2001), the Department of Environment and Natural Resources
(DENR) shall have jurisdiction over all terrestrial plant and animal species, all turtles and
tortoises and wetland species, including but not limited to crocodiles, water birds 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." 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.

Department of Labor and Employment

The following are the functions of the Department of Labor and Employment
(DOLE);
• Enforce social and labor legislation to protect the working class and regulate the
relations between the worker and his employers
• Formulate and recommend policies, plans and programs for manpower
development training, allocation, and utilization

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 • Recommend legislation to enhance the material, social and intellectual improvement
of the nation's labor force;
• Protect and promote 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;
• Regulate the employment of aliens, including the enforcement of a registration or
work permit system for such aliens,
• Formulate general guidelines concerning wage income policy:
• Recommend necessary adjustments in wage structures with the view to developing
a wage system that is consistent with national economic and social development
plans;
• Provide for safe, decent, humane and improved working conditions and environment
for all workers, particularly women and young workers;
• Maintain a harmonious, equitable and stable labor relations system that is
supportive of the national economic policies and programs;
• Uphold the right of workers and employers to organize and promote free collective
bargaining as the foundation of the labor relations system;
• Provide and ensure 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 Department of Public Works and Highways 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 national development
objectives. The work of DPWH is very important especially in providing land access to
tourist destinations, sites and service facilities.

Department of Transportation and Communication (DOTC)

The Department of Transportation and Communication 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 in the fast, safe, efficient and reliable postal, transportation and communications
services.

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 The following are the attached agencies of the DOTC:
Land Transportation Office (LTO). The Land Transportation Office 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 Land
Transportation Franchising and Regulatory Board 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.
Maritime Industry Authority (MARINA). The Maritime Industry Authority (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 Air Transportation Office (ATO) is primarily charged with the technical and
operational phase of civil aviation matters. Its primary function is to establish and enforce
rules and regulations for the inspection and registration of all aircraft owned and operated
in the Philippines and all air facilities. It is also in-charge in the operation and maintenance
of national airports, air navigation and other similar facilities.
Civil Aeronautics Board (CAB). 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, property rights,
equipment, facilities, and franchise. It also has the power to issue, deny, amend, revise,
alter, modify, cancel, suspend or any temporary permit or Certificate of Public
Convenience and Necessity (CPCN).
Light Rail Transit Authority (LRTA). This is a corporate body which shall be primarily
responsible for the construction, operation, maintenance, and/or lease of light rail transit
systems in the Philippines, giving due regard to the reasonable requirements of the public
transportation system of the country.
Metro Rail Transit Corporation (MRTC). The Metro Rail Transit Corporation, Limited
(RIO) 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 Republic Act 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 nation-wide railroad transportation
system. Philippine National Railways shall not be subject to the authority and supervision
of the Public Service Commission.

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Department of Trade and Industry (DTI)
Under Executive Order 133 which remains effective up to the present time, the
Department of Trade and Industry serves as the primary coordinative, promotive, and
facilitative 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 comprehensive industrial growth strategy;
• A progressive and socially responsible liberalization and deregulation program;
and
• 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.
The Department of Trade and Industry (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, export allocation, export
subsidy, pricing, export ban and other schemes and measures 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 areas in short-supply through the
support of centralized buying operations, terminal markets and large
scale and economical distribution systems organized by the public or
private sector.

Board of Investments
Under the Omnibus Investment Code of 1987, the Board of Investments (BO) shall
be responsible for the regulation and promotion of investments in the Philippines.
The BOl shall exercise the following powers and duties:
1. Prepare annually the Investment Priorities Plan, which shall contain a listing of
specific activities that can quality tor incentives, duly supported by the studies of
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 existing and prospective demands tor 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:
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 thirty (3) days after the
controversy has been submitted for decision: Provided, That the investor or the
registered enterprise may appeal the decision of the Board within thirty (30) days
from receipt thereof to the President:
5. Recommend to the Commissioner of Immigration and Deportation the entry into
the Philippines for employment of 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 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 interests and monetary penalties, for (a)
failure to maintain the qualifications required by the Code for registration with the
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 cancelled unless otherwise reinstated as a
registered enterprise by the Board;
9. Determine the organizational structure, appoint, discipline and remove its
personnel consistent with the provisions of the Civil Service Law and Rules
10. Prepare or contract 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

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 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 impeding 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 cases
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 statute 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
(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 supervening factors which
would affect the competitiveness of the registered firm;
15. Regulate the making of investments and the doing of business within the
Philippines by foreigners or business organizations owned in whole or in part by
foreigners
16. Prepare or contract for the preparation of industry and sectoral development
programs and gather and compile statistical, technical, marketing, financial and
other data required or the effective implementation of the Code;

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 17. Within four (4) months after the close of the fiscal year, submit annual reports to
the President which shall cover its 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;
19. Collate, analyze and compile pertinent information and studies concerning areas
that have been or may be declared preferred areas of investments; and
20. Enter into agreements with other agencies of government for the simplification and
facilitation of systems and procedures involved in the promotion of investments,
operation of registered enterprises and other activities necessary tor the effective
implementation of the Code;
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)

Republic Act No. 7916 creating the Philippine Economic Zone Authority (PEZA)
was enacted on July 25, 1994 with the following objectives:
a. To establish the legal framework and mechanism tor the integration, coordination
planning and monitoring of special economic zones, industrial estates/parka,
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 special economic
zones which would generate employment opportunities and establish backward
and forward linkages among industries in and around the economic zones;
d. To stimulate the repatriation of Filipino capital by providing attractive climate and
incentives for business activity;
e. To promote financial and industrial cooperation 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
PEZA grants fiscal and non-fiscal incentives to developers of economic zones,
export producers, 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 1.T. Parks/Buildings.

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 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 PD. 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 from VAT and it must register itself as a VAT
taxpayer. In fine, it is engaged in taxable rather than exempt transactions 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 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 taxpayer is not liable for the VAT.
The term "Special Economic Zones (SEZ)," 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 the following:
Industrial Estates (1ES), Export Processing Zones (EPZs), Free Trade Zones, and
Tourist/Recreational Centers.
The PEZA is a body corporate attached to the Department of Trade and Industry.
The Board shall have a director general with the rank of department undersecretary who
shall beappointed 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 a degree
holder 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 Department of Trade and Industry 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 Development Authority, one (1) representative

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from the investors/business sector in the ecozone. In case of the unavailability of the
Secretary of the Department of Trade and Industry to attend a particular board meeting,
the Director General of PEZA shall act as Chairman.
The PEZA Board shall have the following functions and powers:
(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;
(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, warehouses, roads, bridges, ports and other facilities for the
operation and development of the ecozone;
(e) 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
(g) 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 (DT), the Department of Science and Technology
(DOST), and the local government units and appropriate government agencies for policy
and program formulation and implementation; and
(i) 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.

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Department of Foreign Affairs (DFA)
The Department of Foreign Affairs is the prime agency of government responsible
for the pursuit of the State's foreign policy and the nerve center for a Foreign Service
worthy of the trust and pride of every Filipino.
The history of the Republic of the Philippines and that of the DFA are intertwined,
and it is difficult to discuss the important events marking the passage of the years at the
Department without somehow anchoring these to the rise of the Philippines as an
independent nation.
One hundred and one years ago, the DFA had its auspicious beginnings when
President Emilio Aguinaldo appointed Apolinario Mabini as the Republic's first Secretary
of Foreign Affairs on 23 June 1898, eleven days after the declaration of Philippine
independence at Kawit, Cavite. In effect, the DEA became the first government
department set up by following the establishment of the Fist Philippine Republic in
Malolos, Bulacan. Realizing the need for international recognition to support the
legitimacy of his government, Aguinaldo assigned Mabini the difficult task of establishing
diplomatic relations with friendly countries. Members of the Hong Kong Junta, a group of
Filipino exiles in Hong Kong, served as the country's envoys for this purpose.
The Philippines did not take an active role in the crafting and execution of its foreign
policy during the US colonial rule from 1898 to 1946, and during Japan's short period of
occupation from 1942 to 1944. The country regained full control of foreign affairs and
diplomatic matters on 4 July 1946, when Commonwealth Act No. 732 was passed
creating the Department of Foreign Affairs. Shortly thereafter, President Manuel Roxas
issued on 16 September of that year Executive Order No. 18 providing for the organization
and operation of the DFA and the Foreign Service. The main tasks of the DFA then were
to assist in postwar rehabilitation formulate policies for investment promotion, and
reestablish diplomatic relations with neighboring countries.
The DFA also proposed amendments to the Bell Trade Act the RP-US Mutual
Defense Pact and the Laurel-Langley Agreement with the United States, helping to
strengthen trade and military relations with the US, and at the same time initiating the
Philippines into the arena of independent foreign policymaking,
The DFA had its heyday during the post-war years, with its increased participation
in the international arena. At that time, the international environment was beginning to
change, requiring that new thrusts and priorities in Philippine foreign policy be
determined. During the Cold War era, against the backdrop of the Korean War in 1950
and rising communism in China, the Philippines projected an internationalist policy. It
helped forge the General Agreement on Tariffs and Trade or GATT in 1949, became a
founding member of the United Nations and one of the drafters of the Universal
Declaration of Human Rights, and among the early proponents of disarmament and non-
interference in the internal affairs of tree peoples, The Philippines' greater participation in

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global matters culminated in Carlos P. Romulo's being elected as the first Asian President
of the UN General Assembly in 1952.
Realizing the importance of foreign relations, President Elpidio Quirino in June
1952 pushed for the passage of the Foreign Service Law, embodied in Republic Act No.
708. RA 708 was the first act, which established DFA without the direct supervision and
control of the Americans. During the post-war period, the Department of Foreign Affairs
focused on institution building, while simultaneously increasing Philippine global
exposure. In 1953, Secretary Raul S. Manglapus instituted the Foreign Service Officers
or FAO examination (now renamed as Foreign Service Officers) to professionalize the
Foreign Service and improve the recruitment and selection of new FSOs.
The Marcos years-1965-1986, were marked by innovation. President Ferdinand
Marcos redefined foreign policy as the protection of Philippine independence, territorial
integrity and national dignity, and emphasized increased regional cooperation and
collaboration. He placed great stress on "Asianness," and pursued a policy of constructive
unity and coexistence with other Asian states, regardless of ideological persuasion. In
1967 the Philippines launched a new initiative to form a regional association with other
Southeast Asian countries called Association of Southeast Asian Nations or ASEAN. It
was also during this period that the Philippines normalized economic and diplomatic ties
with socialist countries such as China and the USSR, which President Marcos visited in
1975 and 1976 respectively. The Philippines also opened embassies in the eastern bloc
countries, and a separate mission to the European Common Market in Brussels.
Throughout the 1970s, the DFA pursued the promotion of 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 in 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 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 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 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, voted 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. It instituted a

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Career Minister Eligibility Examination as a requirement for promotion of FSOs to the rank
of Minister Counsellor, thereby ensuring the professional selection of those who would
eventually rise to the level of career ambassadors.
The Ramos administration, from July 1992 to June 1998, 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 of the country abroad.
President Ramos boosted foreign trade, investments and official development
assistance the Philippines through his state visits and summit meetings. During his
administration, Philippines actively participated in international for a such as the United
Nations, ASEAN. APEC, and the World Trade Organization. In 1996, the Philippines
successfully hosted the APEC Leaders Summit, which resulted in a Manila Action Plan
for APEC 1996 (MAPA ’96).
The Migrant Workers and Overseas Filipinos Act of 1995 provided the framework
for stronger protection of Filipino workers abroad, with the creation of the Legal
Assistance Fund and the Assistance-to-Nationals Fund, and the designation in the DFA
of a Legal Assistant for Migrant Workers Affairs, with the rank of Undersecretary.
Among the other significant events in foreign affairs during the Ramos years were:
the adoption by ASEAN in 1992, upon Philippine initiative, of the Declaration on the South
China Sea, aimed at confidence-building and avoidance of Conflict among claimant
states: the establishment of the Brunei, Indonesia, Malaysia, and Philippines (BIMP)-East
Asia Growth area in 1994; the establishment of the ASEAN Regional Forum (ARF) in
1994 as the only multilateral security dialogue in the Asia-Pacific region conducted at the
government level, and the signing between the Philippine Government and the MNLF On
2 September 1996 of the Mindanao Peace Agreement.
In 1998. the DFA played a major role in the successful celebration of the nation's
centennial year. It played host to the Heads of State of Papua New Guinea and special
envoys during the colorful celebration of Independence Day.
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 and 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

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activities in the areas of security, defense, combating transnational crimes, economy,
culture, and the protection of OFWs and Filipinos abroad.
As the DEA enters yet another year in its existence, it sets its sight toward the new
millennium, and welcomes the challenges and opportunities it faces in an increasingly
globalized world.

Department of Interior and Local Government (DILG)

• The Department of Interior and Local Government (DILG) has the following
functions:
• Assist the President in the exercise of general supervision over local governments;
• Advise 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;
• Establish and prescribe 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
• Provide assistance towards legislation regarding local governments, law
enforcement and public safety;
• Establish and prescribe 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 offices and personnel:
• Formulate plans, policies and programs which will meet local emergencies arising
from natural and man-made disasters:
• Establish 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
• Organize, train and equip primarily for the performance of police functions, a police
force that is national in scope and civilian in character."
Under Republic Act 6795 or known as the Department of Interior Local
Government Act of 1990, the DILG shall consist 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.

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Bureau of Food and Drugs (BFAD)
The Bureau of Food and Drugs 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 or mailed for personal consumption abroad,
consumers may go directly to the BFAD Policy, Planning, and Advocacy Division- Public
Assistance and Compliance Division (PPAD-PAICD), Consumers are advised to bring for
verification, product samples and the doctor's prescription for prescription drug products.
Establishments involved in the manufacture, packaging repacking importation,
exportation, distribution, and retailing of processed foods, drugs, medical devices, in vitro
diagnostic reagents, cosmetics, and household hazardous substance products 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 is indicative of possible
illegal source/product
Furthermore, consumers must ask for receipts of payment of purchased products
reflecting the business name and address, Tax Identification Number (TIN), and name of
printer (BIR Permit No.) with inclusive serial number of booklets and date of issuance of
receipts and the description of the goods bought.

Bureau of Customs
Under Republic Act 1937 (June 22, 1957) entitled: Revising The Tariff And
Customs Laws the general duties, as amended by Republic Act No. 9135 dated April 27,
2001, the powers and jurisdiction of the bureau shall include:
a. Assess and collect lawful revenues;
b. Prevent smuggling and other frauds
c. Control vessels/aircrafts doing foreign trade; Enforce tariff and customs
laws
d. Control the handling of foreign mails for revenues and prevention purposes
e. Control import and export cargoes; and
f. Jurisdiction over forfeiture and seizure cases
The revised Charter of the Philippine Ports Authority (PPA) which took effect on
December 23, 1975, transferred the powers, duties and jurisdiction of the Bureau of
Customs with regard to arrastre and stevedoring operations to the PPA. [Pertito Arrastre
Services, Inc. Ds Mendoza, 146 SCRA 430, 434 (1986).]

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 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
The Bureau of Customs shall, for customs purposes, have exclusive control,
direction and management of custom-houses, warehouses, 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.
When any public wharf, landing place, street or land, not previously under the
jurisdiction of the Bureau of Customs, 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 Bureau of Customs, and
thereafter the authority of such Bureau in respect thereto shall be fully effective.
However, in the case of Hon. Executive Secretary et al. vs. 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.

The Philippine Coast Guard

By virtue of Republic Act 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 waters
subject to the jurisdiction of the Republic of the Philippines;
(b) (b)To enforce laws, 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.

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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, Republic Act 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 Nayong Pilipino Foundation was created under PD. 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 a non-stock, non-profit public corporation, organized,
established and operated in the public interest and no portion of its funds and income
shall inure to the benefit of any of its members.
The policy-making 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.
There shall be an Executive Secretary to be appointed by the Board who takes
charge of administering the affairs of the Foundation and shall act as secretary to the
Board.

Tourism Enterprise Zone Authority (TEZA)

Under the Tourism Act, the Tourism Enterprise Zone Authority (TEZA) is
empowered to administer tourism zones, regulate tourism zone enterprises and grant tax
perks.

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 Guide Questions
Try to answer the following questions to give you a better understanding of the laws
discussed in this chapter.
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 Environment and 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? Name some property
managed by the PTA?

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 LESSON 7
LAW REGULATING
ACCOMODATION ESTABLISHMENT

• Identify the laws affecting the accommodation sector

• Identify the rights of hotel guests
• Explain how quality and safety standards are maintained by hotels and similar
establishments by meeting minimum requirements of the law.

Hotels nowadays simulate the ambience of a home. Thus, it should be clean, comfortable,
functional and safe. (Farid Schoucair, former general manager, Hyatt Regency Manila).

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, a partnership 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 relaxation and rest, offering food, sleeping accommodation and
recreational facilities to the public for a fee or remuneration.
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
on 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.
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, bath rooms/showers, living and

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 dining rooms and/or kitchen and where a combination of board and lodging may
be provided.
f. 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

Discussion of the Law

Hotel
Hotels are hereby classified into the following categories, namely:
a. De Luxe Class (previously known as 5-star category)
b. First Class (previously known as 4-star category)
c. Standard Class (previously known as 3-star category)
d. Economy Class (previously known as 2-star category)
Classification of hotels is based on a number of criteria such as
a. Bedroom Facilities and Furnishings (with emphasis on dimensions)
b. Location;
c. Front Office/Reception Service
d. Housekeeping Standards
e. Food and Beverage Service
f. Recreational Facilities (Swimming pool, golf/squash/gym facilities)
g. Engineering and Maintenance
h. Service and Staff
i. General Facilities (such as roof garden, spacious common terrace, parking space
and valet service, conference room, banquet hall, barber shop, DOT-accredited
travel agency, beauty parlor, sundry shop, security and medical clinic)
j. Special facilities (such as limousine service, business center, and airport transfers)
Examples of deluxe hotels are The Peninsula Hotel in Makati City, Hyatt Hotel and
Casino in Manila, and the Bellevue Hotel in Muntinlupa City.
Examples of first-class hotels are Bayview Park Hotel in Manila, Linden Suites Hotel in
Pasig City, and Waterfront Hotel and Casino in Cebu City
Examples of standard hotels are Days Hotel in Batangas City, Palm Plaza Hotel in
Manila and Grand Men Seng Hotel-in-Davao City.
Examples of economy class hotels are Hotel Las Palmas in Manila, City Savers Hotel
in Quezon City, and Orchid Garden Suites in Pasay City.

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Resort
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 of the 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).
Resorts shall be classified as follows:
a. Class AAA;
b. Class AA
c. Class A;
d. Special Interest Resort

Classification of resorts is based on:

a. Location and Environment;
b. Parking
c. Facilities and Room Accommodation:
d. Public Washrooms:
e. Sports and Recreational Facilities;
f. Conference/Convention Facilities;
g. Employee Facilities;
h. Lounge and Reception Counter; and
i. Lighting, Furnishings or Ventilation.
Examples of a beach resort are Boracay Regency Resort in Aklan, Hilton Cebu in
Mactan Island, and Dos Palmas Resort in Palawan.
Examples of inland resorts are Ouan's Worth Farm Resort in Quezon, Racsos
Wildlife Resort in Iloilo, 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 EI Nido Miniloc Island Resort in Palawan.
Examples of lakeside or riverside resorts are Lake Caliraya Resort, Hotel La
Corona de Pagsanjan, and Villa Escudero Plantations and Resort all in Laguna.
Examples of mountain resorts are Camp John Hay in Baguio City, Banaue
International Hotel in Ifugao, and Taal Vista Hotel 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.

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Rules on the Operation and Management of Resorts
a. Sanitation measures shall be adopted in accordance with the standards prescribed
under PD. 856 Code on Sanitation of the Philippines.
b. All resorts shall provide the services of a sufficient number of well-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, 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 hospital 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
life-saving 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 owner or
keeper as safe for swimming purposes, and in compliance with existing
government regulations and/or local ordinances on the placing of such buoys.
e. Precautionary measures
(2) 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.
(3) Night swimming at the pool shall be allowed only if there are adequate
lifeguards on duty and when the pool premises are sufficiently lighted.
(4) 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 of fish nets shall be strictly prohibited in beach resorts.
(2) Resort 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 plan.

Motorist Hotel (Motel)

Aside from complying with the minimum requirements for the establishment,
operation and maintenance of a motel, all motels are required to keep a Motel Registry
Book stating the following particulars:

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 a. Full name;
b. Address;
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 or leaving
the motels. On the departure of the guests, the motel clerk shall record in the Registry
Book the date and hour of their departure
No motel shall accept for lodging or accommodation any person below 18 years of
age unless accompanied by a parent or guardian.
Examples of motels are Wise Hotel, Sogo Hotel, and Victoria Court.
Examples of an apartel or serviced apartment are Ascott Hotel, Century Citadel Inn,
and Makati Executive Palace all in Makati City
Examples of a pension house are Malate Pension and Pension Natividad both in
Manila.

Accreditation of Accommodation Establishments by the Department of Tourism

Accreditation by the Department of Tourism, although not mandatory in nature,
increases the marketability of an accommodation establishment. Any person, partnership,
corporation or other entity desiring to secure an accreditation from the Department of
Tourism shall accomplish in duplicate and file with the Department, the application
prescribed for such purpose.
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
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 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
(e) Such other papers or documents as may be required from time to time by
the Department.

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Validity of Certificate of Accreditation
The Certificate of Accreditation shall be valid for a period of one (1) year from the
date of issue, unless sooner revoked by the Department.

Grounds for Cancellation of Accreditation

Any of the following acts, omissions or offenses shall constitute sufficient grounds
for the cancellation of accreditation:
a. 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:
b. Failure to comply with or contravene any of the conditions set forth in the certificate
of accreditation;
c. Failure to meet the standards and requirements for the operation of the
establishment;
d. Allowing or permitting the establishment of its facilities to be used for illegal,
immoral or illicit activities;
e. Violation of or non-compliance with any of the provisions of the rules, promulgated
orders, decisions and circulars issued by the Department and other concerned
agencies

Responsibilities of Accommodation Establishments

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. 1hus, 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 [Campo, et al. vs.
Camarote 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 the owner and operator of the establishment should be held solidarily
liable pursuant to Article 2193 of the Civil Code [Art. 2194). The responsibility of two or
more persons who are liable for a quasi-delict is solidary.

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Application of the Law
Case: 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 remaining 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
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 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 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, 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

National Building Code of the Philippines

The National Building Code of the Philippines (P.D, 1906, February 19, 1977) was
adopted in view of the country's accelerating economic and physical development
coupled with urbanization and population growth. The National Building Code of the

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Philippines (NBCP) contains up-to-date and modern technical knowledge on building
design, construction, use, occupancy and maintenance.

The Law
Section 104 General Building Requirements
1. All buildings or structures as well as accessory facilities thereto shall conform in all
aspects do the principles of safe construction and must be suited to the purpose
for which they are designed.
2. Buildings of structures intended to be used for the manufacture and/or production
of any kind of article or product shall observe environmental safeguards.
3. Buildings or structures and all parts thereof as well as all facilities found therein
shall be maintained in safe, sanitary and good working condition.
Section 105. Site Requirements
The land or site upon which will be constructed any building or structure, or any
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, 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 a 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;
1) Code on Sanitation of the Philippines (PD. 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 measures 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: (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.

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2. Ecological Solid Waste Management Act of 2000 (RA. 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 (PD. 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 licenses by local governments and other government agencies concerned
for the: (1) 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: (2) Storage, handling and/or use of
explosives or of combustible, flammable, toxic and other hazardous materials:
b. Fire safety measures shall be required for the manufacture storage, handling and/
or use of hazardous materials involving: (1) 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 coatings (6) High-piled of
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 ,
black powder, liquid nitro-glycerine, dynamite, nitro cellulose, fulminates of any
kind, and plastic explosives containing ammonium salt or chlorate; (10) Fireworks
materials of any kind or form; (11) Matches in commercial quantities (12) Hot ash
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
processes: (1) Welding or soldering: (2) Industrial baking and drying G 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.
d. Owners, occupants or administrator of buildings, structures and their premises or
facilities shall incorporate and provide therein fire safety construction, protective
and warning system, and shall develop and implement fire safety programs to wit:
(1) Fire protection features such as sprinkler systems, hose boxes, hose reels or
standpipe systems and other fire-fighting equipment 2) Fire alarm systems 3) Fire
walls to separate adjoining buildings, or warehouses and storage areas from other
occupancies in the same building; (4) Provisions for confining the fire at its sound

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 such as fire resistive floors and walls extending up to the next floor slab or roof
curtain boards and other fire containing or stopping components (5) Termination
of all exits 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 other 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
4. Philippine Environmental Code (PD. 1152). The law provides for the minimum
standards for air quality management, water quality management, land use management
natural resources management and conservation, and waste management.
5. Environmental Impact System (PD. 1586) and its Implementing Rules and Regulation
(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 potential tourist spots are classified as projects located in Environmentally
Critical Areas.
6. Rules and Regulations to Govern the Accreditation of Hotels, Tourist lnns, Apartels,
Resorts, Pension Houses and Other Accommodation Establishments by the Department
of Tourism (DOT, August 26, 1992). This involves the minimum requirements for the
operation, establishment and maintenance of accommodation establishments 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 establishment.
7. The Law to Enhance Mobility of Disabled Persons (B.P. 344) 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 public use shall be granted or issued unless
the owner or operator thereof shall install and incorporate in such building or
establishment such architectural facilities or structural features as shall reasonably
enhance the mobility of disabled persons such as sidewalks, ramps, 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.

Application of the Law

Case: Mr. Henry Tan, wants to put up a building for his 5-star hotel to be located in the
Makati area. What are the basic requirements in putting up the building?

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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 Building 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
5) Building Permits

The Law
Section 301. Building Permits
No person, firm or corporation including any agency or instrumentality of the
government shall erect, construct, alter, repair, move, convert or demolish any building or
structure or cause the same to be done without first obtaining a building permit therefor
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:
2) Description and ownership of the 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 if applicant is not the
registered owner
(3) The use of the occupancy for which the proposed work is intended
(4) Estimated cost of the proposed work.
To be submitted together with such application are at least file sets of
corresponding plans and specifications prepared, signed and sealed by a duly licensed
architect 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 in
case of electrical plans and by a licensed sanitary engineer or master plumber in case of
plumbing or sanitary installation plans.

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Discussion of the Law
The above provision provides for the basic requirements for a building permit to be
issued. The law explicitly provides that no person, firm or association shall construct or
erect any building or structure without first securing a building permit to be issued by the
Building official assigned in the place where the building or structure is located.
In processing an application for a building permit, the Building Official shall see to
it that the applicant satisfies and conforms with approved standard requirements on
zoning and land use, lines and grades, structural design, sanitary and sewerage,
environmental health electrical and mechanical safety, as well as with other rules and
regulations promulgated by the National Building Code of the Philippines.
It must be emphasized the no building or structure shall be used or occupied until
the Building Official has issued a Certificate of Occupancy.

Application of the Law

Case: Mr. Norman Ramos is very delighted to have bought a 10,000 square-meter lot in
llocos Norte at the rate of P400 pesos per square meter Such lot will be used by Mr.
Ramos to put up a 5-star hotel. Unfortunately, said lot is located in such a way that it does
not adjoin or it has no direct access to a public street. According to the Local Government
of llocos, 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 of the lot
where the building shall be constructed so that occupants of the building would have
access of egress and ingress towards the public street. A road right of way is applicable
when the land where the building is constructed does not have access to the public
highway. This can be achieved by making arrangements with the owner of 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 road 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 on Easements
of Light and Views, and to the provisions of this part of the Code, every
building shall be designed, constructed and equipped to provide adequate
light and ventilation.
(b) Al buildings shall face a street or public alley or a private street which has
been duly approved.

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Article 806. Size and Dimension of Rooms
(a) Minimum sizes of rooms and their least horizontal dimensions shall be as follows:
1. Rooms for Human Habitations-6.00 square meters with a least dimension of
2.00 meters;
2. Kitchens - 3.00 square meters with a least dimension of 1.50 meters
3. Bath and toilet-1.20 square meters with a least dimension of 0.90 meter.
Article 807. Air Space Requirements in Determining the Size of Rooms
(a) Minimum air space shall be provided as follows:
1. School Rooms 3.00 cubic meters with 1.00 square meter of floor area per
person:
2. Workshops, Factories, and Offices-12.00 cubic meters of air space per person;
3. Habitable roms-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
heroin 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.

Discussion of the Law

Light and ventilation refers to an easement of natural light and allowance of
circulation 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 wanted to erect a 3-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 bright colored paintings will be placed and installed inside the
rooms to attract guests instead of placing window openings to preserve the quality of the
paintings that will be placed inside the rooms. Should the proposal of Ms. Lovely Sy
prosper?
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 provided with
technologically advanced, efficient and adequate artificial ventilation, no window opening

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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 provisions of Book Il of the Civil Code of the Philippines on Property,
Ownership and its Modification, all buildings hereafter erected, altered, remodeled,
relocated or repaired for human habitation shall be provided with adequate potable water
supply plumbing installation, and suitable wastewater treatment or disposal system, storm
water drainage. pest and vermin control, noise abatement device, and such other
measures required for the protection and promotion of health of persons occupying the
premises and other living nearby.

Discussion of the Law

Whenever available, the potable water requirements for a building used for human
habitation shall be supplied from existing municipal or city waterworks system. In case of
drinking water from underground sources, it must conform to the criteria set in the latest
approved National Standards for Drinking Water. Such design, construction and operation
of deep wells for the abstraction of groundwater shall be subject to the provisions of the
Water Code of the Philippines. The water piping installations inside buildings and
premises must conform to the provisions of the National Plumbing Code of the Philippines
use provided.

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 provisions under the law?
Legal Opinion: Yes, Alpha Hotel violated the provisions of the Code on Sanitation of the
Philippines (PD. 856) and the National Building Code (PD. 1096). Under said law, 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 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 establishment until it has substantially

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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 Construction Requirements

The Law
Section 1201. General Requirements
Buildings proposed for construction shall comply with all the regulations and
specifications herein set forth governing quality, characteristics and properties of
materials, methods of a 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 support, the design and quality of materials used structurally in
excavation, footings and in foundations shall conform to accepted engineering practice.
Footings and foundations shall be of the appropriate type, of adequate size, and
capacity in e to safely sustain the superimposed loads under seismic or any condition of
external at 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.
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-storey shall be equipped with an
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.
In all occupancies, floors above the first-storey having an occupant load of more
than 10 shall not have less than two exits. Each mezzanine floor used for other than
storage purposes, if greater in area than 185 square meters or more than 18.00 meters
in any dimension, shall have at least two stairways to an adjacent floor. Every storey
having an occupant load of 500 to 999 shall have at least three exits. Every storey or
portion thereof having an occupant load of 1000 or more shall have at least four exits.

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The maximum number of exits required for any storey shall be maintained until egress is
provided from the structures. Basement or cellars and occupied roofs shall be provided
with exits as required for storey. Floors above the second storey, basement and cellars
used for other than service of the building shall have not less than two exits. Where three
or more exits are required, they shall be arranged a reasonable distance 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 illuminated at any time the building is
occupied with lights having an intensity of not less than 10.7 lux at floor level.
Standard automatic fire extinguishing systems shall be installed in the following
places: (1) 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 as an occupant
load of more than 20; (2) In all dressing rooms, rehearsal rooms, workshops and other
rooms with an occupant load of more than 10.
All electrical systems, equipment and installation shall conform to the provisions of
the Philippine Electrical Code as adopted by the Board of Electrical Engineering pursuant
to Republic Act 184 otherwise known as the Electrical Engineering Law. All mechanical
systems, equipment and installations 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.

Application of the Law

Case: Emmanuel Zulueta contracted Mañalac Construction Co. to put up his 4-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 columns
of the building buckled, causing the building to tilt forward dangerously. On November 29,
1990, Emmanuel Zulueta commenced this action for the recovery of damages arising
from the partial collapse of the building against Mañalac Construction Co. It was found
that Mañalac Construction Co. made substantial deviations from the plans and
specifications, and had failed to observe the requisite workmanship in the construction as
well as to exercise the requisite degree of supervision. It was also found that there were

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inadequacies or defects in the plans and specifications prepared by them. Discuss the
liability of the architect who constructed the building.
Legal Opinion: The architect is liable for damages in accordance with Article 1723 of the
Civil Code of the Philippines. Accordingly, the architect who drew up the plans and
specifications of the building 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
specifications. Acceptance of the building after completion does not imply waiver of any
of the causes of action by reason of any defect in the building.

Registration of Guests and Occupants

The Civil Code of the Philippines" gives provisions for necessary deposits made
by travelers in hotels or inns. This implies the need for the registration of guests and/or
occupants in accommodation establishments. Accordingly, keepers of hotels or inns shall
be responsible for the deposits given by the travelers or guests provided notice was given
with respect to the effects brought by these guests and that the keepers of hotels and
inns have taken the necessary precautions prescribed regarding their safekeeping" The
liability of hotelkeepers extend not only to the effects lost or damaged in the hotel rooms
but also those lost or damaged in hotel annexes, such as a garage" 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. Any stipulation limiting the liability of the hotelkeeper
shall be void.

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 ot
ensuring the safe, convenient and enjoyable stay and travel of both local 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, drivers 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 tourists/guests to and from the hotel shall be
provided;

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 3. Efficient 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 the movement and other activities of
guests/visitors, hotel staff and loiterers. Perimeter roving guard shall also be
detailed and establish a record scheme to monitor his task;
7. 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 Officer shall undergo annual training program on
security and emergency procedures in the coordination with the Association of
Hotel
10. Security Officers of the Philippines, Inc. (AHSOP) or any concerned government
agency; and
11. Linkages with local PNP Commands, hospitals and other concerned agencies shall
be institutionalized to respond to emergency situations.

Application of the Law

Annie, who works at the reception of Philippines Hotel (a 5-star hotel located in
Roxas Boulevard), received a phone call from an unknown person threatening that a
bomb has been planted near the hotel and about to explode. As an employee of
Philippines Hotel, what must Annie do?
Legal Opinion: Annie should:
1. Attempt to keep the caller on the line and record the conversation, noting down or
remembering the exact words of the person making threat.
2. Try to know when the bomb is set to explode, where it is, what it looks like, who
placed the bomb and the reason for the bomb.
3. Take note of the time and duration of the call.
4. Take note of the background noises and voice characteristics (male or female,
young middle-aged or old) tone and accent.
5. 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.
6. Upon receipt of the bomb threat, the person receiving the call (Annie) will
immediately notify the chief administrator of the establishment, who in turn will
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 117). In the meantime that the

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 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 month, 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 safe by the bomb disposal team.

Guide Questions
Try to answer the following questions to give you a better understanding of the laws
discussed in this chapter
1. What is a hotel? How are hotels classified?
2. What is a resort? What are the different kinds of resorts? How are resorts
classified?
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 of the following laws on the enforcement of the National
Building Code of the Philippines with respect to the operation and construction of
accommodation establishments
a) Code on Sanitation of the Philippines
b) Philippine Environmental 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 that may be enforced
inside an accommodation establishment
10. Why is waste management important in an accommodation establishment?
11. What are important pointers in recruiting staff for a tourist-oriented accommodation
establishment?
12. What are the grounds for cancellation of a DOT accreditation of an accommodation
establishment?

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 13. What is a sound hotel policy on joiners and visitors of hotel guests? What possible
problems may happen with the non-implementation of such hotel policy?
14. 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?
15. Enumerate facilities one would normally find in a deluxe hotel but not in other
classifications of hotels.
16. Discuss ways to ensure safe water within an accommodation establishment.

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 LESSON 8
LAWS REGULATING TRAVEL AND
TOUR SERVICES

• Enumerate the procedure in setting up a travel agency

• Identify the responsibilities of a legitimate travel agency or tour operator
• Differentiate ethical from unethical practices by travel agencies and tour
operators

With the advancement of technology, travelers can now book their travel arrangements through
the Internet. While this provides quicker and cheaper access to good tour packages, much of the
business of the travel and tour sector has been adversely affected. (Paul So, president, Greater
Manila Travel Association.)

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 extending to individuals
or groups, Such services pertaining to arrangements and bookings for transportation and
or accommodation, handling and/or product of inbound tours whether or not for a fee,
commission, or any form of compensation.
Tour Guide shall mean an individual who guides tourists, both foreign and
domestic, for a fee, commission, or any other form of lawful remuneration.

Discussion of the Law

A 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.

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 Under Republic Act No. 8239, also known as the Philippine Passport Act of 1996,
renewal of application for the issuance of passports 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

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 is 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 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 and 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 606 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.
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 to 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, home address and
experience, including names and establishments preciously or currently affiliated
with, position and length of service sharing following:

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 1. 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;
2. Proof that, at least, two (2) of the permanent staff have at least two (2) years
experience in 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;
d. 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 a less of his building stating the area thereof;
e. Mayor's permit/municipal license;
f. Latest Income Tax Return and Audited Financial Statements reflecting a minimum
working capital of Five Hundred Thousand (P500,000.00) Pesos;
g. 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.

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;
b. It must 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 (TS) Agencies. Essential to both programs is a set of
objectives, with Appropriate business standards that travel agencies must meet.

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Airline Appointed Services
When a travel agency is appointed by the airlines through IATAN, the owner enters
into an Agency Agreement with one or more of 1ATAN's 79 customer airlines. Each airline
sets it 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 1ATA 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 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
• 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;
• 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 (TS)

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 A Travel sales intermediary (TSI) is a business (proprietorship, partnership or
corporation) that is engaged in the sale and/or brokerage of travel and travel related
services such as cruises, tours, hotels, car rental, bus and rail transportation. This do not
hold airline agency appointments or issue airline tickets.
Any business who wish to obtain accreditation by 1ATAN as a TSI is required to
meet the following standards:
(a) The owner 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 and travel related services; or the
business is considered a "Home Based 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 the travel business; or the business has been in operation
for at -165least one (1) year immediately prior to application and produced at least
$20,000 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 than one (1) 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.
(e) Proof of the business listing in a telephone or equivalent directory, website home page
or advertisement showing how customers could contact the business
(f) Proof of a valid and relevant errors and omission insurance policy in the name of the
tour business.
(g) Proof that the business and location are in compliance with all federal, state, country
and local laws, including but not limited to 2oning, registration and business license.
(h) Proof of Sellers of Travel State Registration.
(i) Certification that there are no pending or unresolved complaints at the state or local
consumer affairs office.
(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 [11 year if the person has successfully completed and undergraduate
degree in travel and tourism or has earned certification as a Certified Travel Counselor,
heal a Certified Travel Industry Executive or as a Certified Travel Associate) full-time or
equivalent experience within the last three (3) years in a travel sales capacity at an

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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 wanted 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 requirements except one. His bachelor's degree is Chemical
Engineering at Mapua Institute of Technology. This may pose a problem in his application
for accreditation with the Department of Tourism. Why is this a problem? What is your
recommended solution?
Legal Opinion: For DOT accreditation purposes, it is desirable for an entrepreneur of a
travel agency to be a BS Tourism graduate. However, an acceptable qualification for
travel agency owners is completion of a seminar on travel agency operations,
Alternatively, Mr. Tan can hire a manager who has either BS Tourism degree or has three
years 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 may be to aided
by the Department where the applicant possesses 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 Dept. 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

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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 of BS Tourism currently seeking
employment with Rajah Tours as tour guide. He just completed the required seminar for
tour guides and secured his NBI clearance. Upon receiving the 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 licensed tour guide?
Legal Opinion: No, Arturo has not fully complied with two vital requirements-the medical
or health clearance from a duly accredited government physician and the mayor's permit.

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
operator, 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 of the
anxiety caused to tourists, 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.

Application of the Law

Case: Lydia Geraldez engaged the services of Kenstar Travel Corporation (Kenstar) for
her trip in Europe. Ms. Geraldez came to know about Kenstar from numerous

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advertisements in newspapers of general circulation regarding tours in Europe with its
grandiose slogan: "Let your heart sing!"

The advertisement reads 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 knowledgeable about Europe, there is hardly
a question he can't answer."
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 was stated in
the brochure, there was no European tour manager for their group of tourists, the hotels
in which she and the group were 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. Geraldez to accept the travel agency's offer constitutes fraud which should
entitle the tourist for moral and exemplary damages.

Prohibition Against Engaging in Recruitment Activities

The Law
Article 26. (Labor Code of the Philippines). Travel agencies 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

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 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;
3. Corporations and partnership5, when any of its officers, member of the 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

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
need for paper and allows greater flexibility to the passenger and the travel agent to make
changes on the itinerary.
Under Republic Act 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, retrieved or produced electronically.
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.
Consequently, electronic documents shall have the legal effect, validity or
enforceability as any other document 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.

Guide Questions
Try to answer the following questions to give you a better understanding of the
laws discussed in this chapter.
1. What is a tour operator?
2. What is a tour guide?

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 3. Who may apply for DOT accreditation for a travel agency or tour 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
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 is in a travel agency or tour operator?
11. What are the desirable traits or characteristics of a 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?

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 LESSON 9
LAWS REGULATING RESTAURANTS
AND OTHER TOURISM-ORIENTED
ESTABLISHMENTS

• Enumerate the responsibilities of a restaurant or similar establishment

• Identify the laws that govern restaurants, caterers, bars, health and fitness
clubs, spas and entertainment outlets.
• Cite examples of issues and problems that may arise in restaurants, bars
and other tourism-oriented establishments

Food and entertainment go together. The restaurant business is a little bit complex and stringent
it directly affects the customers’ health and well-being. (Ming Tsai, celebrity chef, east Meets West
of the Food Network and restaurant owner of Blue Ginger in Boston, Massachusetts, USA)

The Philippines has been known to be a country rich in arts and culture. That is why
the arts and letters remain under the patronage of the State which must be concerned in
the protection and enrichment of our culture.
Under the 1987 Constitution, there are provisions designed to widen and
popularize culture and artistic creations and to provide cultural opportunities. The culture
of our country is depicted in the various museums, building structures, galleries,
restaurants, entertainment establishments. parks, churches, retail shops and health and
fitness clubs around the country.
This chapter deals with laws regulating restaurants and other tourism-related
establishments that support our country's free artistic and intellectual expression which
eventually leads to the dynamic evolution of a Filipino national culture.

Nature and Description of Business

The Law
A restaurant is any establishment offering to the public refreshments and/or meals.
Bars and pubs may also be classified under this generic category.

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 A department store is a store that sells or carries several lines of merchandise and
that is organized into separate sections for the purpose of promotion, service, accounting
and control.
A shop is a small retail establishment offering a line of goods or services.
A sports and recreational club center is any establishment offering sports and
recreational facilities to tourist and to the general public. Gyms, clubs, dance studios,
theme parks, cinemas, theaters, and concert halls fall under this category.
A museum is an institutional establishment where a collection of valuable objects
and artifacts on history and culture, arts and sciences are put on exhibition for the general
public.
A karaoke bar is any establishment offering karaoke and videoke facilities to
tourists and to the general public.
A gallery is any establishment that has a formal space for exhibition of paintings,
sculptures, prints, photographs, potteries and mixed media works
Tertiary hospital for medical tourism is an institution that provides clinical care and
management, as well as specialized and sub-specialized forms of treatments, surgical
procedure and intensive care. Medical tourism involves traveling for the purpose of
availing health care services or treatments of illnesses and health problems in order to
maintain one's health and well-being.
A spa is an establishment that has a holistic approach to health and wellness, rest
and relaxation that aims to treat the body, mind and spirit by integrating a range of
professionally administered health, wellness, fitness and beauty, water treatment and
services.

Discussion of the Law

Accreditation, although not mandatory in nature, increases the marketability of the
following tourism-related establishments.
For purposes of accreditation by the Department of Tourism, the following are the
minimum requirements that must be complied with for the operation of:

Restaurants
The locality and environs including approaches shall be with proper ingress and
egress. The facade and architectural features of the building shall be appropriately
designed. There shall be an adequate, secured parking space provided for free to
customers. A receptionist shall be available to usher guests. A waiting lounge with a
telephone shall also be provided.
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 The dining room should be adequate in size, with sufficient and well-maintained
furniture. Flooring materials shall be kept clean at all times. The restaurant should have
a pleasant atmosphere. There should be cuisine of good quality and presentation
available during normal meal hours and served with distinction. Raw food used shall meet
minimum government and international standards. There should be a menu book which
is presentable, clean and easy to read with the menu items listed in logical sequence. All
items should be made available at all times on a best-effort basis. All tables should have
clean table cloth and cloth napkins of good quality. They should not be faded, nor with
frayed edges and stains and should be changed after every service. The silverware shall
be kept polished and clean at all times.
Adequate number of well-trained, well-groomed, experienced, efficient and
courteous staff should be employed. The bar should be well-stocked at all times. All
comfort rooms should be with good quality fixtures and fittings and provided with running
water. The floor and the walls should be covered with impervious materials of good quality
workmanship and should be kept clean and sanitary at all times. Tissue papers, soap,
paper towels and/or hand drier should be provided.
The kitchen, pantry and cold storage should be in good operating condition at all
times and should be well-equipped and hygienic. Equipment necessary to maintain a high
standard of sanitation and hygiene should be installed and used. There should be
adequate lighting in dining rooms, public rooms, comfort rooms, corridors and other public
areas
All main dining or function rooms should be fully air-conditioned and/or well-
ventilated. All sections of the restaurant (eg, building's exterior and interior, air-
conditioners, kitchen fixtures, plumbing, etc) should be maintained properly at all times.
A periodic vermin control program shall be maintained for all establishments, Adequate
fire-fighting facilities should be provided in accordance with the Fire Code of the
Philippines.
Restaurants may take many forms such as casual dining restaurants (eg. Max's,
Gerry's Grill, Bubba Gumpand Italiannis), fine dining restaurants (eg, Benkay, Portico,
Schwarzwaelder and Via Mare), fastfood or quick service restaurants (e.g., Kentucky
Fried Chicken, Chowking, Delifrance, and Tokyo Tokyo), cafés or coffee shops (e.g,
Starbucks, Figaro, St. Cinnamon, and Gloria Jeans Café), cafeterias, and brasseries.
Examples of bars and pubs are Blue Onion, Ratsky's, Klownz, Embassy Bar and Padi's
Point.

Shops/Department Stores
The establishment should be fronting a major street or thoroughfare or is situated
in a shopping center or mall. The entrance and display windows should be attractively
designed and adequately illuminated. The furniture and decor of the establishment should

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be presentable and functional at all times. The shop should be fully air-conditioned. Well-
maintained restrooms should be provided for by the establishment itself. In the event that
the shop is located in a shopping mall or commercial building the common/public
restrooms, should be made available to the clients or visitors.
In case of a department store, it should be in an edifice or a building or may be
part of a shopping mall or center. A parking area should be made available to clients and
there should be appropriate directional signs.
All members of the staff should be well-groomed, courteous and efficient at all
times. Goods displayed in the shop window or showcases should be provided with clearly
written price tags. A wide selection of goods should be in stock. An official receipt should
be supplied to the tourists for each purchase. The full name and address of the
establishment should be printed on the receipt, together with the number of the authorized
business license. Purchase should be itemized together with the price, and any addition
or tax paid or discount granted on the goods should be indicated. Discounts should be
given on the price of the goods marked on the price tags. The business should be
responsible for the maintenance of its facilities and premises and its immediate
surroundings (sidewalk yard, etc). In case of antique shops, a certificate confirming
authenticity should be attached to each article in accordance with the
guidelines/instructions of the National Museum.
Examples of shops are Islands Souvenirs, Papemelroti, Penshoppe, and
Kulturang Pinoy.
Examples of department stores are Rustans, Isetann, Robinsons and Gaisano.

Sports and Recreational Centers.

These include theme parks and amusement parks. These also include health and
other fitness establishments. Spas are governed by different accreditation standards.
The locality and environs including appr0aches should be pleasant with proper
ingress and egress. The facade and architectural features should be appropriately
designed. There should be provided adequate and secured parking space to customers.
Adequate security should be provided at all times. A receptionist should be available to
usher in guests. A waiting lounge with telephone should also be provided.
There should be a dining outlet adequate in size, with pleasant atmosphere and
furnished with appropriate and well-maintained furniture. There should be adequate
sports and recreational equipment available for rent. There should be provided adequate
and accessible toilet facilities separately for male and female. Tissue paper, soap, hand/
paper towel shall also be provided.
There should be adequate number of lockers for male and female. Dressing areas
and shower cubicles shall also be provided.

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 Examples of sports and fitness centers are Makati Sports Club, Slimmers World
International, and Manila Southwoods. Examples of theme parks are Enchanted Kingdom
the Manila Zoological and Botanical Park, and Eight Waves WNaterpark. Examples of
cinemas are Greenbelt Cinemas, SM Cinemas, and Ever Gotesco. Examples of theaters
are William Shaw Theater, Cultural Center of the Philippines, and Rajah Sulayman Open
Theater in Fort Santiago.

Museums
The institution should be a member of the National Committee on Museums. The
locality and environs includin8 approaches should be pleasant with proper ingress and
egress. The facade and architectural features should be appropriately designed, An
adequate and secured parking space for customers should be made available. Adequate
security should be provides at all times. A well-informed receptionist should be available
to usher in guests. A waiting lounge with telephone should also be provided. There should
be a conference and /or auditorium provided with audio-visual equipment and made
available to the public There should be an adequate and equipped library which is made
available to the public. There should be adequate and accessible toilet facilities provided
separately for male and female with toiletries provided.
Examples of museums are the National Museum, the Provincial Museum of lloilo,
the Ayala Museum, and the San Agustin Museum.

Karaoke Bars
The location and environs including approaches should be pleasant with proper
ingress and egress and should comply with the zoning and land use policies of the
municipality concerned. The facade and architectural features should be appropriately
designed and installed. There should be an adequate, secured parking space provided
free to customers. A receptionist should be available to usher guests.
There should be a designated area for dining and/or a lounge which is adequate
in size with pleasant atmosphere. The same should be equipped with appropriate lighting
and audio-visual system, including well-maintained furniture. There should be a menu
book or card which shall be presentable, clean and easy to read with the menu items and
prices listed in logical sequence. All items should be made available at all times on a best-
effort basis All tables should have clean table cloth and cloth napkins of good quality.
They should not be faded, frayed nor stained. The silverware should be kept polished and
clean at all times.
Adequate number of well-trained, well-groomed, experienced, efficient and courteous
staff should be employed. The bar should be well-stocked at all times. All comfort rooms
should be provided with good quality fixtures and fittings and running water. The floor and

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the walls should be covered with impervious materials of good quality and workmanship
and should be kept dean and sanitary at all times. Tissue paper, soap, paper towels
and/or hand drier should be provided. The kitchen, pantry and cold storage should be
hygienic and provided with the necessary equipment.
Appropriate lighting should be installed in the dining area or lounge. comfort rooms,
corridors and other public areas. All main dining or function rooms should be fully air-
conditioned. All sections of the karaoke bar (eg, building's exterior and interior air-
conditioners, kitchen, fixtures, plumbing, etc.) should be properly maintained at all times.
A periodic vermin and pest control program should be maintained by all
establishments. Adequate fire-fighting facilities should be provided in accordance with the
Fire Code of the Philippines There should be provided basic audio-visual equipment and
systems. There should be appropriate acoustic materials for best sound reproduction and
maximum noise reduction.
Adequate security should be provided at all times to ensure the safety of guests,
Entertainment facilities such as a stage equipped with microphones, spotlights and
speakers shall be provided.
Examples of karaoke bars are Music 21 with branches all over Metro Manila, The
Library in Manila, and Club Vudu in Cebu.

Galleries
The gallery should be located in a commercial district with pleasant, formal
atmosphere. It should be characterized by a fixed space for proper display of art works
and should be used exclusively for gallery business. All sections of the gallery should be
properly maintained and kept clean at all times.
Administrators/operators should ascertain that the art works on exhibit or on
display are authentic and if acquired from other sources, said acquisition must be
legitimate and not violative of any law relating to said transaction/acquisition. The
paintings and other art works on exhibit or on display should be properly lighted and
labeled. The gallery should be properly secured.
The gallery should be a member of the National Commission on Culture and the
Arts (NCCA)-Committee on Independent Art Galleries (CIAG). A well-informed gallery
staff should be available to usher the patrons/guests and a curator should be present
during an exhibition. A logbook/registry of guests should be provided. An adequate
parking space for patrons/guests should be made available except establishments
located along a main street/commercial district where no available parking space or
limited parking area is available other than the roadside.
Examples of galleries are CCPMain Gallery in Pasay City, Galleria Duemila in
Pasay City, Ateneo Art Gallery in Quezon City, and Hiraya Gallery in Manila.

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Tertiary Hospitals for Medical Tourism
The minimum requirements for the operation of tertiary hospitals for medical
tourism shall be based on the following criteria:
1. Location must be accessible and centrally located.
2. Bedrooms-must have adequately equipped suite and private rooms with 24-hour
service of hot and cold running water, showers and bathroom essentials, IDD and
DDD lines, television, hot and cold drinking water, refrigerator, and 24-hour room
service.
3. Front office/reception (lounge, porter service, foreign exchange counter, overseas
call facilities, reception amenities, business center).
4. Housekeeping (high quality and spotlessly clean linen, towels, blankets, laundry,
and dry cleaning service).
5. Food and Beverage must have a well-equipped, well-maintained and well-
furnished restaurant; standard includes room service staff and kitchen staff.
6. Engineering and Maintenance- includes ventilation, lighting, emergency power,
waste disposal and management
7. General facilities-elevator for the exclusive use of patients and service purposes
of the hospital, parking/valet service, shops, 24-hour security service,
transportation service computerized billing system, public washrooms, waiting
lounge.
8. Staff- professionally qualified, courteous, smart efficient and trained staff wearing
smart and clean uniforms. Interpreters of Nihonggo, Mandarin, Korean,
Cantonese, etc. must be available upon request.
Examples of tertiary hospitals for medical tourism are Medical City, Makati Medical
Center and St. Luke's Medical Center.

Spas
Spas are classified according to the following:
1. Day Spa is a spa offering a variety of professionally administered spa services to
clients on a day-use basis including hair and beauty salons and wellness clinics
that shall offer at least one water treatment.
2. Destination/Resort Spa is a spa which has for its sole purpose to provide clients
with lifestyle improvement and health enhancement through professionally
administered spa service physical fitness, education programming and on-site
accommodations where spa cuisine or healthy food is offered.
3. Hotel Spa is a spa located within a hotel/urban/out of town providing professionally
administered spa services, fitness and wellness components
4. Cruise Spa is a spa aboard a cruise ship that provides professionally administered
spa services, fitness and wellness components and spa cuisine menu choice

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 5. Club Spa is a facility whose primary purpose is fitness, offering a variety of
professionally ministered spa services on a day-use basis to both club members
and non-members.
6. Wellness Center is a spa which provides services and an environment wherein the
interconnectedness of diet, lifestyle, exercise, relaxation and rejuvenation must
exist in order to bring about the balance.
7. Rehabilitation Center is a spa which primarily focuses on rehabilitation therapy for
various accident or health induced incapacity (strokes, heart problems)
incorporating mainstream and alternative modalities in order to bring the patients
to its maximum level of well-being
8. Hospital Spa a hospital facility with a spa, wherein it integrates mainstream
medicine and other alternative approach to promote healing and balance of mind,
body and soul.
The spa should be situated in a safe and reputable location with clean, calm and
relaxing environment. There should be a reception counter attended by qualified and
trained staff and a reasonably furnished lounge with seating facilities commensurate with
the size of the spa.
There should be separate, clean and adequate public washrooms for male and
female with running water and adequate toiletries. There should be secured separate
male and female public rooms for guests, separate male and female public shower and
changing rooms, and separate unlocked public treatment rooms for male and female.
The spa should provide the following services in addition to other spa-related
amenities which it may offer:
1. Massages-Swedish, Shiatsu, reflexology or tui-na, Thai, aromatherapy / Filipino
healing modalities and/or other acceptable massage treatments;
2. Steam, sauna and/or water baths-These should be maintained in a level of
temperature which should not cause adverse reactions to user. Safety signage
shall be provided to include information on allowable maximum temperature,
duration of stay and guide in operating temperature regulator:
3. Spa treatments-One or more of the following body packs and wraps, exfoliation,
body toning/contouring, waxing, hand, foot/ face care and hair
The staff should be appropriately trained by the internationally recognized training
institutions and/or associations duly recognized by the Department of Tourism. Likewise,
they should be properly attired, clean and well-groomed at all times. There should be
adequate supply of clean linen, towels and appropriate garments such as robes or
sarongs of good quality.
There should be sufficient and adequate space for backroom operations, adequate
and well-maintained employees lounge and rest area equipped with bathrooms and
dining room for male and female employees, and a high-powered generator capable of
providing full power in all areas of the establishment.

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 There should be adequate and secured parking space for customers/guests. A
well-stocked first aid cabinet and staff trained in first aid should be available at all times
and there shall be facilities and provisions for the disabled in accordance with Batas
Pambansa Blg 344 promulgated on May 1985, otherwise known as an Act Enhancing the
Mobility of Disabled Persons.
All clients should be required to register and il-up consultancy forms prior to
treatment by therapist to determine any contraindication or special condition. The spa
should also maintain an updated client file. Sanitation measures like cleaning and
sterilizing of equipment, robes, sheets, blankets, pillow case, towels or other materials
which may come in direct contact with the client's body shall be adopted in accordance
with the standards prescribed under Presidential Decree No. 856, otherwise known as
the Sanitation Code of 1976. The entire spa facility should be a “no smoking facility"
Examples of spas are Chi in Shangri-la Mactan Island Resort in Cebu, Mandala
Spa in Boracay Island, The Farm in San Benito in Batangas and The Spa in Quezon City.

Laws Governing casinos and Gaming Establishments

The Law
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 heretofore authorized by existing
franchises or permitted by law in order to attain the following objectives:
(a) To centralize and integrate the right and authority to operate and conduct games of
chance into one corporate entity to be controlled, administered and supervised by the
Government
(b) To establish and operate clubs and casinos, for amusement and recreation, including
sports gaming pools (basketball, football, lotteries, etc.) and such other forms of
amusement and recreation including same of chance, which may be allowed by law within
the territorial jurisdiction of the Philippines and which will:
1) generate sources of additional revenue to fund infrastructure and socio-civic projects,
such as flood control programs, beautification, sewerage and sewage projects, Tulungan
ng Bayan Centers, Nutritional Programs, Population Control and such other essential
public services;
2) create recreation and integrated facilities which will expand and improve the country's
existing tourist attractions; and
3) minimize, if not totally eradicate, the evils, malpractices and corruptions that are
normally prevalent in the conduct and operation of gambling clubs and casino without
direct government involvement.

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 Section 2. Philippine Amusement and Gaming Corporation (PAGCOR), Creation
and Purpose-To implement State policy and pursue the objectives set forth in the
preceding Section, there is hereby created a body corporate to be known as the Philippine
Amusement and Gaming Corporation.

Discussion of the Law

The Philippine Gaming and Amusement Corporation (PAGCOR), a government-
owned and controlled corporation, was established to regulate all games of chance in the
Philippines. It was born in 1976, created by then President Marcos to oversee the
operation of gaming casinos, to generate funds for the government's developmental
projects and to help curb illegal gambling
By virtue of Presidential Decree 1869, the Philippine Amusement and Gaming
Corporation has been granted a period of twenty-five (25) years, renewable for another
twenty-five (25) years. It has been granted the rights, privilege and authority to operate
and maintain gambling casinos, clubs, and other recreation or amusement places, sports,
gaming pools, ie., basketball, football, lotteries, etc. whether on land or sea, within the
territorial jurisdiction of the Republic of the Philippines.
The franchise entitles PAGCOR to do and undertake the following:
1. Enter into operating and/or management contracts with any registered and
accredited company possessing the knowledge, skill, expertise and facilities to
insure the efficient operation of gambling casinos; provided, that the service fees
of such management and/ or operator companies whose services may be retained
by the Corporation shall not exceed ten (106) percent of the gross income;
2. Purchase foreign exchange that may be required for the importation of equipment,
facilities and other gambling paraphernalia indispensably needed or useful to
insure the successful operation of gambling casinos.
3. Acquire the right of way or access to or thru public land, public waters or harbors,
including the Manila Bay Area; such right shall include but not be limited to the
right to lease and/or purchase public lands, government reclaimed lands, as well
as lands of private ownership or those leased from the Government. This right shall
carry with it the privilege of the Corporation to utilize piers, quays, boat landings,
and such other pertinent and related facilities within these specified areas for use
as landing, anchoring or berthing sites in connection with its authorized casino
operations.
4. Build or construct structures, buildings castways, piers, decks, as well as any other
form of landing and boarding facilities for its floating casinos; and
5. To do and perform such other acts directly related to the efficient and successful
operation and conduct of games of chance in accordance with existing laws and
decrees.

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 In this regard, all persons primarily engaged in gambling together with their allied
business, with contract or franchise from PAGCOR, shall register and affiliate their
businesses with the same. In this regard, PAGCOR shall issue the corresponding
certificates of affiliation upon compliance by the registering entity: PAGCOR shall
maintain a Registry of the affiliated entities, and shall exercise all the powers, authority
and the responsibilities vested in the Securities and Exchange Commission over such
affiliated entities.
PAGCOR being a government owned and controlled corporation created under a
legislative franchise, is governed under Civil Service laws, rules and regulations.

Application of the Law

Case: On March 31, 1998, PAGCOR's board of directors approved an instrument
denominated as rant of Authority and Agreement for the Operation of Sports Betting and
Internet Gaming which granted the Sports and Games and Entertainment Corporation
(SAGE) the authority to Operate and maintain Sports Betting station in PAGCOR's casino
locations, and Internet Gaming facilities to service local and international bettors, provided
that to the satisfaction of PAGCOR, appropriate safeguards and procedures are
established to ensure the integrity and fairness of the games. Senator Robert Jaworski,
in his capacity as member of the Senate and Chairman of the Senate Committee on
Games, Amusement and Sports, seeks to nullify the grant of authority by PAGCOR in
favor of SAGE because PAGCOR acted without or in excess of its jurisdiction, or grave
abuse of discretion amounting to lack or excess of jurisdiction, when it authorized
respondent SAGE to operate Internet gambling on the basis of its right "to operate and
maintain gambling casinos, clubs and other amusement places" under Section 10 of P.D.
1869. Does Presidential Decree No. 1869 authorize PAGCOR to contract any part of its
franchise to SAGE by authorizing the latter to operate Internet gambling?
Legal Opinion: No, in the case at bar, PAGCOR executed an agreement with SAGE
whereby the former grants the latter the authority to operate and maintain sports betting
stations and Internet gaming operations. In essence, the grant of authority gives SAGE
the privilege to actively participate partake and share PAGCOR's franchise to operate a
gambling activity. PAGCOR has a valid franchise, but only by itself (i.e., not in association
with any other person or entity), to operate, maintain and/or manage the game of jai-alai.
While PAGCOR is allowed under its charter to enter into operator's and/or
management contracts, it is not allowed under the same charter to relinquish or share its
franchise, much less grant a veritable franchise to another entity such as SAGE.
PAGCOR cannot delegate its power in view of the legal principle of delegata potestas
delegare non potest, inasmuch as there is nothing in the charter to show that it has been
expressly authorized to do so. By the same token, SAGE has to obtain a separate
legislative franchise and not "ride on" PAGCOR's franchise if it were to legally operate
on-line Internet gambling.

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Special Conditions of the Franchise
After deducting five (5%) percent as Franchise Tax, the fifty (50%) percent share
of the government in the aggregate gross earnings of the Corporation from this Franchise,
or 60% if the aggregate gross earnings be less than P150,000,000.00, shall immediately
be set aside and shall accrue to the General Fund to finance the priority infrastructure
development projects and to finance the restoration of damaged or destroyed facilities
due to calamities, as may be directed and authorized by the Office of the President of the
Philippines.

Taxes and Exemptions

All importations for the sole and exclusive use of the casinos, the proper and
efficient management and administration thereof, and such other clubs, recreation or
amusement places to be established under this Franchise shall be exempt from the
payment of all kinds of customs duties, taxes and other imposts, including all kinds of
fees, levies, or charges of any kind or nature, whether National or Local. Vessels and/or
accessory ferry boats imported or to be imported by any corporation having existing
contractual arrangements with PAGCOR for the sole and exclusive use of the casino or
to be used to service the operations and requirements of the casino, shall also be totally
exempt from the payment of all customs duties, taxes and other imposts, including all
kinds of fees, levies, assessments or charges of any kind or nature, whether National or
Local.
Fees or remuneration of foreign entertainers contracted by PAGCOR or the
operator shall also be free of any tax.
A Franchise Tax of five (55) percent of the gross revenue or earnings derived by
PAGCOR from its operation under this Franchise shall be due and payable quarterly to
the National Government and shall be in lieu of all kinds of taxes, levies fees or
assessments of any kind, nature or description, levied, established or collected by any
municipal provincial, or national government authority.
In the event PAGCOR should declare a cash dividend, that portion of the dividend
income corresponding to the participation of the private sector shall, as an incentive to
the beneficiaries be subject only to a final income tax rate of ten (106) percent in lieu of
the regular income tax rates.
By virtue of Republic Act 9337, amending the Expanded Value-Added Tax Law,
PAGCOR has now been removed from the exemption for the payment of value added
taxes.

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Application of the Law
Case: Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along
United Nations Avenue in Manila. It leases 6.768.53 square meters of the hotel's premises
to the Philippine Amusement and Gaming Corporation [PAGCOR] for casino operations.
It also caters food and beverages to PAGCOR'S casino patrons through the hotel's
restaurant outlets. Supposing the Commissioner of Internal Revenue will charge Value
Added Taxes on Acesite for the taxable year of 2006 to 2007 from its rental income and
sale of food and beverages to PAGCOR shall PAGCOR be held liable to pay such value
added taxes?
Legal Opinion: Yes by virtue of Republic Act 9337.

Prohibition
Only tourists and/or foreigners who are not residents of the Philippines, and
residents with a net income for the previous year of at least P50,000.00, which fact should
be certified to by the Bureau of Internal Revenue, shall be allowed to play at the gambling
casinos.
The following persons are not allowed to stay and/or play at the gambling casinos:
a. Government officials connected directly with the operation of the government
or any of its agencies, save personnel employed by the casinos who may be
allowed to stay in the premises;
b. Members of the Philippine National Police (PNP) and Armed Forces of the
Philippines (AFP), including the Amy Navy, and Air Force: and
c. Persons under 21 years of age or students of any school, college or university
in the Philippines

Operation and Maintenance of the Tourism-Related Establishments

Fire-fighting facilities should be provided in accordance with the Fire Code of the
Philippines All facilities of the establishment concerned should be properly maintained at
all times and a periodic vermin control program shall be conducted. All enclosed areas of
the establishments concerned should be fully air-conditioned or well-ventilated.
No pets or animals should be allowed within the premises. Ambulant vendors
should be prohibited from peddling their wares within the premises. All forms of gambling
drunkenness or disorderly conduct of any kind should be prohibited in the establishments
and within its premises.
Keepers, managers or operators should exert all possible efforts not to permit any
immediate premises person whom they know or have reason to believe to be either a
prostitute, pedophile or of questionable character to use the establishment for purposes

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of immoral or illegal activities they should immediately report to the nearest police station
the presence in the premises of any such person.
Without prejudice to the provisions of existing laws, operators/managers and their
assistants should be administratively liable for the acts or omissions of any of its staff
committed against any member or guests. They may, however, be exempt from liability if
they could establish that they have exercised due diligence of a good father of the family
in the supervision of the erring employee.
In case of tertiary hospitals for medical tourism, maintenance of all sections of the
hospital should be of acceptable standard, and shall be on a continuing basis taking into
consideration the quality of materials used as well as its upkeep by the hospital,
Appropriate signboards should be conspicuously displayed outside the establishment
showing clearly the name of the hospital. In the same manner, appropriate signs within
the hospital premises should also be installed.

Requirements for Accreditation by the Department of Tourism

Any person, partnership, corporation or other entity desiring to secure an
accreditation from the Department shall accomplish in duplicate and file with the
Department, the application prescribed for such purpose. 1The 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 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 statement sheets for the
preceding year of its operation (not applicable for new establishment);
c. List of the names of all officials and employees and their respective designations,
nationalities, home address; for alien personnel, valid visa from Bureau of
Immigration and the proper permit from the Department of Labor and Employment;
d. Mayor's Permit/Municipal License;
e. For galleries, proof of changing exhibitions at least three (3) times a year and proof
of membership and a certificate of good standing with the National Commission on
Culture and the Arts-Committee on Independent Arts Galleries;
f. In case of tertiary hospitals for medical tourism, license from the Department of
Health and Fire Safety Inspection Certificate;
g. For spas, updated list of management personnel and therapists and their
respective positions, nationalities and home addresses, certified by the general
manager and duly notarized; valid Health Certificate of all massage therapists duly
issued by the proper authority: Department of Health (DOH) license as massage
therapist for supervisors, and Fire Safety Inspection Certificate; and

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 h. Such other documents as may be required from time to time by the Department of
Tourism.

Laws Regulating Caterers

A caterer is defined as a person firm or association providing food and supplies,
and sometimes services for parties weddings and other social functions A caterer is
defined as a provider of food and provisions.
There are two 2 kinds of catering services:
a) On-premise catering, In this type of catering, the caterer has his own banquet hall with
an attached kitchen or production area
(b) Off-premise catering. For this type of catering the caterer brings the complete service
to the customers. It is a kind of banquet operation that takes place in a venue chosen by
a client or in an airline, boat, industrial site and other places.

This banquet service caters to various types of functions such as:

a. Wedding
b. social events like parties debut, anniversaries, and the like
c. seminars
d. trade exhibits and
e. other events

Business entities engaged in the catering business may be organized as a single

proprietorship, a partnership of a corporation. There are no standard requirements for the
accreditation of caterers by the Department of Tourism, except when putting up a
restaurant. Caterers are subject to value added tax.

Food Caterers Association of the Philippines (FCAP)

The Food Caterer's Association of the Philippines (FCAP) is group of catering
companies with the need to professionalize the industry and serve the needs of the
Philippine catering industry. The association has managed to attract a diverse network of
renowned allied members who represent the food manufacturing, food distribution, audio
systems, floral, photo, and wedding planning industries.
Membership in FCAP has the following benefits:
1. The opportunity to network with the best minds in the catering industry

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 2. Expansion of the catering business by showcasing itself to several prestigious
events
3. To learn thru interchange of ideas and educational programs
4. To keep abreast of the latest trends in order to keep business operations at
optimum speed
5. To uplift the standards of food service to greater heights by growing with FCAP as
it moves toward the dream of professionalizing the Philippine Catering Industry

The following are the requirements to become a member of FCAP:

For Regular Members (Caterers, Restaurateurs and the like)
1. SEC or DTI registration
2. Company Profile
3. Mayor's Permit/Certificate of Business Registration
4. Pictures of different set-ups
5. Sample of Brochure and Business Card
6. One or more Office Visitations coming from the Board of Directors of FCAP
7. One time Application Fee of P3,000 plus P2.000, as the 1st Annual Fee which
gives a total of P5,000 (With annual renewal of P2,000)

For Allied Members (Suppliers)

1. SEC or DTI registrations
2. Company Profile
3. Mayor's Permit/Certificate of Business Registration
4. Sample of Brochure and Business Card
5. One time Application Fee of P5,000, P10,000 or P20,000 (depending on the
capitalization)
Examples of caterers are Tamayo's Catering Makati Skyline, Via Mare, and Juan
Carlo.

Role of the Local Government Units

Under the Local Government Code, the responsibility for the provision of basic
services and facilities have been devolved to the local government units. The term
"devolution" refers to the act by which the national government confers power and
authority upon the various local government units to perform specific functions and
responsibilities.
The local government units, through the city or municipality, have the authority to
grant franchises, and enact ordinances authorizing the issuance of permits or licenses

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intended to promote the general welfare of the inhabitants of the city or municipality. Local
government units have the power to regulate the establishment, operation and
maintenance of cafes, restaurants, beerhouses, hotels, motels, inns, pension houses,
lodging houses, and other similar establishments, including tourist guides and transports.
They also have the power to regulate the establishment, operation, and maintenance of
entertainment or amusement facilities, including theatrical performances, circuses, billiard
pools, public dancing schools, public dance halls, sauna baths, massage parlors, and
other places of entertainment or amusement; regulate such other events or activities for
amusement or entertainment, particularly those which tend to disturb the community or
annoy the inhabitants, or require the suspension or suppression of the same; or prohibit
certain forms of amusement or entertainment in order to protect the social and moral
welfare of the community.
The word "regulate, as used in subsection (), 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." Consequently,
under the power to regulate laundries, the municipal authorities could make proper police
regulations as to the mode in which the employment or business shall be exercised.

Role of the Bureau of Food and Drugs

Under Republic Act No. 3720, known as the Food, Drug and Cosmetic Act, the law
seeks to ensure the safety and good quality supply of food, drugs and cosmetics, and to
regulate the production, sale and traffic of the same to protect the health of the public The
Act created the Bureau of Food and Drugs (8FAD) to administer the Act.
In this regard, establishments involved in the distribution and retailing of processed
foods drugs, medical devices, in vitro diagnostic reagents, cosmetics, and household
hazardous substance products must secure a License to Operate from BEAD.
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 is indicative of possible
illegal source/product.

Retail Trade Law

The Law
The Retail Trade Liberalization Act of 2000was enacted on March 7,2000 which
specifically repealed Republic Act 1180 otherwise known as the "Retail Trade
Nationalization Law."

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 By virtue of the Retail Trade Liberalization Act of 2000, the Philippine retail industry
is hereby liberalized to encourage Filipino and competitive retail trade sector in the
interest of empowering the Filipino consumer through lower prices, higher quality goods,
better services and wider choices." This is in line with the policy of the State to promote
consumer welfare in attracting promoting and welcoming productive investments that will
promote tourism and create more jobs.
The Act defines "retail trade" to cover any act, occupation or calling of habitually
selling direct to the general public merchandise, commodities or goods for consumption,
but the restrictions of the Act shall not apply to restaurants incidental to the hotel business.
By way of comparison, the Consumer Act of the Philippines defines "consumer
products as "goods....which are primarily for personal, family, household or agricultural
purposes, which shall include but not limited to food, drugs, cosmetics and devices." (Art.
4 [q] Consumer Act of the Philippines).

Discussion of the Law

Rules on Who May Engage in Retail Trade:
1. Filipino citizens, natural born Filipino citizens who have lost their Philippine
citizenship but who reside in the Philippines, and partnership, associations, and
corporation organized under the laws of the Philippines which are wholly owned
by Filipino citizens may engage in all forms of retail trade under the Act;
2. Foreign owned partnership, associations and corporations formed and those
organized under the laws of the Philippines may, upon registration with the
Securities and Exchange Commission, or in case of foreign-owned single
proprietorships, with the Department of Trade and Industry, may engage or invest
in the retail business, as follows:
a. Category A. Enterprises with paid-up capital of the equivalent in Philippine
Peso of less than Two million five hundred thousand US dollars
(US$2,500,000) shall be reserved exclusively for Filipino citizens and
corporations wholly owned by Filipino citizens
b. Category B. Enterprises with a minimum paid-up capital of the equivalent in
Philippine Peso of Two million five hundred thousand US dollars
(US$2,500,000) but less than Seven million five hundred thousand US dollars
(USS7500,000) may be wholly owned by foreigners, except for the first two (2)
years after the effectivity of this Act (or up to March, 2002) wherein foreign
participation shall be limited to not more than sixty percent (60$%) of total
equity.
c. Category C. Enterprises with a paid-up capital of the equivalent in Philippine
Peso of Seven million five hundred thousand US dollars (US$7,500,000), or
more may be wholly owned by foreigners.

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 d. No foreign enterprise under Categories B and C shall establish a store
investment less than the equivalent in Philippine Peso of Eight hundred thirty
thousand US dollars (US$830,000) per store
d. Category D. Enterprises specializing in high-end or luxury products with a paid-
up capital of the equivalent in Philippine Peso of Two hundred fifty thousand
US dollars (US$250,000) per store may be wholly owned by foreigners. "High-
end or luxury" products are those not necessary for the maintenance and
whose demand is generated in large part by the higher income groups, which
shall include, but are not limited to jewelry, branded or designer clothing, and
footwear, wearing apparel, leisure and sporting goods, electronics and other
personal effects.

Qualification and Requirements of Foreign Investors:

No foreign retailer shall be allowed to engage in retail trade in the Philippines unless all
the following qualifications are met:
(a) A minimum of Two hundred million US dollars (US$200,000,000) net worth in its
parent corporation for Categories B and C, and Fifty million US dollars (USS50,000,000)
net worth in its parent corporation for category D;
(b) Five (5) retailing branches or franchises in operation anywhere around the world
unless such retailer has at least one (1) store capitalized at a minimum of Twenty-five
million US dollars (US$25,000,000);
(c) Five (5)-year track record in retailing; and
(d) Only nationals from, or juridical entities formed or incorporated in countries which allow
the entry of Filipino retailers shall be allowed to engage in retail trade in the Philippines.
The Department of Trade and Industry is hereby authorized to pre-qualify all
foreign retailers before they are allowed to conduct business in the Philippines." Qualified
foreign retailers shall not be allowed to engage in certain retailing activities outside their
accredited stores through the use of mobile or rolling stores or carts, the use of sales
representatives, door-to-door selling restaurants and sari-sari stores and such other
similar retailing activities.

Application of the Law

Case: On November 15, 2003, Erlinda Palabrica was granted a permit to operate
Argentina Club and Disco (CLUB) located at Roxas Boulevard, Pasay City with a capital
of P1.5M. Yap O. Tan, alias Antonio Tan, is a Chinese citizen and a permanent immigrant
in the Philippines. He arrived in the Philippines in 2000. Later, he moved from Davao City
to Manila. He returned briefly to China in 2001 and married a Chinese woman named Ang
Siok Chin in Amoy, China. However, on November 20, 2003, or only five (5) days after

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Erlinda Palabrica obtained a mayor's permit to operate her Club, she and Yap O. Tan
began living as husband and wife without the benefit of marriage. Since then up to the
present, Yap O. Tan (the common-law husband) has been helping in managing, taking
part in the operation of, and putting substantial investment in the club. Is Yap O. Tan
engaged directly in a retail business?
Legal Opinion: Yes, Yap O. Tan is engaged directly in retail trade. While the Filipino
common law wife of a Chinese national is not barred from engaging in the retail business
provided she uses capital exclusively derived from her paraphernal property (Opinion No.
201, Series of 1961, Secretary of Justice), it was, however, shown in this case that the
investment used in the Club was not exclusively derived from Erlinda's paraphernal
property. It was shown that Yap O. Tan contributed to the retail business of Erlinda, not
only providing more capital but also actively managing the business, all in violation of the
Retail Trade Liberalization Act. In this regard, Yap O. Tan must register at the Department
of Trade and Industry to validly engage in retail business in the Philippines. Otherwise,
the Bureau of Immigration may order for the deportation of Yap O. Tan and be held liable
under the Retail Trade Liberalization Act.

Laws Regulating sale of Alcohol

The Law
The National Internal Revenue Code
The National Internal Revenue Code of 1997 (as amended by Republic Act No.
9334 December 21, 2004) has imposed excise taxes on the purchase of alcohol. The
excise tax rates shall be based on the classification of alcohol content as provided under
the law.

The Local Government Code

Under said law, every local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers necessary, appropriate,
or incidental for its efficient and effective governance, and those which are essential to
the promotion of the general welfare Local government units shall ensure promotion of
health and safety, and maintenance of peace and order within their respective territorial
jurisdictions.

Discussion of the Law

In addition, each local government unit (city or municipality) has the authority to
enact ordinances intended to prevent, suppress and impose appropriate penalties for
habitual drunkenness in public places and juvenile delinquency.

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 Thus, each local government unit may enforce administrative orders or enact
ordinances within their respective jurisdiction with respect to the regulation of the sale of
alcohol to minors in bars or restaurants, violation of which may be a ground for the
revocation of license by the local government unit concerned.
In Baguio City, its Executive Order 2-2007 controls the sale of liquors to minors
who could readily access it. Accordingly, minors would not be allowed to enter night clubs
and bars. Minors may be allowed to enter when they are in private parties and
accompanied by their parents or guardians but it was stressed that the serving of liquor
is strictly prohibited. Disregarding the order would result in the revocation of an
establishment's business permit. In Benguet, the Scout Officials for a Day (SOFAD)
passed a measure mandating all establishments to strictly implement the prohibition on
the selling liquor to minors. As stated in the resolution, the major uses of injuries, crimes
and deterioration of peace and order in the community is attributable to liquor intoxication,
hence, the need for the strict implementation of the law on liquor ban
Every city and town in Camarines Sur has its own ordinance concerning the
possession of liquor One of which is the prohibition to sell liquor to a minor lest one suffers
the consequences of either fine or imprisonment.
In Zamboanga City, Leyte, General Santos and Davao City, there is a prohibition
for the sale of liquor to minors.
In short every local government unit has the autonomous authority to regulate and
control the sale of liquor to minors. Violation would result to imprisonment, fine or even
revocation or non-renewal of the business permit of establishments.

Application of the Law

Case: Roselyn Melendez, a pub owner in Bohol, strictly prohibits her employees from
selling liquor or any alcoholic beverages to minors. Ariel, one of her bartenders sold beer
to 3 teenagers aged 15 and 16. Is Ms. Melendez's pub in violation of the law?
Legal Opinion: Yes, Mrs. Melendez's pub has violated a provincial ordinance. The
Sangguniang Panlalawigan of Bohol Province enacted Provincial Ordinance No. 2000-
030, known as the Bohol Children's Code. Under Article 5 Section 50 (n), it shall be
unlawful for the sale of liquor to any child. Discuss the legality and constitutionality of the
Code. The Bohol Children's Code is valid and constitutional as it is within the powers of
the local government unit concerned to enact such Code. Considering that the Philippine
Government is a signatory to the United Nations Convention on the Rights of the Child
(UNCRC), and World Declaration on the Survival, Development and Protection of
Children, it is but proper for the Province of Bohol to implement the rights of children
pursuant to these international instruments. In addition, the Province of Bohol recognizes
that children are important assets of society and it is only when children are able to
exercise their rights that they develop their full potentials. Hence, there is a

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need to codify the laws relating to children's rights to apply the same to the province of
Bohol.

Laws Regulating churches, Monuments, Nacional Shrines, Landmarks and other

Important Historic Edifices
The Law
By virtue of Presidential Decree No. 260 (August 1, 1973), the following has been
declarednNational Shrines, Monuments and Landmarks:
1. The Sta. Ana Site Museum in Manila
2. The Roman Catholic Churches of Paoay and Bacarra in llocos Norte;
3. The San Agustin Church and Liturgical Objects therein in Intramuros, Manila;
4. Fort Pilar in Zamboanga City;
5. The Petroglyphs of the Rockshelter in Angono, Rizal;
6. The Petroglyphs of Alab, Bontoc;
7. The Stone Agricultural Calendars of Dap-Ay Guiday in Besao, Bontoc;
8. The Mummy Caves of Kabayan, Benguet, Sagada and Alab, Bontoc
9. The Ifugao Rice Terraces of Banaue as National Cultural Treasuress
10. The Barasoain Church in Malolos, Bulacan:
11. Tirad Pass in Cervantes, llocos Sur;
12. The Miagao Church in Miagao, Iloilo;
13. The Site of the Battle of Mactan on Mactan Island, Cebu;
14. The San Sebastian Church in Quiapo, Manila; and
15. The Church and Convent of Santo Niño in Cebu City.

Discussion of the Law

The Sta. Ana Site Museum in Manila; the Roman Catholic Churches of Paoay and
Bacarra in llocos Norte; the San Agustin Church and Liturgical objects therein in
Intramuros, Manila; Fort Pilar in Zamboanga City: the Petroglyphs of the Rockshelter in
Angono, Rizal; the Petroglyphs of Alab, Bontoc; the Stone Agricultural Calendars of Dap-
ay Guiday in Besao, Bontoc; the Mummy Caves of Kabayan, Benguet and of Segada and
Alab, Bontoc and the Ifugao Rice Terraces of Banaue are hereby declared as National
Cultural Treasures along the lines of Sections 3 and 7 of R.A. 4846 defining cultural
properties and treasures, and their preservation, restoration and/or reconstruction shall
be under the supervision and control of the National Museum in collaboration with the
Department of Tourism.
The Barasoain Church in Malolos, Bulacan: Tirad Pass in Cervantes, Ilocos Sur;
the Miagao Church in Miagao, Iloilo; the Site of the Battle of Mactan on Mactan Istand in
Cebu: the San Sebastian Church in Quiapo, Manila; and the Church and Convent of Sto.

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Niño in Cebu City are hereby declared as National Shrines, Monuments and/or
Landmarks in accordance with the provisions of R.A. 4368 and their preservation,
restoration and/or reconstruction shall be under the supervision and control of the
National Historical Commission in collaboration with the Department of Tourism.
In this regard, it shall be unlawful for any person to modify, alter, repair or destroy
the original features of any national shrine, monument, landmark and other important
historic edifices declared and classified by the National Historical Institute as such without
the prior written permission from the Chairman of said Institute In addition, all donations
to the National Museum and archives of the National Historical Institute (including the
equivalent monetary value of works of art, manuscript, books or other articles of cultural,
historical or scientific significance) are tax exempt and deductible from the taxable income
of the donor.

Application of the Law

Case: The San Agustin Paoay Church in llocos Norte was affected by a great earthquake
that took place on July 16, 1990. The earthquake greatly affected the structure of the
Church. How can the Mayor of Paoay secure funding for the restoration and
reconstruction of the San Agustin Paoay Church in llocos Norte? What government
agency can help him?
Legal Opinion: The Mayor of Paoay, Ilocos Norte may seek funding from the National
Museum in collaboration with the Department of Tourism for the restoration and
construction of the Paoay Church in llocos Norte. (Note: In 1993, the San Agustin Paoay
Church was awarded by the UNESCO as a World Heritage Site. In this regard, the Mayor
of Paoay, Ilocos Norte may also seek funding in the form of conservation or management
assistance from UNESCO through the Proper States Party for the conservation,
preservation and restoration of the Church, if feasible.)

Crimes Committed Inside Restaurants and Other Tourism-Related Establishments

Commission of the following in restaurants and other tourism-related
establishments constitute a crime which is punishable by imprisonment and a fine. That
is why caution and diligence should be observed by owners/operators of these tourism-
related establishments in protecting their respective properties.

Vandalism (Malicious Mischief)

The Law
Article 327. Who are liable for malicious mischief. Any person who shall deliberately
cause to the property of another any damage xxx shall be guilty of malicious mischief.

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 Article 328. Special cases of malicious mischief. Any person who shall cause
damage to xxx the National Museum or National Library, or to any archive or registry, xxx
shall be punished:
Article 331. Destroying or damaging statues, public monuments or paintings. Any
person who shall destroy or damage statues or any other useful or ornamental public
monument xXx shall suffer the penalty x xx
Any person who shall destroy or damage any useful or ornamental painting of a
public nature shall suffer the penalty x x x

Discussion of the Law

Malicious mischief is a crime usually committed by customers, visitors or by-
passers in recreational centers, museums, galleries, cinemas, theaters, churches,
cultural landmarks and other related tourism sites. Security measures for the admission
of customers and visitors must be taken lightly and should be strictly implemented.
Malicious mischief embraces attempts against another's property inspired
sometimes by hatred or a desire for revenge and sometimes by the mere pleasure of
destroying it. The crime of damage to property (malicious mischief) is not determined
solely by the mere act of inflicting injury upon the property of a third person, but it must
be shown that the act had for its object the injury of the property merely for the sake of
damaging it.

Application of the Law

Case: Dante Arguelles has this nasty habit of writing his name and other nonsense
phrases (eg, "Dante was here "Call Dante if you need help," "Dante is the name you can
trust") on the walls of toilet cubicles in most of the establishments he would frequent like
restaurants, bars, and cinemas. Is he violating any law with this behavior?
Legal Opinion: Yes, Mr. Arguelles is basically violating the crime of malicious mischief
having deliberately causing damage to the properties mentioned above.

Poisoning
The Law
Article 264. Administering injurious substances or beverages The penalties
established by the next preceding article (serious physical injuries) shall be applicable in
the respective cases to any person toho, without intent to kill, shall inflict upon another
any serious physical injury, by knowingly administering to him any injurious substances
or beverages or by taking advantage of his weakness of mind and credulity.
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 Article 265. Less serious physical injuries. Any person toho shall inflict upon
another physical injuries not described in the preceding articles, but which shall
incapacitate the offended party for labor for tern days or more, or shall require medical
attendance for the same period.
Article 266. Slight physical injuries and maltreatment. The crime of slight physical
injuries shall be punished:
1. By armesto menor when the offender has inflicted physical injuries to which shall
incapacitate the offended party for labor from one to nine days, or shall require
medical attendance during the same period
2. By arresto menor or a fine not exceeding Php 200 and censure when the offender
has caused physical injuries which do not prevent the offended party from
engaging in his habitual work nor require medical attendance.

Discussion of the Law

This is usually committed by employees of restaurants, bars and pubs in relation
with customers. That is why policies set forth by the Bureau of Food and Drugs and those
governed by the Consumer Act must be strictly complied with by the operators/owners to
prevent this kind of crime from happening. In case death results by reason of the
poisoning experienced by the customer, the offender will be charged with homicide.
Arresto menor means imprisonment ranging from one day to thirty days.

Application of the Law

Case: Mark Baranda is a table was booked by a popular politician. The politician and his
guests ordered from the menu. Before the main course was served, the politician became
very picky on the appetizers to the point of insulting the food preparation team of Chef
Mark. The chef and his team became so upset and vengeful. They added a few
substances in the subsequent dishes served. In some cases, some of the cooks spat on
the food, picked their noses and did terrible things on the food of the customers. Towards
the end of the meal, some of the guests started to feel discomfort. Two were rushed to
the hospital due to severe reaction to the food eaten. In the hospital, the laboratory tests
indicate that the food served to the guests were contaminated with a toxic substance.
What are the liabilities of the restaurant, Chef Mark and his team?
Legal Opinion: Chef Mark and his team will also be held criminally liable for serious
physical injuries under the Revised Penal Code for having administering injurious
substances on the food of its customers. Such criminal liability will also include civil liability
for reparation of the damage caused to its customers. In case of default of the persons
criminally liable (Chef Mark and his team), the restaurant shall be civilly liable for the
crimes committed by the latter

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 Theft
The Law
Article 308. Who are liable for theft. -Theft is committed by any person who, with
intent to gain but without violence against or intimidation of persons nor force upon thing
shall take personal property of another without the latter's consent
Article 310.Qualifiod thef- The crime of theft shall be punished by the penalties net
higher by tax degrees if committed xxx with grate abuse of confidence
Article 311-Theft of the property of the National Library and National Museum if the
property stolen he any property of the National Library or the National Museum, e penalty
shall be arresto mayor or a fine xx, unless a higher penalty should be provided under
other provisions of this Code, in which case, the offender shall be punished by such higher
penalty.

Discussion of the Law

Usually, theft and qualified theft is committed by the employees of these tourism
establishments. That is why caution should always be practiced by owners/operators of
these establishments to stop employees from any means of temptation which they might
encounter inside the workplace. Setting limited access to employees with respect to the
company’s money and other personal properties may be helpful.
Intent to gain is presumed from the unlawful taking of personal property belonging
to another. The basis of the penalty of theft is: (1) the value of the thing stolen; (2) the
value and nature of the property taken, or (3) the circumstances or causes that impelled
the culprit to commit the crime.

Application of the Law

Case: Mr. Tony Pascual is the front office manager of a deluxe hotel in Makati. On a
surprise audit, the front office department only produced a small amount of foreign
currencies reported despite the typically high occupancy and high number of foreign
guests exchanging their dollars to local currency as evidenced by the closed circuit
television camera at the hotel lobby. A further wide-scale investigation led to the discovery
of eight huge money bags full of foreign currencies stashed inside safety deposit boxes
controlled by Mr. Pascual and his 8 assistant managers. It was also found out that every
time a foreign guest would change US dollars, the cashiers, upon the managers'
instructions, would use a different peso fund and a different official receipts booklet with
the hotel logo, printed illegally in Recto Avenue. The investigators who confiscated over

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P3.5 million worth of foreign currency assessed that the modus operandi has been going
on for 4 months already. What crime did Tony Pascual and his team of managers commit?
Legal Opinion: Tony Pascual and his team of managers committed the crime of qualified
theft. This is based on the premise that their possession of the foreign currencies is
considered possession of the hotel. When Tony Pascual and his team of managers, with
grave abuse of confidence, removed the money and appropriated it to their own use
without the consent of the hotel, there was the taking or apoderamiento contemplated in
the definition of the crime of theft.

Guide Questions
Try to answer the following questions to give you a better understanding of the laws
discussed in this chapter.
1. What is a restaurant? What must a restaurant provide in its premises? How do you
handle food poisoning in a restaurant? How can it be prevented? What laws may
be applied in this situation?
2. What is a bar? What laws must it observe in its operations?
3. How do you handle severe drunkenness or intoxication? How can it be prevented?
What laws may be applied in this situation?
4. What is a sports and recreational center? What facilities and services must it have
in its premises?
5. What is a gallery? What facilities and services must it have in its premises?
6. What is a museum? What government agency must it be affiliated with?
7. What is a spa? What facilities and services must it have in its premises?
8. What is a cinema? What facilities and services must it have in its premises?
9. What is a theater? What facilities and services must it have in its premises?
10. What is a concert hall? What facilities and services must it have in its premises?
11. What is the importance of accreditation of restaurants, museums, galleries,
recreational center and amusement parks by the Department of Tourism?
12. Name some potential problems and violation of laws that may happen in a
restaurant bar, entertainment outlet, amusement park gallery, cinema, theater, spa
or sports center
13. What is the rationale for the enactment of the Retail Trade Liberalization Act of
2000?
14. What is the role of local government units in the regulation of restaurants, bars,
and other entertainment establishments?
15. What is the role of restaurants, bars, entertainment centers, museums, galleries
and amusement parks in promoting tourism in the country?
16. What is the importance of regulating national shrines and other important historic
edifices by our government?

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 17. What is the rationale for the prohibition of sale of alcohol to minors? What is the
penalty for establishments caught selling alcohol to minors?
18. How can one be a member of the Food Caterers' Association of the Philippines?

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1987 Constitution. (2001, August 28). Philippine Amusement and Gaming Corporation
vs. the Court of Appeals et al.., G.R 93396,
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1502.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1548.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1567.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1577.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1606.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1956.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 2085.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 2209.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 2212.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1998.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 1999.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 2000.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article 2003.
Code Commission & Philippine Legislature. (1950, August 30). An act to ordain and
institute the civil code of the philippines. Article II, section 1 series of 1996.
Barron’s Legal Dictionary. (n.d.). Law (5th Edition). p. 217

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Caterer. (n.d.) World Book Dictionaries
Enjoining Government and All Concerned from Entering or Playing in Casinos. (2001,
August 28). Memorandum Circular No. 8.
Geraldez vs. Hon. Court of Appeals and Kenstar Travel Corporation. (1994, February
23). G.R. No. 108253.
Giffs, H.S. (n.d.). Barron’s Law (5th edition). p.19
Hon. Alfredo Lim et al., vs. Hon. Perfecto Laguio. (2005, April 12). G.R. No. 118127.
Juan Nakpil vs. The Court of Appeals et. Al. (1986, October 31). G.R. No. L-47851.
Laws relating to children’s rights. (n.d.). Retrieved from www.bohol.gov.ph
Ordinance concerning the possession of liquor. (n.d). Retrieved from
www.camarinessur.gov.ph
Senate and House of the Representatives. (2009). Chapter I, Section 1, Rules and
Regulations to Govern the accreditation of Gallery, Implementing rules and regulations
of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter I, Section 1, Rules and
Regulations to Govern the accreditation of Karaoke Bars, Implementing rules and
regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter I, Section 1, Rules and
Regulations to Govern the accreditation of Spa Establishments, Implementing rules and
regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter I, Section 1, Rules and
Regulations to Govern the accreditation of Tertiary Hospitals for Medical Tourism,
Implementing rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter I, Section 1, Rules and
Regulations to Govern the accreditation of Tourism-related establishment, Implementing
rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter II, Section 2, Rules and
Regulations to Govern the accreditation of Tertiary Hospitals for Medical Tourism,
Implementing rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter II, Section 2, Rules and
Regulations to Govern the accreditation of Tourism-Related Establishment,
Implementing rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter II, Section 3, Revised Rules
and Regulations to Govern the accreditation of Spa Establishment, Implementing rules
and regulations of Republic act No. 9593.

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Senate and House of the Representatives. (2009). Chapter III, Section 3, Rules and
Regulations to Govern the accreditation of Tourism-Related Establishment,
Implementing rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter IV, Section 4, Rules and
Regulations to Govern the accreditation of Tourism-Related Establishment,
Implementing rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter V, Section 5, Rules and
Regulations to Govern the accreditation of Tourism-Related Establishment,
Implementing rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter VII, Section 9, Rules and
Regulation to Govern the Accreditation of Tourism-Related Establishment,
Implementing rules and regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Chapter X, Rules and Regulations to
Govern the accreditation of Tourism-Related Establishments, Implementing rules and
regulations of Republic act No. 9593.
Senate and House of the Representatives. (2009). Section 1, Revised Rules and
Regulations to Govern the accreditation of Spa Establishments.
Senate and House of the Representatives. (2009). Section 1 (i), Rules and Regulations
to Govern the Accreditation of Tourism-Related Establishment.
Senate and House of the Representatives. (2009). Section 2. Rules and Regulations
Governing Overseas Employment.
Senate and House of the Representatives. (2009). Section 4, Revised Rules and
Regulations to Govern the accreditation of Spa Establishments.
Senate and House of the Representatives. (2009). Section 5, Rule VIII-A, Book III of the
omnibus rules implementing the labor code, as amended by Department order no. 18.
Senate and House of the Representatives. (2009). Section 6, Revised Rules and
Regulations to Govern the accreditation of Spa Establishments.
Senate and House of the Representatives. (2009). Section 9, Revised Rules and
Regulations to Govern the accreditation of Spa Establishments.
Sibal, J. (n.d.). Constitution . Philippine Legal Encyclopedia. Central Lawbook
Publishing co. Inc. p. 169
Sweet Line, INC. vs. Teves. (1978, May 19). G.R. No. L-37750.
Tana, J, (2003, July). Laws regulating accommodation establishments. Institute of Labor
Studies.
The Lexicon-Dictionary. (n.d.). Tourism laws (1981 Encyclopedic Edition).

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The Lexicon-Webster Dictionary. (n.d.) Caterer.
Tolentino, A. (n.d.). Civil code of the philippines (1992 Edition). pp-50-51.
Villanueva, C.L. (2002). Commercial Law Review. Rex Book Store, Inc., pp. 32-33
YHT Realty Corporation et. Al. vs. Hon. Court of Appeals. (2005, February 17). G.R. No.
126780.

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