PTL

Philippine Tourism Laws
By
Dean Danny Araneta Cabulay

and
Atty. Christine Palafox Carpio

Philippine Copyright, 2008
by
REX BOOK STORE, INC.
and
Danny Araneta Cabulay and Christine Palafox Carpio
RBS
Philippine Tourism Laws
First Edition
ISBN 978-971-23-5117-4
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Dedication
Dean Danny Cabulay would like to dedicate this

book to his departed loved ones – his grandmother,
Rufa Evangelista Araneta; father, Demetrio Ponce
Cabulay; and sister, Heidi Cabulay.
Atty. Christine Carpio would like to dedicate
this book to her brother, Wilson Carpio.
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Acknowledgments
The authors would like to thank first the Almighty for being the main source of energy
and inspiration in completing this book. Special thanks also go to the families of the authors for
providing the needed moral support.
Likewise, the authors wish to thank the following who contributed ideas, gave
encouragement and injected critical thinking in this particular book: Tourism Secretary Joseph
“Ace” Durano, former Tourism Secretary Narzalina Lim, Atty. Feliciano Bautista, Mr. Paul Lim
So, Mr. Albert Cabasada, Dr. Amy Biglete of CHED, Atty. Rosalie Cada, the FEU Law Library
under the supervision of Atty. Ciubal, Mr. Victor Alcuaz, Atty. Roberto Laurel, Dr. Rustica
Carpio, Atty. Juancho Baltazar, Atty. Andres Bautista, Mr. Roberto Zozobrado, and Mr. Jan
Michael Aldeguer.
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Preface
The Philippine tourism industry perennially has been a concern by many Filipinos. It is
a key source of foreign exchange which impacts heavily on the country’s balance of payments
and the purchasing power of the peso. It is a main source of employment to millions of Filipinos
working in various hotels and resorts, restaurants and bars, travel agencies, tour companies,
entertainment outlets, parks, museums, galleries, theaters, casinos, et al. around the country
and abroad. It is one industry that provides education, relaxation and leisure to its target local
and foreign markets. The tourism industry is also made up of several sectors that provide both
business opportunities and public service.
Just like any dynamic industry, the forces of the market create various business and
personal experiences that cause challenging situations to arise. For example, the number of labor
cases in the industry has remained high in the last 20 years. Air, sea and land transportation
accidents seem to be a regular item in the news. Some industry professionals who get promoted
to executive positions find it challenging to make adjustments in their decorum and mindset
giving rise to cases of sexual harassment, corruption, gross negligence, and others.
This textbook is written to provide a serious look at the different laws affecting the
Philippine tourism industry with the hope of achieving the following: (a) to serve as a working
guide to students, teachers, and professionals in their daily conduct; (b) to prevent unnecessary
litigation by promoting industrial peace; and (c) to serve as a catalyst in improving the lives of
the workers and executives in the tourism industry.
This labor of love is brought about by the passion of the authors for academic excellence,
professionalism, quality and innovation. The seventeen (17) chapters cover the most
comprehensive spectrum of topics of the subject. There are over 100 cases cited or adapted
from Supreme Court decisions to enlighten the readers on applications of the law.
The inspiring one-liner mentioned at the beginning of each chapter sets the focus of the
laws enumerated, the discussion of the laws and the application of the laws in succeeding
pages. An opening case enables the teacher to provide assignment reading to the students.
Each chapter has concise learning objectives. The guide questions may be utilized by teachers
for oral exercises, classroom discussion and recitation. At the end of each chapter, there are
recommended class activities for the teacher to implement in the class for better appreciation
of the topics. There is always an Internet research project integrated in the recommended class
activities.
This textbook will come handy in the subjects Philippine Tourism Laws and Human
Resources Management. It is the vision of the authors that the improved class instruction of
Philippine Tourism Laws will be instrumental in developing responsible, ethical and quality-
conscious tourism professionals and workers.
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Message
The Philippines is blessed with natural resources making our 7,107 islands a preferred
and competitive tourism and investment destination, generating jobs and revenue for the
country.
Developing the travel and hospitality industry, while enabling both to cope with a very
dynamic environment, the authors of this informative and interesting book have provided
readers an insight into the legal framework of Philippine tourism.
Our warm felicitations and best wishes to the publishers for the success of this
endeavor.
Mabuhay!
JOSEPH H. DURANO
Secretary
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Message
Any pioneering activity deserves support and recognition. More especially in the case of
this textbook titled Philippine Tourism Laws, where there is a laudable effort to come up with a
compendium of known and recent laws and jurisprudence affecting the tourism and hospitality
industry to serve as a guide to the stakeholders in the industry. Students and teachers alike will
do well to read the volume. With this kind of initiative, we can arm our teachers and students
with proper mindset and skills to help propel and guide the industry to a more competitive
status. Our country, with its entire array of God-given natural wonders and a naturally friendly
people, can then compete in the multibillion-dollar industry and keep abreast with our Asian
neighbors.
The volume, by its well-researched and comprehensive subjects will be a valuable
contribution to the enhancement and growth of the tourism sector as a tool for progress and
development.
Congratulations and Godspeed!
FELICIANO M. BAUTISTA
National President
Integrated Bar of the Philippines
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Table of Contents
Chapter 1 Introduction ............................................................................................ 1
Chapter 2 The Philippine Constitution ................................................................. 6
Chapter 3 Law on Obligations and Contracts .................................................... 18
Chapter 4 Law on Partnership and Corporation ............................................... 33
Chapter 5 Law on Sales, Agency and Credit Transactions............................... 69
Chapter 6 The Tourism Public Sector .................................................................. 89
Chapter 7 Laws Regulating Transportation Establishments...........................112
Chapter 8 Laws Regulating Accommodation Establishments ...................... 139
Chapter 9 Laws Regulating Travel and Tour Services .................................... 162
Chapter 10 Laws Regulating Restaurants and other ........................................ 171

Tourism-Oriented Establishments
Chapter 11 Laws Regulating Professional Congress Organizers .................... 195
Chapter 12 Law Related to Tourism Investments and Finance ....................... 200
Chapter 13 Labor Law ........................................................................................... 253
Chapter 14 Insurance Law .................................................................................... 279
Chapter 15 Tourism and Hospitality Management Education........................ 295
Chapter 16 Formalities of Entry In and Exit from the Philippines ................. 313
Chapter 17 Special Topics...................................................................................... 335
References...................................................................................................................................... 362
Index ............................................................................................................................................... 365
xiii
Chapter 1 Introduction
“Ignorantia juris non excusat.” Ignorance of the law excuses no one. Without law, our world would
be very unstable with anarchy in our streets and peace would be difficult to achieve. (A legal doctrine from
the Roman law)
The Case of the Coral Resort Drowning

The Robinson family went on a 3-day weekend getaway in a popular
resort in the Visayas, the Coral Resort, which takes pride in its hospitable
service, first rate cuisine and well-maintained resort facilities. Martin
Robinson, president of an American multinational company based in
Manila, took his wife Angie and children Patty, aged 6 and Geoff, aged 5,
to this beautiful resort to celebrate their wedding anniversary. The first day
was enjoyable because the children had a great time at the resort’s refreshing
swimming pool despite the lack of a lifeguard on duty. The chef delighted the
family with local cuisine and every staff was courteous and cheerful. On the
second day, there weren’t many people checked-in in the resort. Just before
sunset, Angie woke up and started to look for Patty and she was nowhere
to be found. Geoff was with his dad the whole afternoon walking by the
beach. After searching for 30 minutes with the help of some hotel staff, Patty
was found in the swimming pool already dead. One of the staff immediately
performed a standard CPR but to no avail. Can the Robinson family hold the
hotel liable for the death of their daughter? What are the responsibilities of
a resort with a swimming pool? Would you consider the resort negligent in
this situation? What are the rights of hotel guests?
Learning Objectives
• 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
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 realization 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:
1
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.
As to scope:
(1) General or Public law – a law which applies to all of the people of the state or to all
of a particular class of persons in the state, with equal force and obligation. Examples:
criminal law, international law, political law.
Criminal Law – a law dealing with crimes and their punishment, as well as the procedure
for that purpose.
International Law – body of rules or principles of action governing the relations between
States.
Political Law – law regulating the relations sustained by the inhabitants of a territory to
the sovereign.
(2) Special or Private Law – a law which relates to particular persons or things of a class.
Examples: civil law, maritime law, mercantile law.
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.
Maritime Law – the law dealing with commerce by sea, involving regulation of ships and
harbors and the status of seamen.
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 tourist.1
The World Tourism Organization defines tourism as the activities of persons traveling to
and staying in places outside their usual environment for not more than one consecutive year
for leisure, business, and other purposes.
Tourism law may be defined as a body of rules or principles of action which deals with
the regulation, authority, relations and obedience among members of a society involved in
tourist travel and accommodation. It includes persons traveling from place to place for pleasure
(tourist), and business establishments or persons engaged in the occupation of providing
various services for tourists.
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.2
1
The Lexicon-Webster Dictionary, 1981 Encyclopedic Edition.
2
World Tourism Organization, 2002.
2
All things being considered, it will not be denied that there are now various or even
millions of commercial transactions involved in tourism. In addition, numerous regulations are
being 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 book will deal with the various laws governing Philippine tourism, including the
various government agencies involved therein. It will also provide current situations existing in
the tourism, travel and hospitality industry which may be analyzed, interpreted and resolved
applying existing jurisprudence and legislation.
Sources of Law Relevant to the Tourism, Travel and Hospitality Industry

(1) The Philippine Constitution – It is the fundamental law of the land, to which all other
laws must conform.
(2) Statutes or legislative enactments – It is the written will of the legislative department
rendered authentic by certain prescribed forms and solemnities, prescribing rules of action,
or civil conduct with respect to persons, things or both. Examples: Dangerous Drugs Act,
Public Service Act, Civil Code of the Philippines, Labor Code of the Philippines, Revised
Penal Code, Seatbelt Law, local government ordinances.
(3) Administrative or executive orders, regulations and rulings – These are issued by
administrative officials under legislative authority. Examples: (a) Rules and Regulations
promulgated by the Secretary of Tourism to Govern the Accreditation of Hotels, Tourist Inns,
Motels, Apartels, Resorts, Pension Houses, and Other Accommodation Establishments;
(b) BIR circulars and rulings; (c) Administrative issuances by the Department of Foreign
Affairs; (d) Omnibus Rules Implementing the Labor Code of the Philippines;
(4) Judicial decisions or jurisprudence – These refer to the decisions of the Supreme Court in
interpreting the laws or the Constitution.
(5) Custom – It is a rule of conduct which in a given place and among given groups of people,
has been followed for an appreciable time.
(6) Other sources – These refer to decisions of foreign tribunals and opinions of textbook
writers.
† 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 law according to scope?
3. What are the different kinds of law 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?
3
13. Why is tourism 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.
17. If the 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
and hospitality industry without tourism law.
18. What is the Philippine Constitution?
19. What are statutes and legislative enactments?
20. What are judicial decisions or jurisprudence?
† CLASS ACTIVITIES ¢
Festival Fever
Participate in a local festival or tourist-oriented event.
Observe closely the possible situations that may potentially
lead to the violation of a law. Write a 100 to 150-word essay on
your findings.
Makati Skyline
The city of Makati is not only known as the financial
district of the Philippines but it is also known as a progressive
hub of tourist-oriented establishments. Brainstorm in groups
and find out the following:
• List all the restaurants in the area and enumerate what items they should be
concerned with in order not to get into trouble with the law.
• List all the hotels in the area and do the same enumeration as above.
• List all the means of transportation in the area and do the same enumeration as above.
• List all the entertainment outlets and tourist shops and do the same enumeration as
above.
Fabrizio and Fiona

Fabrizio and Fiona are an Italian couple on a holiday vacation
in Samal Island in Mindanao. Enumerate all the possible things
that can go wrong in their trip from Rome to Manila and Davao
where a tourism law can be violated. Divide the class into 4 teams.
The team with the most number of answers wins.
4
RESEARCH PROJECT
Sofija Feldman is an Israeli beauty queen participating in

an international beauty pageant held in Manila. During one of
the social functions, she was forcibly taken by two drunk men.
The security personnel assigned to guard the beauty contestants
from 72 countries were not able to notice the disappearance of Miss
Israel. The organizers were beginning to panic upon learning of the
abduction of a contestant who was predicted to win the competition.
Consult a lawyer and find out the possible consequence of such
an event. Who would be held liable for the disappearance of the
beauty queen? What measures can be undertaken by organizers
of a high profile event to prevent such kind of incident? Discuss
your findings in class.
5
Chapter 2 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 novel ideas.” (Dr. Amparo Santos, former president,
Tourism Educators in Schools, Colleges and Universities)
The Case of the Kill Joy Administrator

The class of Professor Myra Villamin has organized a tour of Boracay to
supplement classroom lectures in the subject Domestic Tourism. She followed
diligently all school policies on educational tours observing protocol, proper
documentation, conducting a transparent bidding with travel and tour
services providers, providing operational and security controls and seeking
permission from parents of the 40 students in the class. The vice-president for
academic affairs, Dr. Leonor Gaspar, upon receipt of Ms. Villamin’s proposal
as endorsed by the college dean, was stern on disallowing such activity. The
school has always been known for good academic programs and innovative
student activities. Ten years ago, the school had a bad experience when a
Biology professor brought his entire class to a beach in Batangas without
observing school policies resulting in a drowning accident with seven
fatalities. The stigma has not been erased in Dr. Gaspar’s mind. The school
had to deal with a lot of bad press. What are the options of Prof. Villamin
should she wish to pursue the activity? Does Dr. Gaspar have the right
to block such educational activity? What measures can the school and
teachers undertake to prevent a repeat of the accident? What do you think
are the responsibilities of teachers and school administrators in accidents
happening outside school premises? Do you have a similar activity in
your school? What measures are taken by the school to ensure the safety of
each out-of-campus activity?
Learning Objectives
• 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 and hospitality
industry
• Organize industry research
The Law
The Constitution is defined as the original and fundamental principles of law by which
a system of government is created and according to which a country is governed.1 It is the
fundamental law of the land, to which all other laws must conform. It is a written instrument
by which the fundamental powers of the government are established, limited, and defined, and
by which those powers are distributed among several departments for their safe and useful
exercise for the benefits of the body politic.2
1
Barron’s Legal Dictionary, 5TH Edition, p. 102.
2
Philippine Legal Encyclopedia by Jose Agaton R. Sibal, Central Lawbook Publishing, Co., Inc. p. 169.
6
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.
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.3
According to Justice Malcolm, liberty means “that measure of freedom which may be
enjoyed in a civilized community consistently with the peaceful enjoyment of life freedom in
others. x x x. Liberty includes the right to be free to use his faculties in all lawful ways; to live
and work where he wills; to earn his livelihood by any lawful calling, to pursue any avocation;
and for that purpose, to enter into all contracts which may be proper, necessary, and essential
to his carrying out these purposes to a successful conclusion. Liberty is freedom to do right
and never wrong; it is guided by reason and the upright and honorable conscience of the
individual.4
“Property” is defined as “anything which is or may be the object of appropriation.”
Anything which has money value and which is supposed to be within the commerce of man
is embraced in the term property. The right to earn one’s daily wage and the right to engage in
business are likewise property.5
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.6
“Due process of law” is a law which hears before it condemns; which proceeds upon
inquiry, and renders judgment after trial.7 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, an opportunity to defend himself and the problem of the propriety of the
deprivations, under the circumstances presented, must be resolved in a manner consistent with
essential fairness. It means essentially a fair and impartial trial and reasonable opportunity for
the preparation of the defense.8
The essential requirements of procedural due process in courts are as follows: (1) There
must be a court or tribunal clothed with judicial power to hear and determine the matter before it;
(2) jurisdiction must be lawfully acquired over the person of the defendant or over the property
which is the subject of the proceedings; (3) the defendant must be given an opportunity to be
heard; and (4) judgment must be rendered upon lawful hearing.9
3
Ibid., p. 520.
4
Ibid., p. 518.
5
Ibid., p. 783.
6
Ibid., p. 282.
7
Raquiza vs. Bradford, 75 Phil. 50.
8
Aquino, Jr., vs. Military Commission, No. 2, 63 SCRA 546.
9
El Blanco Español-Filipino v. Palanca, G.R. No. L-11390, 37 Phil. 921, 934 (1918).
7
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. He is currently
residing in the Philippines so that he can pursue his alleged illegal businesses 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 U.S. jurisdiction. Pending the evaluation of his extradition, Congressman
Genuino demanded for his extradition papers from the U.S. government through the Philippine
government so that he can already file his Opposition in the Philippine courts without 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 his right to “due process”?
Legal Opinion: No. Congressman Genuino is not deprived of his right to “due process.” P.D.
No. 1069 [Prescribing the Procedure for the Extradition of Persons Who Have Committed
Crimes in a Foreign Country” signed into law on January 13, 1977] which implements the RP-
US Extradition Treaty provides the time when an extraditee shall be furnished a copy of the
petition for extradition as well as its supporting papers, i.e., after the filing of the petition for
extradition in the extradition court. The law does not grant an extraditee a right to notice and
hearing 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 while the investigation during
the evaluation of the extradition process is pending.10
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 law.
x x x.
(2) Any evidence obtained in violation of this or the preceding section shall be
inadmissible for any purposes in any proceeding.

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 wire taps in certain crimes, such as treason, espionage, provoking war and
disloyalty in case of war, piracy, mutiny in the high seas, rebellion, conspiracy and proposal to
commit rebellion, inciting to rebellion, sedition, conspiracy to commit sedition, inciting to sedition,
kidnapping and other offenses against national security.
Any evidence obtained in violation of the above shall be considered “fruit from the poisonous
tree” and shall not be admitted as evidence in any administrative or criminal proceeding.
10
Secretary of Justice vs. Hon. Ralph C. Lantion et al., GR. No. 139465, October 17, 2000.
8
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. Wire-tapping devices were installed. The adjacent suite was reserved
for NBI agents on a stakeout. Was the operation legal and justified?
Legal Opinion: The operation is considered illegal in violation of 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.11 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 exploitative manner has happened in the past. Freedom of speech
has to be understood in the right context.
Section 4. No law shall be passed, abridging the freedom of speech, of expression, or of

the press, or the right of the people peaceably to assemble and petition the Government for
redress of grievances.

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 a material will be considered “obscene” when
the following requisites concur: (a) the subject as a whole appeals to the prurient interest of the
average person, using contemporary community standards; (b) the work depicts or describes
in a patently offensive way sexual conduct as prohibited by law; (c) the work as a whole lacks
serious literary, artistic, political or scientific value.12
It is worth considering the pronouncement of the Supreme Court on 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; that
connoisseurs of the same, and painters and sculptors might find inspiration in the showing of
pictures in the nude, or the human body exhibited in sheer nakedness, as models in tableaux
vivants. But an actual exhibition of the sexual act, preceded by acts of lasciviousness, can
have no redeeming feature. In it, there is no room for art. One can see nothing in it but clear
and unmitigated obscenity, indecency, and 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.”
11
Section 3 paragraph 1, R.A. 4200.
12
Barron’s Law Dictionary, 5th Edition, p. 352.
9
Case: Fort Santiago is a well-maintained wholesome historic theme park in Manila. The regular
park promenaders were suddenly awed by the parading young girls clad in skimpy bikinis.
These were movie starlets who were doing a pictorial for a magazine. There were occasions
when the director would tell the girls to take off their bikini bras only to cover their breasts
with their arms. The crowd was uneasy and grew bigger as the pictorial lasted almost over an
hour. A Manila councilor who was near the location reminded the director of the city ordinance
and the law that they were violating. Did the Manila councilor have the right to put a stop to
the pictorial? Did the organizers and participants of the pictorial really violate any law?
Legal Opinion: The Manila councilor had the right to put a stop to the pictorial by virtue of a
city ordinance prohibiting any lewd acts which are offensive to morals and public policy. Such act
may be considered a right of the State, in the legitimate exercise of police power, to suppress smut
provided it is smut. It is a known principle that the state has the authority to enact legislation that
may interfere with personal liberty or property in order to promote the general welfare. (See Leo
Pita vs. The Court of Appeals, G.R. No. 80806, October 5, 1989.)
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.

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.

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
and the state of the burden of keeping him, pending the trial, and at the same time, to put him
as much under the power of the court as if he were in custody of the proper officer, and to
secure his appearance so as to answer the call of the court and do what the law may require of
him. The condition imposed upon Mr. Bondoc to make himself available at all times whenever the
court requires his presence operates as a valid restriction on his right to travel. (See Manotoc vs. The
Court of Appeals, G.R. No. L-62100, May 30, 1986.)
10
The Law
Once again, the labor-intensive nature of 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.

Government employees are now given the right to form unions. However, their right to
strike is not included in the right to form unions. Unlike those employed in the private sector,
Government employees do not have the constitutional right to strike as a mandate under civil
service rules and regulations prohibiting government employees to strike. (See Social Security
System Employees Association (SSSEA) et al. vs. The Court of Appeals et al., G.R. No. 85279,
July 28, 1989.)

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 III 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 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.
11
Under the Civil Code the contract constitutes the law of the parties unless it violates some
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 comply
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 expressed,
or authorizes for its satisfaction something different from that provided in its terms, is a law
which impairs the obligation of a contract, and is null and void. An interference with the terms
of a legal contract by legislation is unwarranted and illegal.13
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 to
the obligations of contracts.
Police Power is a prerogative enjoyed by the state and a limitation on liberty and property
by the bill of rights. It has been identified with the state authority to 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.14

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.
7716 (An Act Restructuring the Value Added Tax System Widening Its Tax Base and Enhancing
Its Administration) because it impairs obligations of contracts on existing sales on real
property payable in installments, franchise privileges and exempt transactions such as the sale
of agricultural products, food items, petroleum, and medical and veterinary services. Is the
contention of PAL and CREBA correct?
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. x x x.
In the grant of rights, privileges and concessions covering national economy and
patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national
jurisdiction and in accordance with its national goals and priorities.
13
Clemons vs. Nolting, G.R. 17959, January 24, 1922.
14
Philippine Legal Encyclopedia, Jose Agaton Sibal, p. 734.
12
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 but also the mental ability or faculty of our people.15
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.16
The term “qualified Filipinos” simply means that preference shall be given to those citizens
who can make a viable contribution to the common good, because of credible competence and
efficiency. It certainly does not mandate the pampering and preferential treatment to Filipino
citizens or organizations that are incompetent or 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.17

Case: During a bid for the purchase of the majority shares in Manila Hotel, a Malaysian
corporation was the highest bidder. However, instead of awarding the sale to the Malaysian
corporation, the same was awarded to a Filipino corporation. Is the awarding of the sale in
favor of the Filipino Corporation valid?
Legal Opinion: Yes. Article XII Section 10 of the 1987 Constitution explicitly states that
the granting of privileges involving national patrimony shall 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
15
Jose N. Nolledo, The New Constitution of the Philippines Annotated, 1990 ed., p. 72.
16
Webster’s Third New International Dictionary, 1986 ed., p. 1656. as cited in Manila Prince Hotel vs. GSIS, G.R. No. 122156, February 3, 1997.
17
Ibid., pp. 930-931.
13
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 has 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, independence and nationhood. Verily, Manila Hotel has become part of
our national economy and patrimony.”
The Law
Many multinational corporations want to invest in the Philippine tourism, travel and
hospitality industry. It is important to study to what extent and how they can invest.
Section 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 in
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 be citizens of the Philippines.

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, either for freight or passenger, or both with
or without fixed route and whether may be its classification, freight or carrier service of any
class, express service, steamboat or steamship line, pontines, ferries, and water craft, engaged
in the transportation of passengers or freight or both, shipyard, marine railways, marine repair
shop, [warehouse] wharf or dock x x x and other similar public services: x x x.”
14
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. In 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 it 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 XII of
the Constitution.
Does CAB have the authority to issue a Certificate of Public Convenience and Necessity
in favor of GrandAir even if no franchise has been issued yet to the latter in accordance with
Section 11, Article XII 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 not interfere with
the exercise of that discretion when it is just and reasonable and founded upon a legal right.18
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.
18
Philippine Airlines, Inc. versus Civil Aeronautics Board. G.R. No. 119528, March 26, 1997.
15
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.

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 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.
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 foreigners as general managers of deluxe hotels in relation to
Section 14, Article XII of the 1987 Constitution?
16
12. Can restaurants and night clubs have fashion shows wherein models don very
revealing attires?
13. Can a hotel have more than one union?
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?
Now Showing
Watch the film “Dubai” in class or at home. Discuss the
following items in class:
• What were the reasons why the main characters traveled
to Dubai?
• What kind of visa do you think was given to them as
they entered Dubai?
My Little Scrapbook
Cut out a news article in a newspaper or magazine that features
traveling or tourism.
• Discuss in class the implication of the article on the lives of
Filipinos.
• Is the article factual or opinionated?
• How would you assess the impact of the article on tourism? Is
it good or bad?
Museum Tour
Organize a class tour at the Ayala Museum in Makati City
and discuss the following items in class.
• How did Filipinos travel through the years?
• What were the reasons why Filipinos travel?
• Why did foreigners come to our shores?
• What places in the country have you visited?
• After seeing the museum displays, what places in the
country would you like to visit?
RESEARCH PROJECT
In the early 1990s, there was a debate on whether former First Lady
Imelda Marcos, who had pending cases before the Sandiganbayan at that
time, be allowed or not to travel abroad for medical reasons. Go to any search
engine and surf on the topic “Imelda Marcos Medical Treatment” to know
more about the details of this issue as it was extensively covered by the media.
In your opinion, what was the right thing to do? Cite some laws that will
justify your answer. What was the verdict of the court? Do you agree? What
was the basis of the court’s decision?
17
Chapter 3 Law on Obligations and Contracts
“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 Case of the Disastrous Conference

In 2000, a major Philippine university hosted a three-day international
conference on environment and urban renewal with the Manila Hotel
as official venue. It was hoping to attract 500 to 700 participants. The
university has paid the 50% required downpayment for the banquet meals.
The hotel earmarked 6 complimentary guestrooms for the conference
organizers. A total of 50+ foreign delegates and 350+ Filipino delegates
were pre-registered. The organizers were also hoping for a good turnout
of walk-ins. On the eve of the conference, Manila was besieged by a strong
typhoon causing major streets and avenues to be under water. At exactly,
8:00 am on the first day of the conference, invitations committee chair Isay
Bradley started to call many speakers and registered local participants
confirming their attendance on the first day despite the inclement weather.
Half of the foreign participants were already checked-in at the Manila
Hotel. Less than 50 local and foreign participants showed up on the first
day. The hotel has prepared food good for 400 people. Should the organizer
be required to pay the full amount of the first day banquet meals? What
concessions can the event organizer request from the hotel? Can the hotel
legally charge the organizers the full amount? What are the obligations
of an event organizer? What are the obligations of a venue host? What
could be a possible consequence if the organizer refuses to pay for the
excess banquet meals and insists only on actual consumption?
Learning Objectives
• 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 Law
A person desiring to engage in a business in the tourism, travel and hospitality industry
will meet certain obligations. Agreements arising from contracts will have to be made, and
potential breach from these agreements will be encountered. Therefore, there is a need to study
the fundamental principles involving law on obligations and contracts.
Obligations
Article 1156. An obligation is a juridical necessity to give, to do or not to do.
18
An obligation is a legal duty, however created, the violation of which may become the
basis of an action of law.1
Every obligation has four definite elements, without which no obligation can exist, to wit:
(1) an active subject, also known as the obligee or creditor, who has the power to demand the
prestation; (2) a passive subject, also known as the debtor, who is bound to perform the prestation;
(3) an object or the prestation, which is an object or undertaking to 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 identify the prestation in a certain obligation. Once the prestation is
identified, you can determine who the passive subject is whom the active subject can demand
fulfillment of the obligation.
The following are the obligations of the passive subject in:
a) Obligations to give a determinate thing:
1. To deliver the thing which he has obligated himself to give.2
2. To take care of the thing with the proper diligence of a good father of a
family.3
3. To deliver all its accessories and accessions.4
4. To pay damages in case of breach of obligation.5
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.6
The sources of liability (for damages)7 of a party in an obligation are as follows:
(1) Fraud. The fraud is incidental fraud (dolo incidente) which is fraud incident to the
performance of an obligation. In fraud, there is an intent to evade the normal fulfillment
of the obligation and to cause damage.
(2) Negligence. The negligence referred here, in the case of contracts (i.e. common carrier) is
culpa contractual, the lack of diligence or 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.

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
1
The Philippine Legal Encyclopedia, by Jose Agaton R. Sibal, 1986 Edition, p. 635.
2
Article 1165, Civil Code of the Philippines.
3
4
5
6
7
Refer to Articles 2199-2201 of the Civil Code of the Philippines.
19
in Food and Agriculture of the United Nations in Ispra, Italy. To fulfill this engagement, Dr.
Pablo booked passage with Alitalia, an Italian airline company. She arrived in Milan on the
day before the meeting in accordance with the itinerary and time table set for her by Alitalia.
She was however told by the Alitalia personnel there at Milan that her luggage was “delayed
inasmuch as the same x x x (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 really 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.8
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 Northwest Airlines rudely compelled
him, in the presence of other passengers, to move, over his objection, to the tourist class, under
threat of otherwise leaving him in Okinawa. In order to reach the conference on time, respondent
had no choice but to obey. Is Mr. Cuenca entitled to damages for culpa contractual?
Legal Opinion: Yes, Mr. Cuenca is entitled to nominal damages. At any rate, considering that
petitioner’s agent had acted in a wanton, reckless and oppressive manner, said award may,
also, be considered as one for exemplary damages.9
(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.
8
Alitalia vs. Intermediate Appellate Court, G.R. No. 71929, December 4, 1990.
9
Northwest Airlines, Inc. vs. Cuenca, G.R. No. L-22425, August 31, 1965.
20
(4) Contravention of the tenor of the obligation. Performance in contravention of the tenor or
terms of the obligations means where performance is contrary to what is agreed upon or
stipulated thus making the debtor liable for damages.10
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 France, through
its authorized agent, Philippine Air Lines, Inc., issued to Mr. Carrascoso a ‘first class’ round
trip airplane ticket from Manila to Rome. From Manila to Bangkok, Mr. Carrascoso traveled in
‘first class’, but at Bangkok, the Manager of the Air France airline forced him to vacate the ‘first
class’ seat that he was occupying because there was a ‘white man’, who, the Manager alleged,
had a ‘better right to the seat.’ When asked to vacate his ‘first class’ seat, Mr. Carrascoso, as
was to be expected, refused. A commotion ensued but Mr. Carrascoso reluctantly gave his ‘first
class’ seat in the plane. In its defense, Air France alleged that although Mr. Carrascoso was
issued a first-class ticket, it was no guarantee that the passenger to whom the same had been
issued would be accommodated in the first-class compartment, for the passenger has yet to
make arrangements upon arrival at every station for the necessary 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.
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.11
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.
10
11
Air France vs. Carrascoso, G.R. No. L-21438, September 28, 1966, 18 SCRA 155.
21
There are only two (2) sources of obligations, namely: (1) law; and (2) contracts because
obligations arising from quasi-contracts, crimes (No. 4, Article 1157, Civil Code of the Philippines),
and quasi-delicts are really imposed by law. (Leung Ben vs. O’Brien, 38 Phil. 182)
A contract is a “meeting of the minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.”12
Quasi-contract refers to a lawful, voluntary and unilateral act based on the maxim that no
one shall unjustly enrich himself at the expense of another.13 The two common forms of quasi-
contract are: (1) Solutio indebiti, which is payment by mistake; and (2) Negotiorum gestio,
which takes place when a person without the consent of the owner, assumes the management
of an abandoned business.
Civil obligations arising from criminal offenses are governed: (1) by the provisions of
the Revised Penal Code (i.e. restitution, reparation of the damage caused, indemnification
of consequential damages; (2) by the provisions of the Civil Code on damages (i.e. moral,
exemplary and nominal damages).
Quasi-delict (also called culpa-aquiliana) is any act or omission which causes damage
to another, there being fault or negligence, and there being no preexisting contractual relation
between the parties.14

Case: Anabel was crossing the street coming from the hotel to the nearby shopping mall. She
was accidentally hit by a hotel car driven by Leandro, a driver employed by the hotel. Can
Anabel sue to driver? Can she sue the hotel?
Legal Opinion: Yes, Anabel may sue the driver and the hotel for damages on the ground of
culpa-aquiliana. The pedestrian may also sue the driver and the owner of the hotel for damages
for reckless imprudence arising from a crime under the Revised Penal Code.
The Law
Classification of Obligations
(1) Primary classification of obligations under the Civil Code:
(a) Pure and conditional obligations (Articles 1179-1192);
(b) Obligations with a period (Articles 1193-1198);
(c) Alternative (1199-1205) and facultative obligations (Article 1206);
(d) Joint and solidary obligations (Articles 1207-1222);
(e) Divisible and indivisible obligations (Articles 1223-1225); and
(f) Obligations with a penal clause (Articles 1226-1230)
(2) Secondary classification of obligations under the Civil Code:

(a) Unilateral and bilateral obligations (Articles 1169-1191);
(b) Real and personal obligations (Articles 1163-1168);
(c) Civil and natural obligations (Articles 1423); and
(d) Legal, conventional, and penal obligations (Articles 1157, 1159, 1161)
12
13
Refer to Article 2142, Civil Code of the Philippines.
14
Philippine Legal Encyclopedia, by Jose Agaton R. Sibal, p. 809.
22
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 51,000.
A conditional obligation is one whose consequences are subject in one way or another to
the fulfillment of a condition. Example: Carol promises to pay B 51,000.00 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 another
to the expiration of the said period or term.15 Example: Alfredo (the owner of the hotel) promises
to pay Britney (employee of the hotel) 55,000.00 on or before December 30, 2007 as part of the
staff incentive program.
Joint obligations are those where, although there concur two or more creditors and debtors,
in one and the same obligation, there is no right to demand nor 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.16

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 5100,000.00.”
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.
An obligation with a penal clause is an obligation which contains an accessory obligation
imposing upon the obligor added burdens or which operates as a previously stipulated
indemnity, for the purpose of securing the performance of the principal obligation. It substitutes
the indemnity for damages and, therefore, it does away with proof of damages suffered in case
of breach of the obligation.17
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:
15
16
17
Handbook on Obligations and Contracts, by Jose N. Nolledo, 1993 Revised Edition, p. 138.
23
“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 51,000.00?
Legal Opinion: Yes, Mr. Lambert is entitled to the liquidated damages in the amount of 51,000.00.
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.18
Modes of Extinguishing Obligations

The Law
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
18
Lambert vs. Fox, G.R. No. 7991, January 29, 1914.
24
(3) By the condonation 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,
fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code
(1156a).

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 event19 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.20 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.21
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.22
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.23
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.24
19
20
Refer to Article 1249, Civil Code of the Philippines.
21
Article 1236, par. 2; Article 1237, 1302, 1303, Civil Code of the Philippines.
22
Philippine Legal Encyclopedia by Jose Agaton R. Sibal, p. 341.
23
Civil Code of the Philippines, Vol. IV, by Arturo M. Tolentino, 1991 Edition, pp. 126-127.
24
Ibid., p. 337.
25
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 then stood up and went back to the cockpit. ‘Zaldy’ and his companions returned to
their seats. Soon thereafter an exchange of gunshots ensued between Villarin and ‘Zaldy’ and
the latter’s companions. ‘Zaldy’ announced to the passengers and the pilots in the cockpit that
it was a “hijack.” The hijackers divested the passengers of their belongings. Upon landing at
the Manila International Airport, Zaldy and his three companions succeeded in escaping.
Norberto Quisumbing, Sr., one of the passengers of the plane filed an action against
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 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.
26
Under the circumstances of the instant case, the acts of the airline and its crew cannot be
faulted as negligence. The hijackers had already shown their willingness to kill one passenger
who survived from gunshot wounds. The lives of the rest of the passengers and crew were more
important than their properties. Cooperation with the hijackers until they release their hostages
at the runway end near the South Superhighway was dictated by the circumstances.25
(Note: In Gacal vs. Philippine Airlines, G.R. 55300, March 15, 1990 it was held that Philippine
Airlines was not liable for the death and injuries of its passengers due to hijacking of six (6)
men who were allegedly members of the Moro National Liberation Front. According to the
Supreme Court: “Under normal circumstances, PAL might have foreseen the skyjacking incident
which could have been avoided had there been a more thorough frisking of passengers and
inspection of baggages as authorized by R.A 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 preparatory to boarding domestic
and international flights. In fact military take-over was specifically announced x x x 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.)26
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)

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.27
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.28 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.29
25
Norberto Quisumbing, Sr., and Gunther Loeffler vs. Court of Appeals, G.R. No. 50076, September 14, 1990.
26
Compare with the case of Fortune Express, Inc. vs. Court of Appeals, G.R. No. 119756, March 18, 1999 where a bus operator was liable for
the death and injuries of its passengers due to hijacking for failure to observe extraordinary diligence.
27
28
29
27
(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, public
order and public policy.30
(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.31
(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.32
(5) Obligatory Force of Contracts. By the obligatory force of contracts, it constitutes the law
as between the parties who are compelled to perform under the threat of being sued in
the courts of law.33

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. 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
30
31
32
Article 1315, 1316, 1403 (2), Civil Code of the Philippines.
33
28
employees. With more reason that access to the safety deposit box should be denied if the one
requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of any
item deposited in the safety deposit box, it is inevitable to conclude that the management had
at least a hand in the consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that the employees of Tropicana had custody of the master key of the
management when the loss took place. Yet the management failed to notify Mr. McLoughlin
of the incident and waited for him to discover the taking before it disclosed the matter to him.
Therefore, Tropicana should be held responsible for the damage suffered by Mr. McLoughlin
by reason of the negligence of its employees.
Under Article 1170 of the New Civil Code, those who, in the performance of their
obligations, are guilty of negligence, are liable for damages. As to who shall bear the burden
of paying damages, Article 2180, paragraph (4) of the same Code provides 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.
The “Undertaking for The Use of Safety Deposit Box” executed by Mr. McLoughlin is tainted
with nullity. Article 2003 of the Civil Code is controlling, thus:
‘Article. 2003. The hotelkeeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest. Any stipulation
between the hotelkeeper and the guest whereby the responsibility of 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.34
Classification of Contracts
(1) According to their relation to other contracts:
(a) Preparatory – or those which have for their object the establishment of a condition
in law which is necessary as a preliminary step towards the celebration of another
subsequent contract. Examples – partnership, agency, common carrier, insurance.
(b) Principal – or those which can subsist independently from other contracts and whose
purpose can be fulfilled by themselves. Examples – sale, lease, common carrier,
insurance.
(c) Accessory – or those which can exist only as a consequence of, or in relation with,
another prior contract. Examples – pledge, mortgage.
34
YHT Realty Corporation vs. Erlinda Lainez and Anicia Payam, G.R. No. 126780, February 17, 2005.
29
(2) According to their perfection:
(a) Consensual – or those which are perfected by the mere agreement of the parties.
Examples – sale, lease.
(b) Real – or those which require not only the consent of the parties for their perfection,
but also the delivery of the object by one party to the other. Examples – commodatum,
deposit, pledge.
(3) According to their form:
(a) Common or informal – those which require no particular form. Example: loan.
(b) Special or formal – or those which require some particular form. Examples – donation,
chattel mortgage.
(4) According to their purpose:
(a) Transfer of ownership. Example – sale.
(b) Conveyance of use. Example – commodatum.
(c) Rendition of services. Example – agency, lease of services, labor.
(5) According to their subject matter:
(a) Things. Examples – sale, deposit, pledge.
(b) Services. Examples – agency, lease of services, labor.
(6) According to the nature of the vinculum which they produce:
(a) Unilateral – or those which give rise to an obligation for only one of the parties.
Examples – commodatum, gratuitous deposit.
(b) Bilateral – or those which give rise to reciprocal obligations for both parties. Examples
– sale, lease.
(7) According to their cause:
(a) Onerous – or those in which each of the parties aspires to procure for himself a benefit
through the giving of an equivalent or compensation. Examples – sale, insurance,
common carrier.
(b) Gratuitous – or those in which one of the parties proposes to give to the other a
benefit without any equivalent or compensation. Example – commodatum.
(8) According to the risks involved:
(a) Commutative – or those where each of the parties acquires equivalent of his prestation
and such equivalent is pecuniarily appreciable and already determined from the
moment of the celebration of the contract. Example – lease.
(b) Aleatory – or those where each of the parties has to his account the acquisition of an
equivalent of his prestation, but such equivalent, although precuniarily appreciable,
is not yet determined at the moment of the celebration of the contract, since it
depends upon the happening of an uncertain event, thus charging the parties with
the risk of loss or gain. Example – insurance.
(9) According to their names or norms regulating them:
(a) Nominate – or those which have their own individuality and are regulated by special
provisions of law. Examples – sale, lease, common carrier, insurance, deposit, agency.
(b) Innominate – or those which lack individuality and are not regulated by special
provisions of law. In the Roman Law, the innominate contracts were classified into
four groups: do ut des (I give and you give), do ut facias (I give and you do), facio ut
facias (I do and you do), and facio ut des (I do and you do).35
35
Civil Code of the Philippines, Vol. IV, by Arturo Tolentino, 1991 Edition, Central Book Supply, Inc.
30
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 the ways in which an obligation may be extinguished.
5. Are insurance contracts considered contracts of adhesion? Discuss the validity of
insurance contracts.
6. Discuss the current security measures undertaken by airline companies in order to
prevent or minimize hijacking incidents. Discuss its relevance and applicability in
relation to the Supreme Court decision in Norberto Quisumbing Jr. and Gunther
Loeffler vs. Court of Appeals, G.R. 50076, September 14, 1990.36
7. What is a force majeure? Give examples.
8. What is a fortuitous event? Give examples.
9. Is a coup d’etat considered force majeure? Discuss its legal implications to the hotel
industry which might be used as headquarters in case of military takeover.
10. Differentiate a pure obligation from a conditional obligation.
11. Differentiate joint obligation from a solidary obligation.
12. What are the main characteristics of an obligation with a penal clause?
13. What are the characteristics of a contract?
14. What are the classifications of contracts? Give an example of each.
Banquet Agreement
Divide the class into 6 groups.
• Each group must secure a copy of a hotel or restaurant
banquet agreement.
• Examine the provisions in the agreement and analyze
whether such provisions are fair and justifiable.
• Can you suggest ways to improve the banquet agreement?
• Present your findings in class.
36
You may refer to the Supreme Court Decisions on People of the Philippines vs. Hedishi Suzuki, G.R. No. 120670, October 23, 2003; and
People of the Philippines vs. Susan Canton, G.R. No. 148825, December 27, 2002.
31
Lawyer! Lawyer!
Interview a lawyer on the following items.
• Where can contracts be handy and useful in the tourism,
travel and hospitality industry?
• Can contracts really be enforced in this industry?
• Is having a contract in all agreements advisable?
• What are the advantages of having contracts?
Work in teams of three students per team. Present your findings in class.
Hired and Fired

Try to get a photocopy of an employment contract in the tourism, travel and hospitality
industry. Answer the following questions.
• Is the compensation package clearly stipulated?
• How would you characterize the wording of the employment contract?
• Are the grounds for termination explicitly mentioned?
RESEARCH PROJECT
In 1996, Dusit Hotel Nikko had a labor dispute arising from a
complaint by the National Union of Workers in the Hotel, Restaurant
and Allied Industries (NUWHRAIN). Surf the Internet under the
heading “Dusit Hotel Nikko Labor Dispute” and discuss in class the
outcome of this case. Are you in favor of the decision of the court?
Justify your answer. How do labor disputes affect a tourism-oriented
enterprise? How can labor problems be avoided or prevented? Cite some
hotels that have undergone labor problems. In your opinion, are labor
unions necessary in an enterprise?
32
Chapter 4 Law on Partnership and Corporation
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 Southeastern University)
Case of Invest and Divest Strategy

Marky Olivarez, a popular young actor-model, decided to plunge
into entrepreneurship by opening a series of business ventures – a casual
dining restaurant and bar, a fitness gym, a travel agency, and a fashion
boutique. He has a different set of partners in each of these firms. Marky
has not contributed anything to these businesses except his name, hoping
that his popularity will draw the right market into these businesses. The
other partners were not hands-on entrepreneurs and relied heavily on
managers hired for each company. Each of these businesses showed signs
of losing money in the first 12 months until only one business remained
operational beyond 15 months. Marky has charged many of his personal
expenses from these companies. Meanwhile, all the partners were not able
to recover their investment in these business ventures with Marky. If the
businesses were losing money, shouldn’t Marky share also in the losses
even if he did not contribute money or tangible assets to the companies? Is
it right for Marky to charge his personal expenses to the companies? How
would you assess Marky’s entrepreneurial competency? What went wrong
in this partnership? Are celebrities good business partners? Can you give
examples of celebrities who have become really successful entrepreneurs?
What are the most important factors in choosing a business partner? What
measures can partners in a partnership or stockholders in a corporation
have to protect their investment in the business?
Learning Objectives
• 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
In a high-level industry like the tourism sector, it is imperative that it strictly complies
with legal requirements in order to operate as a legitimate business. Start-up operations must
have a strong foundation, and in order to have a strong foundation, you must start with a
strong business organization. Forming a partnership or a corporation is a better choice in
forming business organizations in order to enter a competitive industry, like the tourism
industry. This chapter will present an overview of a partnership and a corporation as a business
organization.
The Law on Partnership is governed by the Civil Code of the Philippines, while the Law
on Corporation is governed by Batas Pambansa Blg. 68, Corporation Code of the Philippines.
33
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.

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:
(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 if none do you experience business
establishments forming a universal partnership.
34
(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.1
(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.2
(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. 3
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.4
(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.5
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.
(Articles of Partnership - General Partnership)

ARTICLES OF PARTNERSHIP
of
__________________________
1
2
3
Article 1785, Article 1830 [1, a], Civil Code of the Philippines.
4
Articles 1771, 1773, Civil Code of the Philippines.
5
35
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 HEREBY 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 proportionate share.
3. That the capital of this partnership shall be ___________ (5_________), Philippine
Currency, broken down, in contributions, as follows:
Name of Partner Contribution
_______________________________ 5 ___________________
_______________________________ 5 ___________________
_______________________________ 5 ___________________
The partnership shall maintain a capital account record for each partner; should
any partner’s capital account fall below the agreed to amount, then that partner
shall (1) have his share of partnership profits then due and 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
its 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 contract to any liability exceeding Pesos: ___________________ (5_______),
Philippine Currency, without the prior written consent of each partner.
6. That the profits and losses shall be divided among the partners pro rata, in proportion
to their respective contributions.
36
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 _____________ (______)
days’ 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, (b) 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
(SIGNATURES OF PARTNERS)
SIGNED IN THE PRESENCE OF:
_________________________ _________________________
REPUBLIC OF THE PHILIPPINES)

CITY/MUNICIPALITY OF ______) SS.
ACKNOWLEDGMENT
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. _________________________ _______________ _________________________
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,
consisting of only ______ (____) page/s, including this page in which this Acknowledgment is
written, duly signed by them and their instrumental witnesses on each and every page hereof.
WITNESS MY HAND AND SEAL this ________________ at _____________,

Philippines.
37
NOTARY PUBLIC
Doc. No. ______;
Page No. ______;
Book No. ______;
Series of ______;
(Articles of Partnership - Limited Partnership)

ARTICLES OF PARTNERSHIP
of
__________________________, LTD.

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:
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 the others;
2. That the names and addresses of the respective co-partners are as follows:
Name Address
___________________ (General Partner) ____________________________________
___________________ (Limited Partner) ____________________________________
___________________ (Limited Partner) ____________________________________
3. That the initial capital of this Co-Partnership shall be _____________ (5_________),
Philippine Currency, broken down, in contributions, as follows:
Name of Co-Partner Contribution
_____________________________________ 5 ___________________
_____________________________________ 5 ___________________
_____________________________________ 5 ___________________
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
5_________;
38
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)
__________________________ __________________________
(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.6 If a partner
promises to contribute specific determinate things, he must: (a) preserve the property;
(b) deliver the fruits from the time of agreement; (c) warrant against eviction and hidden
effects; (d) transfer ownership on delivery to the partnership; (e) pay damages for the
delay without necessity of demand; and (f) bear the risk of loss before delivery.
(2) Where contribution is industry. An industrial partner (a partner who merely contributed
industry or services to the common fund) cannot engage in business for himself, unless
the partnership expressly permits him to do so; and if he should fail to do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits which he
may have obtained in violation of this provision, with a right to damages in either case.7
(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.8
(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.9
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.10
6
7
8
9
10
39
(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.11 A stipulation which excludes one or more
partners from any share in the profits or losses is void,12 but an industrial partner shall not
be liable for losses.13 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.14
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.15
(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.16 The right to participate in the
management is governed by stipulation of the partners; if none, all of the partners participate
in the management. The powers of the managing partner appointed in the Articles of
Partnership cannot be revoked despite opposition, except by partners representing controlling
interest and provided there is a just and lawful cause. 17 However, powers of the managing
partner appointed after the formation of the partnership can be revoked anytime. 18 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.19
(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.20
All partners are liable solidarily with the partnership21 for: (a) wrongful acts and
omissions causing loss to a non-partner22 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 name23 and (b) when he takes part in the control of
the business.24 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.25
11
Article 1797, par. 1, Civil Code of the Philippines.
12
13
14
Ibid.
15
16
17
18
19
20
21
22
23
24
25
Article 1853. Civil Code of the Philippines.
40
Case: Sometime in June 1986, Fernando Sandoval and Naomi Reyes were introduced to each
other by Mely Ziobal regarding a lending business venture proposed by Naomi. It was verbally
agreed that Fernando will act as financier while 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 for 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.
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.26
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.27
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
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;
26
See Fernando Santos vs. Spouses Arsenio and Nieves Reyes, G.R. No. 135813. October 25, 2001.
27
41
(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
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 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)

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;28 (2) when asked for by a limited
partner under the provisions of Article 1857, as when he rightfully but unsuccessfully demands
the return of his contribution, or as when the limited partner would otherwise be entitled to the
return of his contribution but there are remaining liabilities of the partnership which have not
been paid or the partnership property is insufficient for their payment.
28
42
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. 29 In such a case, an amendment of the certificate of limited
partnership shall be executed and recorded at the Securities and Exchange Commission.30
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,31 in such a case an amendment
in the certificate must also be executed for the inclusion of the substituted limited partner
which must be recorded in writing at the Securities and Exchange Commission.32 Take note
that the amendment of the certificate of limited partnership must comply substantially
with requirements set forth in Article 1844 as well as Article 1843 of the Civil Code of the
Philippines.
“Civil Interdiction” is defined as an accessory penalty for the commission of an offense,
which deprives the offender during the time of his sentence of the rights of parental authority,
or guardianship, either as to the person or property of any ward, of marital authority, of the
right to manage his property and of the right to dispose of such property by any act or any
conveyance inter vivos.33
“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.34
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.35

Case: On July 25, 1984, LJ Villa, Carmen Jose and Jess Jose formed a partnership with a capital
of 5750,000 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 5250,000. After Jess Jose withdrew from the partnership on
January 15, 1987, his capital contribution of 5250,000 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 his capital contribution of 5250,000. When was the partnership dissolved? Is
it possible for Mr. Donald Ramses to be entitled for the amount of 5250,000 which is the return
of his capital contribution?
29
30
31
32
33
Article 34, Revised Penal Code.
34
Barron’s Legal Guides Law Dictionary, 5th Edition.
35
The Law on Partnerships and Private Corporations, by Hector S. de Leon, 1997 Edition, p. 109.
43
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 5250,000.00.
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.36
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.

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.

Case: Angela, Boni and Christine formed ABC Company contributing the following: (a)
Angela = 550,000; (b) Boni = 520,000; and (c) Christine = 510,000. The partnership is indebted
to the following: (a) Xeres = 560,000; (b) Yangco = 520,000; and (c) Christine (partner of ABC
Company) = 510,0000. Gross capital upon dissolution is 5250,000. In case of liquidation, how
much should Xeres recover? In case of liquidation, how much should Yangco recover? In case
of liquidation, how much should Christine (a partner of ABC Company) recover? Explain in
detail the order of liquidation.
36
Luzviminda J. Villareal et al. vs. Donaldo Efrén C. Ramirez et al., G.R. No. 144214. July 14, 2003.
44
Legal Opinion:
Gross Capital 5 250,000
Those owing to creditors
Xeres 5 60,000
Yangco 5 20,000 5 80,000
5 170,000
Those owing to partners
other than capital and profit
Christine 5 10,000 5 10,000
5 160,000
Those owing to partners with respect
their capital
Angela 5 50,000
Boni 5 20,000
Christine 5 10,000 5 80,000
5 80,000
Those owing to the partners with respect to profits
Angela – 5/8 of 5 80,000 = 5 50,000
Boni – 2/8 of 5 80,000 = 5 20,000
Christine –1/8 of 5 80,000 = 5 10,000
5 80,000
xxx
Xeres may recover a total amount of 560,000.00. Yangco may recover a total amount of
520,000.00. Christine may recover a total amount of 530,000.00.
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 partners.
(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.
45
The above provision expressly provides for priority in the distribution of assets after
dissolution 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.

Case: Angela, Boni and Christine formed Gen-Y Partnership LTD contributing 565,000 each.
Angela and Boni are general partners, while Christine is a limited partner. The gross capital
upon dissolution is 5300,000 and the liabilities are as follows: (a) Winona = 560,000.00; (b)
Xtian = 530,000; (c) Christine = (limited partner) 520,000; and (d) Angela = (general partner)
510,000. 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 557,000.00 for his return of capital. Angela should get a total amount
of 567,500.00. Christine cannot get any share in the profits because the amount of liabilities is
more than the claims of the partners.
Legal Opinion:
Step 1: Determine if there are remaining profits.
Gross Capital 5 300,000.00

Liabilities: 5 110,000.00
(Winona, Xtian & Christine) 5 190,000.00
Less: Capital Contribution (565,000 x 3) 5 195,000.00

Profits –5 5,000.00
Step 2: Liquidate the partnership.
Gross Capital 5 300,000.00

Outside Creditors
Winona (Outside Creditor) 5 60,000
Xtian (Outside Creditor) 5 30,000
Christine (Limited Partner) 5 20,000 5 110,000.00
5 190,000.00
Return of Capital of Limited Partner
Christine 5 65,000.00
5 125,000.00
46
Other Creditors
Angela (General Partner) 5 10,000.00
5 115,000.00
Return of Capital of General Partner
Angela 557,500
Boni 557,500 5 115,000.00
Case: Angela, Boni and Christine formed AB Ltd. Angela and Boni are general partners who
contributed 545,000.00 each; and Christine, the limited partner contributed 560,000.00. The
partners’ profit and loss sharing distribution are as follows: (a) Angela = 25%; (b) Boni = 50%;
(c) Christine = 25%. Total assets consisting of cash upon dissolution is 5430,000.00 and the
liabilities are the following: (a) Angela (general partner) = 520,000; (b) Christine (limited
partner) = 550,000; (c) Diane (outside creditor) = 5100,000; and (d) Edgar (outside creditor) =
550,000. Liquidate.
Legal Opinion:
Step 1: Determine if there are remaining profits.
Assets 5 430,000
Less: Liabilities 5 220,000
5 210,000
Less: Capital Contribution 5 150,000
Profits 5 60,000
Step 2: Liquidate the partnership.

Assets 5 430,000.00
Outside Creditors
Diane = 5100,000
Edgar = 550,000
Christine (limited partner) = 550,000 5 200,000.00
5 230,000.00
Christine’s share in the profts (25% of 560,000) 5 15,000.00
5 215,000.00
Christine’s share in capital contribution
(560,000) 5 60,000.00
5 155,000.00
Inside Creditors (General Partner) Angela 5 20,000.00
5 135,000.00
General partners’ share in the Profits
A (25% of 560,000) 515,000
B (50% of 560,000) 530,000 5 45,000.00
5 90,000.00
47
General partners’ share in the Capital Contribution
A (545,000)
B (545,000) 590,000
0
Law on Corporation
The Law
Sec. 2. Corporation defined. – A corporation is an artificial being created by operation
of law, having the right of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence.

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. 37 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. 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 temporalities of any religious denomination, sect or
church. In this corporation, there is only one incorporator.
(h) Eleemosynary Corporation – one organized for a charitable purpose.
37
Section 3, Corporation Code of the Philippines.
48
(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
than 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
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
a corporation can only be dissolved with the consent of the state.
49
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
(1) 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 25% 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, 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 55,000.00.38
(2) 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.)
(3) Payment of the filing and publication fee (Section 139, Corporation Code);
(4) The issuance by the Securities and Exchange Commission of the certificate of
incorporation.
Contents of the Articles of Incorporation39

(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.40
38
Sec. 13, Corporation Code of the Philippines.
39
See Section 14, Corporation Code of the Philippines.
40
50
(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.41
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.42
(6) The names, nationalities and residences 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.43
(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 55,000.44
Sample Format:
(Articles of Incorporation – Airline Transportation Business)
ARTICLES OF INCORPORATION
OF
__________________________ Airlines, Inc.

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
41
Philippine Legal Encyclopedia, by Jose Agaton Sibal, 1986 Edition, p. 417.
42
43
Sections 23 and 27, Corporation Code of the Philippines.
44
51
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.
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.
FIFTH: That the names, nationalities and residences 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 said Corporation who shall act as such
until their successors are elected and have qualified as provided for in the by-laws are as
follows:
______________________ _____________ ____________________________
______________________ _____________ ____________________________
______________________ _____________ ____________________________
SEVENTH: That the authorized capital stock of the Corporation is

(P ) Pesos in lawful money of the Philippines, divided into
(_________) shares with the a par value of (P ) Pesos per
share.
EIGHTH: 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 Amount Paid-In
Subscribed
___________________________ _______________ __________________
___________________________ _______________ __________________
___________________________ _______________ __________________
(Here, it is important that 60% of the authorized capital stock is owned by Filipino
citizens.)
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 for 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.
52
ELEVENTH: That the corporation manifests its willingness to change its corporate name
in the event another person, firm or entity 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)

__________________________ __________________________
(Acknowledgment)
(Acknowledgment by Individuals - Multi-Party Instrument)

CITY/MUNICIPALITY OF ______) SS.
ACKNOWLEDGMENT
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. _________________________ _______________ _________________________
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, consisting of only
______________ (_____) page/s, including this page in which this Acknowledgment is written,
duly signed by them and their instrumental 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
53
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
traveling 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.
FIFTH: That the names, nationalities and residences of the incorporators are as follows:
______________________ _____________ ____________________________
______________________ _____________ ____________________________
______________________ _____________ ____________________________
SIXTH: That the number of directors of the Corporation shall be five (5) and that the
names, nationalities and residence of the Directors of said Corporation who shall act as such until
their successors are elected and have qualified as provided for in the by-laws are as follows:
______________________ _____________ ____________________________
______________________ _____________ ____________________________
______________________ _____________ ____________________________
SEVENTH: That the authorized capital stock of the Corporation is

(P ) Pesos in lawful money of the Philippines, divided into
( ) shares with the a par value of (P ) Pesos per
share.
EIGHTH: 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 Amount Paid-In
Subscribed
___________________________ _______________ __________________
___________________________ _______________ __________________
___________________________ _______________ __________________
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 for the benefit of the corporation, all subscriptions paid by the subscribers.
54
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 entity 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)

________________________ ________________________
(Acknowledgment)
(Treasurer’s Affidavit with Authority to

Examine Bank Account)
Province of ____________________) S.S.
City/Municipality of _____________)
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 (25%) percent of the authorized capital stock has been subscribed and at
least twenty-five (25%) 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 __________________________ (5_____________) representing the paid-
up capital of the said corporation which is in the process of incorporation. This authority is
valid and inspection 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
of accounts of the corporation as well as supporting papers to determine the utilization and
disbursement of the said paid-up capital.
TREASURER-IN-TRUST
55
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
(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
56
form and design as may be determined by the Board of Directors and numbered consecutively.
The certificates, which must be issued in consecutive order, shall bear the signature of the
President, mutually countersigned by the Secretary or Assistant Secretary, and 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, sold, ceded, assigned or pledged
by delivery of the certificates duly endorsed by the stockholder, his attorney-in-fact, or other
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.
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
of stockholders, 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.
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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.
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-
fact. 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;
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,
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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
or 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 for the discharge of the obligations of the corporation as they mature,
including payment for 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 subdelegate), 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 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, after
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.
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Section 5. Notice. Notice of the regular or special meeting of the Board specifying the
date, time 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
Incorporation 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 is 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 (10%) 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.
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;
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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 all 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;
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 III of the Articles of Incorporation. The corporation may have such other 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, verify 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
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basis of outstanding stock held by them, as often and 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 of 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.
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:
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(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. 45
(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.46
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.47

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 x x.”
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 F. 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.
45
Commercial Law Review, by Cesar L. Villanueva, 2004 Edition, pp. 645-646.
46
Sec. 34, Corporation Code of the Philippines.
47
Philippine Trust Company vs. Rivera, 44 Phil. 469 [1923].
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Do the board of the directors of Alfa Hotel Corporation automatically cease to become
board of directors upon the execution of the voting trust agreement to Bank of the Philippines,
Inc.?
Are the board of directors of Alfa Hotel Corporation still liable to third persons upon the
execution of the voting trust agreement?
Legal Opinion: Upon the execution of the voting trust agreement transferring the shares to
a trustee (Bank of the Philippines, Inc.), the board of the directors of Alfa Hotel Corporation
already ceased to be such, having lost legal title over the shares. Therefore, the board of directors
of Alfa Hotel Corporation can no longer be liable to third persons for they are no longer the
proper party in interest against whom third persons may file a claim. In this case, the trustee
(Bank of the Philippines, Inc.) shall be the proper party in interest against whom third persons
may file a claim.48
Dissolution of a Corporation
Corporations are dissolved as follows:

(1) Voluntarily, by filing the proper papers with the Securities and Exchange Commission.
No hearing is required if there are no creditors affected but a hearing is required where
creditors are affected.
(2) Involuntarily upon verified complaint filed with the Securities and Exchange Commission,
upon notice and hearing, and on grounds authorized by law as in the following:
(a) Fraud or misrepresentation as to the paid up capital of the corporation;
(b) Ultra vires acts which are persistent despite SEC warnings (Republic vs. Security
Credit & Acceptance Corporation, 19 SCRA 58 [1967]);
(c) Continuous inactivity of the corporation for at least 5 years;
(d) Refusal to adopt or approve by-laws (P.D. 902-A); and
(e) Serious dissension in the corporation.
(3) Expiration of the term of the Corporation;
(4) Shortening of the corporate term under Sec. 120 of the Corporation Code;
(5) Failure to organize and commence business within two (2) years from the date of issuance
of certificate of incorporation; or
(6) Legislative dissolution.49
Corporate Liquidation
After the dissolution of the corporation, it continues to exist as a body corporate, but only
for the purpose of enabling it to settle and close its affairs but not for the purpose of continuing
the business for which it was established. The liquidation of partnership affairs shall be for a
period of three (3) years.50
A dissolved corporation cannot extend corporate life during the 3-year liquidation
period by amendment of its articles of incorporation extending corporate term.51 However, if
a corporation has a pending case which it filed during the 3-year liquidation period and it is
48
Ramon C. Lee et al. vs. The Hon. Court of Appeals et al., G.R. No. 93695, February 4, 1992.
49
The Corporation Code Explained, by Jose N. Nolledo, 1994 Reprint, p. 154.
50
51
Alhambra Cigar vs. Securities and Exchange Commission, 24 SCRA 269 [1968].
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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.52 Finally, it has been
held that even after the lapse of the 3-year liquidation period, the officers and 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.53
Government Requirements in Doing Business as a Partnership or Corporation
Requirements for Registration of Business Name under DTI

• 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
• Articles of Partnership; Articles of Incorporation and By-laws
• 5500 Annual Registration Fee
Requirements for Registration of at the Social Security System

• To acquire an SSS Number and PhilHealth Number
• Business Permit from the Local Government Unit concerned;
• Articles of Partnership; Articles of Incorporation and By-Laws
1. What is the concept of partnership?

2. How does a partnership differ from a corporation?
3. What are the different kinds of partnership?
52
National Abaca Corporation vs. Pore, 2 SCRA 89 [1961].
53
Tan Tiong Bio vs. BIR, 100 Phil. 86 [1956].
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4. What are the advantages of a partnership? What are the disadvantages of a partnership?
5. What are the advantages of 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.
Serendipity Walk
Walk outside the campus perimeter for 10 minutes and make
the following observations.
• What establishments around the campus are
partnerships and corporations?
• What are your assumptions?
• Would it be more advantageous if an entrepreneur formed a
corporation?
EntrePinoy Icon
Invite in your class a community-based entrepreneur
who has built his or her business as either a partnership or
corporation.
• How did the entrepreneur start the business?
• What were the contributions of the partners or
incorporators?
• How do they divide profits?
• What problems do they encounter in the business?
How do they solve them?
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Top 1,000 Corporations
Try to get a listing from the Internet of the top
1,000 corporations in the Philippines.
• Identify companies that are affiliated with
one another.
• What is an affiliate?
RESEARCH PROJECT
In 2006, Ayala Hotels Corporation sold its entire equity on the
Makati Property Ventures, the owners of Oakwood Premier Ayala Center, a
serviced apartment in the central business district, to a Singapore company.
Oakwood is best remembered for the failed mutiny several years back. Surf
the Internet under the heading “Ayala Sells Oakwood to Ascott.” Discuss
in class how corporations sell their shares of stock as an exit strategy. Do
you think Ayala Hotels Corporation did the right decision? Why? What
are the possible reasons for selling a profitable property in a prime location
like Oakwood? Do you think the property will be more profitable with the
brand Ascott after the takeover? Justify your answer.
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Chapter 5 Law on Sales, Agency
and Credit Transactions
Agents should ideally work for the best interest of the client. Because of the trust given them, agents
initiate actions, administer, and collect on behalf of the client. (Elizabeth Weintraub)
Case of Ballroom Dancing on Credit

A socio-civic club in Batangas embarked on a fund-raising project,
ballroom dancing in a prominent hotel in the province charging 51,000 per
plate. They commissioned Ms. Eloisa Chua, a reputable event organizer, to
fix everything on behalf of the club. The club members will pay their tickets
to Ms. Chua’s company which in turn will settle all obligations to the
hotel, the band, and audio technicians. The minimum guaranteed number
of persons to attend is 300 as stipulated in the banquet agreement signed
by Ms. Chua and the hotel sales manager, Ms. Becky So. On the day of the
event, the Agoncillo Tent of the hotel collapsed due to strong winds and
the hotel did not have any alternative venue. Ms. So, at the last minute,
arranged the transfer of the venue to another hotel, 200 meters away from
the original venue. Ms. Chua was flabbergasted because it was a far cry
from the original plan. There was no other better venue that they can think
of. The event pushed through but many of the 500 guests were disappointed
with the substandard food and venue. Ms. Chua paid only 575,000 to the
hotel. The balance of 5225,000 was unpaid. This was reflected in the books
of the hotel as long outstanding accounts receivable for over 12 months.
What are the remedies of the hotel? Can Ms. Chua be forced to pay the full
amount despite the substandard service and change of venue? What is the
best solution to amicably settle the dispute of both parties? What are the
possible consequences of this solution?
It is important to acquire knowledge on the different provisions
involving sales, agency and credit transactions. The law governing this
chapter is the Civil Code of the Philippines.
Learning Objectives
• Describe and explain the nature of sales transactions
• Identify the functions and operation of agencies in the industry
• Identify ways of handling credit transactions
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.
69
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.

Characteristics of a Contract of Sale
(1) Consensual – A contract of sale is perfected by mere consent. No form is prescribed for the
perfection in a contract of sale, except in the following instances:
a) Those covered under the Statute of Frauds which must appear in writing, otherwise,
the sale is considered unenforceable (i.e., Sale of real property or any interest therein;
and Sale of chattels or goods for a price not less than 5500.00).1
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
(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.3
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.4
The following are disqualified to enter into a contract:
(a) Husband and Wife.5 – 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.6
(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;
1
Article 1403 (2), Civil Code of the Philippines.
2
3
4
5
Article 1490, Civil Code of the Philippines
6
Article 1409 [7].
70
[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 administration;
[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 intrusted to them; x x x.
[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. x x x.
[vi] Any others especially disqualified by law.7
Contracts entered in violation of the above shall render the contracts void by reason of
public policy8 and because such contracts are also expressly prohibited by law.9

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.10
(2) Object or Subject Matter – The requisites are as follows: (a) it must be existing11 or possible;
(b) it must be licit12; and (c) it must be determinate.13 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. 14
7
8
Refer to Rubias vs. Batiller, May 29, 1973, 51 SCRA 120.
9
Article 1409 [7].
10
Pepito S. Pua et al. vs. The Hon. Court of Appeals et al., G.R. No. 134992. November 20, 2000.
11
12
13
14
Gonzales et al. vs. Trinidad et al., G.R. No. 45965, April 29, 1939.
71
Case: Mr. Danilo Santos bought 10 boxes of Fundador Brandy at a price of 510,000 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 Mr. Danilo Santos to sell the 10 boxes of Fundador Brandy at a price of 510,000 pesos
per box and when Mr. Danilo Santos agreed to buy the said 10 boxes of Fundador Brandy at the
price of 510,000 pesos per box. The object or subject matter refers to the 10 boxes of Fundador
Brandy and the price of 510,000 pesos per box. As to the seller, the cause is the price of 510,000
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. (n)

(1) If the thing is lost before perfection of the contract. The contract is considered inexistent,15
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.16 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.17
(4) If the 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.18 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.19
15
Article 1409 (3), Civil Code of the Philippines.
16
17
18
19
Civil Code of the Philippines Vol .V, by Arturo Tolentino, 1992 Edition, pp. 27-28.
72
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 (537,758.60) 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. In
this regard the parties agreed that Spouses Bernal would pay the amount of the promissory
note to Jardine-Manila Finance, Inc., the latter being the assignee of Union Motor Corporation.
To effectuate the sale as well as the assignment 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 (510,037.00) 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 downpayment 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 for the approval of the application to buy the subject motor
vehicle. The documents were not therefore an acknowledgment by the spouses of the physical
acquisition of the subject motor vehicle but merely a requirement of Union Motor Corporation
so that the said subject motor vehicle would be delivered to the buyers.
The registration certificate signed by Spouses Bernal does not conclusively prove that
constructive delivery was made 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.20
Sale of Personal Property Payable in Installments

It is possible that in buying personal properties used for public transportation or delivery
of goods (i.e., buses, cruise ships, FX and delivery trucks) this provision will be useful for the
contracting parties in case of sale of personal properties payable in installments.
The Law
Article 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation should the vendee fail to pay;
(2) 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)
20
Union Motor Corporation vs. The Court of Appeals, G.R. No. 117187, July 20, 2001.
73
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).
If the sale is for cash or on straight terms (here after an initial payment, the balance is
paid in its totality at the time specified), Article 1484 does not apply.

Case: On April 17, 1980, PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan
of US $267,881.67, or the equivalent of 52,000,000.00 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 extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public
auction, purchased the foreclosed properties for a sum of 5322,350.00. On June 29, 1984, DBP filed
a complaint for the collection of the balance of 54,366,332.46 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, 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
installments.21
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 544,616.24, Philippine Currency, payable
in installments of 51,487.20 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 544,616.24. To secure the payment of the promissory note, Cruz executed in favor of
the seller Far East Motor Corporation, a chattel mortgage over the aforesaid motor vehicle. As
no down payment was made by Cruz (the seller) Far East Motor Corporation required Cruz an
additional security for his obligation besides the chattel mortgage, of which Cruz agreed. The
additional security 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
21
PAMECA Wood Treatment Plant, Inc. vs. Herminio G. Teves et al., G.R. No. 106435. July 14, 1999.
74
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 installments stipulated in the promissory note, except for the payment of 5500.00.
In this regard, Filipinas Investment and Finance Corporation took steps to foreclose the
chattel mortgage on the bus. The proceeds of the sale of the bus after the foreclosure of the
chattel mortgage 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
balance for this will be in violation of Article 1484 (3), Civil Code of the Philippines. This
provision prevents mortgagees from seizing the mortgaged property, buying it at foreclosure
sale 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).22
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.
The Law
Article 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith 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)

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.

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
15 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, Gregorio, Filomeno
and Domingo offered no objection as evidenced by their Joint Affidavit dated 14 August 1957.
The deed of sale was not registered with the Office of the Register of Deeds of Isabela. However,
Giron declared the property for taxation purposes in her name on March 1964. In a Deed of Sale
dated 15 June 1976, the Madrid brothers conveyed all their rights and interests over Lot No.
22
Ruperto Cruz et al. vs. Filipinas Investment and Finance Corporation, G.R. No. L-24772, May 27, 1968.
75
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.23
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)

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.24

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 when should Mr. Aldeguer
have the privilege to redeem his property from Don Victor Diangson?
23
Consolidated Rural Bank (Cagayan Valley) Inc. vs. The Hon. Court of Appeals,G.R. No. 132161, January 17, 2005.
24
76
Legal Opinion: Mr. Aldeguer may redeem his property within a period of four years from the
date of the contract, in the absence of any agreement.25
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 x x.
Article 1497. The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee (1462a).

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).26
When goods are delivered to the buyer “on sale or return” to give the buyer an option to
return the goods instead of paying the price, the ownership passes to the buyer on delivery, but
he may revest the ownership in the seller by returning or tendering the goods within the time
fixed in the contract, or if no time has been fixed, within a reasonable time. When goods are
delivered to the buyer “on approval” or “on trial” or other similar terms, the ownership passes
to the buyer: (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.27
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 C.I.F. (Cost, Insurance and Freight) agreement, delivery to the buyer is complete upon
the delivery of the goods to the carrier and tender of the shipping and other documents required
by the contract and the insurance policy taken in the buyer’s behalf. The parties may however
agree by making the buyer’s obligation depend only upon arrival and inspection of the goods,
in which case, the risk is thrown upon the seller until arrival at the port of destination.
F.O.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 “F.O.B. destination point,” the seller is required to bear
the transport until the buyer’s point of destination.28 If no designation in the F.O.B. agreement is
specified, it is understood that the seller’s factory shall be the place of delivery.
25
26
Civil Code of the Philippines Vol. V, by Arturo Tolentino, 1992 Edition, pp. 50-51.
27
28
Barron’s Legal Dictionary, 5th Edition, p. 217.
77
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.29
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 for 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.30 Generally, the period of prescription is six months.31 However, in redhibitory
actions against on the faults or defects of animals, the period is forty days.32 The period must
be counted from the date of delivery to the vendee.
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.

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).
29
30
Article 1567, Civil Code of the Philippines
31
32
78
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

Case: Nenita’s Seafood Mart (NSM) is 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 of 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? If the hotel is forced to accept the deliveries as
commitment has been made on the menu for banquet functions scheduled for the next day, can
the hotel recover damages, i.e., in the form of a discount?
Legal Opinion: Yes, the hotel may, as one of the remedies, reject improper deliveries. If the hotel
can no longer change the menu for a banquet commitment, and is forced to accept the seafood
products, damages may be sought. Alternatively, discount on the price may be sought.
Law on Agency
The hotel, 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).

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.33
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. 34
An agency is distinguished from the lease of work or services in that the basis of agency
is representation, while in the lease of work or services (such as architect, construction building
worker, painter, physician, professor, employees and house helpers) the basis is employment.
33
Barron’s Law Dictionary, by Steven H. Gifis, Fifth Edition, p. 19.
34
Rallos vs. Felix Go Chan & Sons Realty Corporation, 81 SCRA 251.
79
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 destined to execute
juridical acts (creation, modification or extinction of relations with third parties). Lease of
services contemplates only material (non-juridical) acts.

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
574,322.70. Estela was given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because Estela’s niece, Meriam Menor, was Caravan Travel’s
ticketing manager.
Pursuant to said contract, Meriam went to her aunt’s residence on June 12, 1991 – a
Wednesday – to deliver petitioner’s travel documents and plane tickets. Estela, in turn, gave
Meriam the full payment for the package tour. Meriam then told her to be at the Ninoy Aquino
International Airport (NAIA) two hours before her flight on board British Airways.
Without checking her travel documents, Estela went to NAIA on Saturday, June 15, 1991,
to take the flight for the first leg of her journey from Manila to Hong Kong. To Estela’s dismay,
she discovered that the flight she was supposed to take had already departed the previous day.
She learned that her plane ticket was for the flight scheduled on June 14, 1991. Thus, she called
up Meriam to complain.
Subsequently, Meriam prevailed upon Estela to take another tour – the “British Pageant.”
For this tour package, Estela was asked anew to pay US$785.00 or 520,881.00 (at the then
prevailing exchange rate of P26.60). She gave Caravan Travel through Meriam US$300 or
57,980.00 as partial payment and commenced the trip in July 1991.
Upon Estela’s return from Europe, she demanded from Caravan Travel the reimbursement
of 561,421.70, 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 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. 35
35
Estela L. Crisostomo vs. Court of Appeals & Caravan Travel & Tours International, Inc., G.R. No. 138334, August 25, 2003.
80
Case: On September 18, 1981, Daniel Chiok (Chiok) purchased from China Airlines, Ltd. (CAL
for brevity) an airline passenger ticket for air transportation covering Manila-Taipei-Hong
Kong-Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL).
Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using
the CAL ticket. When he arrived in Taipei, he went to the CAL office and confirmed his Hong
Kong to Manila trip on board PAL Flight No. 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 director of the Philippine Polysterene Paper Corporation,
he had to reach Manila on November 25, 1981 because of a business option which he had to
execute on said date.
On November 25, 1981, Chiok went to the airport. Carmen Chan (hereafter referred to
as Carmen), PAL’s terminal supervisor, informed Chiok that his name did not appear in PAL’s
computer list of passengers and therefore could not be permitted to board PAL Flight No. 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 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)
Taipei $8,000.00; (d) 52,000.00; (e) a three-piece set of gold (18 karats) Cross pens valued at
53,500; (f) a Cartier watch worth about 57,500.00; (g) a tie clip with a garnet birthstone and
diamond worth 51,800.00; and (h) a [pair of] Christian Dior reading glasses. Subsequently, he
was placed on stand-by and at around 7:30 p.m., PAL personnel informed him that he could
now check-in.
Consequently, Chiok filed a Complaint on November 9, 1982 for damages against PAL
and CAL. In its defense, CAL does not admit liability because it merely acted as an issuing
agent for the ticket covering the Hong Kong-Manila leg of Chiok’s journey.
What is the nature of liability of China Airlines (CAL)?
81
Legal Opinion: A common carrier has a peculiar relationship with and an exacting responsibility
to its passengers. For reasons of public interest and policy, the ticket-issuing airline (CAL) acts
as principal in a contract of carriage and is thus liable for the acts and the omissions of any
errant carrier (i.e. PAL) to which it may have endorsed any sector of the entire continuous trip.
It is significant to note that the contract of air transportation was between CAL and Chiok,
with the former endorsing to PAL the Hong Kong-to-Manila segment of the journey. Such
contract of carriage has always been treated in this jurisdiction as a single operation. This
jurisprudential rule is supported by the Warsaw Convention, to which the Philippines is a
party, and by the existing practices of the International Air Transport Association (IATA). In
American Airlines 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 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 undertaken to carry the passengers to one
of their destinations.36
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 requisites concur:
i) The contractor has substantial capital or investment which relates to the job, work or
service to be performed and the employees recruited, supplied or placed by such
contractor are performing activities which are not directly related to the main business of
the principal, or
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, work
or service contracted out.
36
China Airlines vs. Daniel Chiok, G.R. No. 152122, July 30, 2003.
82
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.37
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
in the same manner and extent as if the latter were directly employed by him.
In legitimate labor contracting, the law creates an employer-employee relationship
for a limited purpose, i.e., to ensure that the employees are paid their wages. The principal
employer becomes jointly and severally liable with the job contractor, only for the payment
of the employees’ wages whenever the contractor fails to pay the same. Other than that, the
principal employer is not responsible for any claim made by the employees.
In labor-only contracting, the statute creates an employer-employee relationship for a
comprehensive purpose to prevent a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is responsible to the employees of
the labor-only contractor as if such employees had been directly employed by the principal
employer. 38
Liability of the Principal and the Agent
The Law
Article 1883. If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither have such persons against
the principal.
In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involved things
belonging to the principal.

When an agent transacts business in his own name, it shall not be necessary for him to
state the name of the principal, and he shall be directly liable, as if the business were for his
own account to the persons with whom he transacts the same. Moreover, an agent is personally
liable for acts beyond the scope of his authority, and for acts in violation of the terms of the
written authority.
When it is clear that the agent is acting only in behalf of a disclosed principal, the agent
cannot be held personally liable on the contract entered into in such manner.
Law on Credit Transactions

Companies in the tourism industry are likely to face debts. That is why it is important
to know the different ways in handling debts in relation to third persons as well as credit
transactions emanating within their respective companies.
37
Section 5, Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18.
38
San Miguel Corporation vs. Prospero A. Aballa et al., G.R. No. 149011, June 28, 2005.
83
The Law
Article 1933. By a contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and return
it, in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called loan or mutuum.
Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a
stipulation to pay interest.

Commodatum is a loan for use wherein the property lent must be returned. Commodatum
is essentially gratuitous. For example, when Mr. Smith, a visiting tourist borrowed the house of
Dr. Magno, and Mr. Smith was allowed its free use, Dr. Magno became a bailor in commodatum
and Mr. Smith, the bailee.
Simple loan or mutuum is simply the delivery of sum of money to another under a
contract to return at some future time an equivalent amount with or without an additional sum
agreed upon for its use.39 It is a transaction wherein the owner of the property, called the lender,
allows another party, the borrower, to use the property. The borrower customarily promises
to return the property after a specified period with payment for its use, called interest. The
documentation of the promise is called a promissory note when the property is cash.40
The credit of an individual means his ability to borrow money by virtue of the confidence
and trust reposed by a lender that he will pay what he may promise. The concession of a
“credit” necessarily involves the granting of “loans” up to the limit of the amount fixed in the
credit.
Simple Loan or Mutuum
The Law
Article 1956. No interest shall be due unless it has been expressly stipulated in
writing.

(1) In a contract of loan, if a particular rate of interest has been expressly stipulated by
the parties, such stipulated interest shall be applied. If the exact rate of interest is not
mentioned, the legal rate shall be payable (which is 12% per annum under Sec. 1 of the
Usury Law).
(2) It is only in contracts of loan, with or without security, that interest may be stipulated and
demanded.
(3) The debtor in delay is also liable to pay legal interest by way of indemnity for damages,
which legal interest may be agreed upon, and in the absence of any stipulation, the legal
interest shall be 12% per annum.41
39
Barron’s Law Dictionary, by Steven H. Gifis, Fifth Edition, p. 301.
40
Barron’s Financial Guides, Dictionary of Finance and Investment Terms.
41
Article 2209, Civil Code of the Philippines (as amended by Central Bank Circular No. 416 dated July 29, 1974 and No. 905 dated December
10, 1982).
84
(4) In all cases, interest due shall earn legal interest from the time it is judicially demanded
although the obligation may be silent upon this point. By virtue of Central Bank Circular
No. 416 dated July 29, 1974 and No. 905 dated December 10, 1982, the legal rate has been
increased from 6% to 12% per annum.

Case: Under a written contract of loan, Mr. Danny Congo obliged himself to pay Bank of the
Philippine Islands the sum of 510,000.00 at 18% interest per year.42 If Mr. Congo incurs delay
in payment, will he be obliged to pay interest?
Legal Opinion: In case Mr. Congo incurs in delay, he is liable to pay the interest agreed upon
by way of indemnity for damages (if any) aside from the use of the money (which is 18%).43 If
nothing was mentioned about the payment of interest for the use of money, no interest is due.
In case Mr. Congo incurs delay, he is liable to pay interest at the legal rate of 12% per annum
from the date of delay.44 If the interest was judicially demanded (by way of filing a complaint
in court), the interest due as mentioned in the above shall earn legal interest (12% per annum)
from the time interest has been due until payment is made.45
Nature of Bank Deposits

It is clear from Article 1980 of the Civil Code of the Philippines that fixed, savings and
current deposits of money in banks and similar institutions shall be governed by the provisions
of the Civil Code concerning simple loan (mutuum). Hence, a debtor-creditor relationship
exists between a bank and a depositor. That is why compensation may take place where a bank
may validly debit the account of its depositors who are indebted to the bank by way of loan.
Real Estate Mortgage and Chattel Mortgage

Valuable properties in the form of movable and immovable properties may be used as
collaterals in order to obtain a contract of loan. Hence, it is important to understand basic
principles 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 for 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 immovables.46
42
43
44
45
46
Articles 2085, 2087, 2124, Civil Code of the Philippines.
85
By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register as
a security for the performance of an obligation. If the movable, instead of being recorded, is
delivered to the creditor or a third person, the contract is a pledge, not a chattel mortgage.47 In
case there is a deficiency in such a way that the proceeds of the sale are not enough to pay the
principal obligation during foreclosure proceedings, the creditor may file a separate case for
the recovery of the deficiency. However, this will not apply in case the principal contract that was
entered is a sale of personal property payable in installments (Recto law) not a contract of loan.
A chattel mortgage and a real estate mortgage may be distinguished in the following
ways:
(1) In a chattel mortgage, the subject matter is personal property, whereas in a real estate
mortgage, the subject matter is real property.
(2) In a chattel mortgage, the requirement of registration is essential for the validity of
the contract; in a real estate mortgage, the requirement of registration is merely for the
purpose of binding third persons.
(3) The procedure for foreclosure of a chattel mortgage is different from the procedure for
foreclosure of a real estate mortgage.
Pactum Commissorium
The Law
Article 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void. (1859a)

Pactum Commisorium is defined as a stipulation giving power to the creditor to
automatically appropriate the thing given as security, if the principal obligation is not fulfilled
without any formality, such as foreclosure proceeding and public sale.48

Case: Don Juan borrowed 51,500,000 from the Bank of the Philippine Islands in order to start his
restaurant business. Don Juan executed a chattel mortgage with his BMW car valued at 52.5M
as the security for the debt. It was expressly stipulated in the contract that if Don Juan cannot
pay his debt when it matures, “the debt of 51,500,000 shall be considered as full payment of the
BMW car without further action.” In case Don Juan was unable to pay the loan, can the Bank
of the Philippine Islands appropriate the car based on the stipulation?
Legal Opinion: No, the Bank of the Philippine Islands cannot appropriate the thing. Such
stipulation constitutes pactum commissorium which is expressly prohibited under the law.49
Case: Don Juan borrowed 51,500,000 from Bank of the Philippine Islands to start his restaurant
business. Don Juan executed a chattel mortgage with his BMW car valued at 52.5M as the
security for the debt. It was expressly stipulated in the contract that if Don Juan cannot pay
his debt when it matures, “Don Juan shall execute a deed of absolute sale of the car in favor of
Bank of the Philippine Islands.” In case Don Juan was unable to pay the loan, can the Bank of
the Philippine Islands appropriate the thing based on the stipulation?
47
48
49
86
Legal Opinion: Yes, such stipulation is valid. There is no automatic transmission of the right of
ownership over the thing which is given by way of chattel mortgage, but merely a promise to
constitute an assignment of property. What is prohibited by law is the automatic transmission
of the right of ownership over the thing which is given by way of mortgage.50
1. What is a concept of a contract of 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 of 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?
16. What does “ right to control” mean?
17. What is a legal independent contractor?
18. What is the most distinctive feature of an agency relationship?
Story of Three Agents
Invite a travel agent, an insurance agent and a manpower
recruitment agent to a class symposium. Find out the following
from each one of them.
• What is the nature of their work?
• How do they earn?
• What concerns do they have in their businesses?
50
Juan Dalay vs. Bernardo Aquiatin et al., G.R. No. 20132, September 22, 1923.
87
Brainstorming
Divide the class in 5 teams. In 5 minutes, each team should
write down on a sheet of paper:
• What are the different ways agencies can be useful
to companies engaged in tourism, travel and
hospitality?
The team with the most answers wins the exercise.
Accountants Know What’s Best

Interview an accountant and ask the following questions:
• What are the possible ways to extinguish an accounts
receivable from a client?
• What are the advantages and disadvantages of each
remedy?
• How can a company prevent bad debts?
RESEARCH PROJECT
Interview a hotel or restaurant manager and find out the following:
• What kinds of agencies does the hotel or restaurant transact with?

• Why do hotels or restaurants utilize agencies?
• What are short-term and long-term effects of utilizing agencies?
Discuss your findings in class.
88
Chapter 6 The Tourism Public Sector
The responsibility of 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
Gordon, former Secretary of Tourism)
Case of the Overpriced Airport

The Ninoy Aquino International Airport Terminal 3 was constructed
by Japanese contractor Takenaka and was set to open in March 2007.
However, the said airport facility seeking to address the capacity problem of
the existing airport terminals has been besieged with two major problems.
First, the alleged overpricing of the NAIA Terminal 3 by $140 million has
led to a cabinet-level probe. Takenaka priced the project at $275 million.
Fraport AG, one of the corporate outfits of the Philippines International
Airport Terminals Corporation (PIATCO) consortium which got the contract
claims that it invested $425 million in the said project. The award was later
nullified by the Supreme Court due the various changes in the concession
contracts, which the High Tribunal declared as disadvantageous to the
government. Following the High Court’s ruling, the government took over
the NAIA 3 facility, claiming that the project was tainted with massive
corruption on top of violations of Philippine laws such as the anti-dummy
law. The second problem of NAIA 3 is the substandard construction
reflected by the rapid deterioration of some parts of the unused terminal.
What lessons have we learned from this case? Can the use of the terminal
be postponed pending resolution of the investigation on the anomaly? How
can we prevent a repeat off this
h incident?
Learning Objectives
• Identify the various government agencies involved in the development and promotion of the tourism
industry as well as their functions
• Describe the relationships of these agencies with one another
• Explain the possibility of public service as a career in the industry
It was during the year 1973 when the Philippine government realized that there is need
to realign government efforts towards trade promotion and tourism development for greater
effectiveness; hence, the need for the government’s immediate and priority attention. This
gave rise to Presidential Decree No. 189 (May 11, 1973) creating the Department of Tourism
which was enacted to make the tourism industry a positive instrument towards accelerated
national development through which more people from other countries may visit and better
appreciate the country and through which the Filipinos themselves may learn more about the
natural beauty, history and culture of the Philippines and, thus, develop greater pride in and
commitment to the nation.1
1
Section 1, P.D. 189.
89
This chapter deals with particular government agencies directly involved in the promotion
of tourism in our country. Several allied government agencies may also be included in this
chapter as these agencies, though not directly involved in the promotion of tourism, tend to
provide a substantial contribution to the efficient operation of the tourism industry.
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.2
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 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.3

The power to regulate, license and supervise tour operators and accommodation facilities
have now been devolved to the local government units.4 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 (l), 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.”5
2
3
Section 4, P.D. 189, as amended by the Local Government Code of 1991.
4
Section 458 (a) 4 (iv)[12] of the Local Government Code of 1991.
5
City of Manila, Hon. Alfredo S. Lim et al. vs. Hon. Perfecto A.S. Laguio, Jr. et al., G.R. No. 118127, April 12, 2005.
90
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, 1993, 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, MTDC 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 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.6
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 P.D. 1183 as amended by P.D. 1205, Batas
Pambansa Blg. 38, and E.O. 283 on travel tax. Payment of travel taxes are coursed thru the
Bureau of Internal Revenue.7

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;
6
Ibid.
7
www.pta.gov.ph
91
(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 accelerated and balanced
growth and development of tourism in the Philippines which is responsive to the needs
of targeted travel markets here and abroad.

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 proposed 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.8
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.9
8
Heirs of Ardona vs. Reyes, G.R. No. 60549, 26 October 1983, 125 SCRA 221.
9
92
The IA has the following functions:
(a) Formulate, coordinate and/or execute policies on the implementation of all programs,
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, archaeological and other research,
and for other purposes in furtherance of its objectives;
(j) Prescribe and collect reasonable amounts to be charged as filing fees, inspection fees, permit
fees, and other administrative or service fees necessary for the effective enforcement of its
laws and regulatory measures, to be used and disbursed by it in the manner determined
by it to promote its objectives;10
10
93
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.

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.11 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 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.12 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. 13
Today, the National Historical Institute (NHI) continues to be the lead government agency
where matters of history and culture are concerned. It continues to conceive programs and
projects for the public’s appreciation of history, educating the Filipino masses on the lessons of
the past and perpetuating the memory of our illustrious heroes. Aside from commemorating
historical events and personages, conducting research and publishing scholarly works, the
Institute also maintains historical sites all over the country and is engaged in the 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.14
11
Section 3 (e), P.D. 1616, as amended by P.D. 1748.
12
P.D. 1505.
13
Section 1, P.D. 373, January 9, 1974.
14
www.nhi.gov.ph
94
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.
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.15
Philippine Amusement and Gaming Corporation (PAGCOR)

PAGCOR is a government owned and controlled corporation existing under Presidential
Decree No. 1869 issued on July 11, 1983 by President Ferdinand Marcos. Pertinent provisions
of said enabling law read:
15
www.lawphil.net
95
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:
x x x.
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: x x x (3) minimize, if not totally eradicate, the
evils, malpractices and corruptions that are normally prevalent in the conduct and operation
of gambling clubs and casinos without direct government involvement.
PAGCOR is granted for a period of twenty-five (25) years, renewable for another twenty-
five (25) years, the rights, privileges and authority to operate and maintain gambling casinos,
clubs, and other recreation or amusement places, sports, gaming pools, i.e., basketball, football,
lotteries, etc. whether on land or sea, within the territorial jurisdiction of the Republic of the
Philippines.16
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;
• Promote proper and mutual consultation with the private sector involving natural
resources development, use and conservation;
16
Senator Robert Jaworski vs. PAGCOR et al., G.R. No. 144463, January 14, 2004.
96
• 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 close
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 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.
97
• 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 to
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.17
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, waterbirds and all amphibians and dugong.
The Department of Agriculture (DA), on the other hand, shall have jurisdiction over all declared
aquatic critical habitats, all aquatic resources including but not limited to all fishes, aquatic
plants, invertebrates and all marine mammals, except dugong.18 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.19
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;
• 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;
17
Ibid.
18
Section 4, R.A. 9147.
19
98
• 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.
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. 20
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. 21
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.22 It also has the power to issue, deny, amend, revise, alter, modify, cancel, suspend or
revoke any temporary permit or Certificate of Public Convenience and Necessity (CPCN).
20
Sec. 5, Executive Order 202, June 19, 1987.
21
www.ato.gov.ph
22
Section 10 (A), Republic Act No. 776.
99
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. 23
Metro Rail Transit Corporation (MRTC). The Metro Rail Transit Corporation, Limited (MRTC)
undertook to build MRT 3 which it shall own for 25 years, after which, ownership shall be
transferred to the Philippine government in accordance with 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. The
Philippine National Railways shall not be subject to the authority and supervision of the Public
Service Commission.24
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.25
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.26
23
Section 2, Executive Order No. 603.
24
Section 15, Republic Act 4156.
25
www.lawphil.net
26
Presidential Decree No. 721, June 2, 1975.
100
Board of Investments
Under the Omnibus Investment Code of 198727, the Board of Investments (BOI) shall be
responsible for the regulation and promotion of investments in the Philippines.
The BOI shall exercise the following powers and duties:
(1) Prepare annually the Investment Priorities Plan, which shall contain a listing of specific
activities that can qualify for incentives, duly supported by the studies of existing and
prospective demands for such products and services in the light of the level and structure
of income, production, trade, prices and relevant economic and technical factors of the
regions as well as existing facilities;
(2) Promulgate such rules and regulations as may be necessary to implement the intent and
provisions of the Code relevant to the Board;
(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 capability of doing so; Provided,
27
Executive Order No. 226, July 16, 1987.
101
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
for the effective implementation of the Code;
(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 for the effective implementation of
the Code;
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(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 for the integration, coordination,
planning and monitoring of special economic zones, industrial estates/parks, export
processing zones and other economic zones;
(b) To transform selected areas in the country into highly developed agro-industrial,
industrial, commercial, tourist, banking, investment, and financial centers, where highly
trained workers and efficient services will be available to commercial enterprises;
(c) To promote the flow of investors, both foreign and local, into 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.28
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 I.T. Parks/Buildings.
For PEZA-registered enterprises under Section 23 of Rep. Act No. 7916, there are two
options with respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not
from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all
taxes, including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep.
Act No. 7916. Once the PEZA-registered enterprise avails of the income tax holiday under
E.O. 226, it is not exempt from VAT and it must register itself as a VAT taxpayer. In fine, it
is engaged in taxable rather than exempt transactions.29 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.30
28
29
Commissioner of Internal Revenue vs. Cebu Toyo Corporation, G.R. 149073, February 16, 2005.
30
Commissioner of Internal Revenue vs. Seagate Technology (Philippines) Inc., G.R. No. 153866, February 11, 2005.
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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 (IEs), Export
Processing Zones (EPZs), Free Trade Zones, and Tourist/Recreational Centers.31
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 be
appointed by the President. The director general shall be at least forty (40) years of age, of proven
probity and integrity, and a degree holder in any of the following fields: economics, business,
public administration, law, management or their equivalent, and with at least ten (10) years
relevant working experience preferably in the field of management or public administration.
The director general shall be assisted by three (3) deputy directors general each for policy
and planning, administration and operation, who shall be appointed by the PEZA Board,
upon the recommendation of the director general. The deputy directors general shall be at
least thirty-five (35) years old, with proven probity and integrity, and 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 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.32
The PEZA Board shall have the following functions and powers:33
(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;
31
Section 4(a), R.A. 7916.
32
33
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(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 (DTI), the Department of Science and Technology
(DOST), and the local government units and appropriate government agencies for policy
and program formulation and implementation; and
(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.
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 DFA became the first government department set up by following the
establishment of the First 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
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China, the Philippines projected an increasing internationalist foreign 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
free peoples. The Philippines’ greater participation in 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 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.
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President Ramos boosted foreign trade, investments and official development assistance
to the Philippines through his state visits and summit meetings. During his administration,
the Philippines actively participated in international fora 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 activities in the areas
of security, defense, combating transnational crimes, economy, culture, and the protection of
OFWs and Filipinos abroad.
As the DFA 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.34
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;
34
www.dfa.gov.ph
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• 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.35
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.
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.36
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:
1) Assess and collect lawful revenues;
2) Prevent smuggling and other frauds;
3) Control vessels/aircrafts doing foreign trade;
35
www.lawphil.net
36
www.doh.gov.ph
108
4) Enforce tariff and customs laws;
5) Control the handling of foreign mails for revenues and prevention purposes;
6) Control import and export cargoes; and
7) Jurisdiction over forfeiture and seizure cases.37
The revised Charter of the Philippine Ports Authority (PPA) which took effect on December
23, 197538, transferred the powers, duties and jurisdiction of the Bureau of Customs with regard
to arrastre and stevedoring operations to the PPA. [Pernito Arrastre Services, Inc. vs. Mendoza,
146 SCRA 430, 434 (1986).]39
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.40
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.41
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.42
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 seas and
waters subject to the jurisdiction of the Republic of the Philippines;
(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.
37
Section 602, R.A. 1937.
38
Executive Order No. 513, November 16, 1978.
39
Association of International Shipping Lines et al. vs. Philippine Ports Authority et al., G.R. 158000, March 31, 2005.
40
Section 603, R.A. 1937.
41
Section 604, R.A. 1937.
42
Section 606, R.A. 1937.
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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 P.D. No. 37 on November 16, 1972
with the intention of promoting, encouraging and initiating research and development projects and
activities in social sciences, humanities, social and amelioration and allied fields. The Foundation
is 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.
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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10. What are the functions of the National Historical Institute?
11. If an entrepreneur wants to put up a restaurant, what government agencies will he
need to seek permission and license to operate?
12. If an entrepreneur wants to put up a limousine and car service rental business, what
government agencies will he need to seek permission and license to operate?
13. Why is the Intramuros Administration important?
14. What are the objectives of the Philippine Economic Zone Authority?
15. Why is the Protected Areas and Wildlife Bureau important?
Claim to Fame
The Philippines had many secretaries of tourism in the
past 30 years. Group the class in 7 teams and each team will
research on one secretary. Discuss in class the achievements of
each of the following tourism secretaries:
• Ace Durano • Narzalina Lim
• Richard Gordon • Vicente Carlos
• Mina Gabor • Gemma Cruz-Araneta
• Jose Aspiras
Guimaras Oil Spill Debate

When an oil tanker had an accident in 2006 causing massive oil
spill affecting adversely the province of Guimaras, many were skeptical
whether tourism in the island could ever recover. Divide the class into two
groups in answering the proposition “Can Guimaras recover quickly in
this environmental disaster?”
Presidential Adviser for a Day

If you were to advise the President of the Philippines:
• What kind of laws will you propose to develop and promote further
the tourism industry?
• How can you improve the bureaucracy in government?
RESEARCH PROJECT
Research on any of the following tourism cases:
• Coliform bacteria contamination in Boracay in the 1990s
• Sale of Manila Hotel to foreign investors in the 1990s
• Quarrying of the Chocolate Hills in Bohol in the 1990s
• Pedophilia in Pagsanjan in the 1980s
Write a 150-word essay on one topic highlighting the role of the
responsible government agency.
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Chapter 7 Laws Regulating
Transportation Establishments
From the time the wheel was invented, man began to travel and explore different corners of the world.
In modern times, with the invention of the first flying machine and marine vessel, tourism started to grow
at a fast pace. Transportation as a business carries with it not only high returns but great responsibility for
many lives are at stake in this risky sector of tourism.
Case of the Overcrowded Ship

In October 1980, MV Don Juan sailed from Manila to Bacolod
carrying many Negrenses coming home for the much hyped initial
celebration of the Masskara Festival. The staff ignored the capacity
limit of the marine vessel as many students were going home for their
semestral break vacation. Halfway through the trip, MV Don Juan sank
along with hundreds of passengers. The Supreme Court ruled that the
gross negligence of the staff caused one of the worst sea disasters in
the country. Many men, women and children drowned and the entire
country mourned over the tragedy. The courts found out in the records
that MV Don Juan was overloaded when it left the Port of Manila. What
do you think are the responsibilities of marine vessel staff when selling
tickets? Why should shipping companies observe the capacity limit of the
marine vessels they operate? What kind of penalties may be imposed on
violating shipping companies? What government agency regulates the
sea worthiness of marine vessels? Give some examples of safety measures
that may be undertaken or implemented by shipping companies. Mention
other disasters at sea that has happened in the Philippines from 1980
to the present. How do these disasters differ from the MV Don Juan
experience?
Learning Objectives
• Identify the laws affecting the transportation sector
• Identify the rights of passengers of commercial transportation
• Explain the relevance of these laws to the promotion of tourism in the country
The Philippines has become one of the promising tourist destinations due to the
extraordinary hospitality of the Filipinos and the diversity of tourist attractions in the country.
However, one challenging aspect of promoting inbound tourism in the Philippines is the security
and safety issue. On one hand, some of the best transportation and travel professionals are
Filipinos, e.g., seafarers, pilots, drivers, flight attendants, cruise cabin crew, aircraft mechanics,
etc. On the other hand, some of the worst recorded transportation disasters and accidents are
in the Philippines. The transportation sector is, therefore, greatly affected by this concern. This
chapter will deal with the different laws affecting the transportation sector as they are integral
in the study of tourism.
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Law on Common Carriers
The primary law that governs common carriers is the Civil Code of the Philippines as
clearly implied from Article 1766 thereof which states that “in all matters not regulated by
this Code, the rights and obligations of common carriers shall be governed by the Code of
Commerce and special laws.”
The Law
Article 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public.

A common carrier is defined as one holding itself out to the public as engaged in the
transportation of freight or passenger for hire.1 It is one who is in the business of transporting
goods or persons for hire, as a public utility. A private carrier, in contrast, is not in the business
of transporting public employment, but hires out to deliver goods (not passengers) in particular
cases.2 Both the Civil Code and Code of Commerce give clear-cut divisions between contracts
of carriage of cargo and contracts of carriage of passengers, because the rights and defenses in
each kind of contracts are different from the other.
Application of the Law (private carrier of goods based on a charter agreement)

The MV Vlasons I is a vessel which renders tramping service and, as such, does not
transport cargo or shipment for the general public. Its services are available only to specific
persons who enter into a special contract of charter party with its owner. The terms “F.I.O.S.T.”
which is used in the shipping business is a standard provision in the NANYOZAI Charter
Party which stands for “Freight In and Out including Stevedoring and Trading,” which means
that the handling, loading and unloading of the cargoes are the responsibility of the Charterer.
And it is in the capacity that its owner, Vlasons Shipping, Inc., entered into a contract of
affreightment or contract of voyage charter hire with National Steel Corporation.
Is MV Vlasons I a common carrier or a private carrier?
Legal Opinion: MV Vlasons I is classified as a private carrier. It has been held that the true test
of a common carrier is the carriage of passengers or goods, provided it has space, for all who
opt to avail themselves of its transportation service for a fee. A carrier which does not qualify
under the above test is deemed a private carrier. Generally, private carriage is undertaken by
special agreement and the carrier does not hold himself out to carry goods for the general
public. The most typical, although not the only form of private carriage, is the charter party, a
maritime contract by which the charterer, a party other than the shipowner, obtains the use and
service of all or some part of a ship for a period of time or a voyage or voyages.3 In this regard, a
distinction must be made between a voyage-charter and a bareboat charter. In case of a voyage
charter or time-charter, the same is limited to the ship only, and its crew members are still under
the direct control of the shipowner, in which case, such ship may be classified as a common carrier.
However, a bareboat or demise charter includes both the vessel and crew under the direct control
of the charterer, in such case, the ship may already be classified as a private carrier. 4
1
2
Barron’s Law Dictionary, by Steven H. Gifis, 5th Edition, pp. 68-69.
3
National Steel Corporation vs. Court of Appeals vs. Vlasons Shipping Inc., G.R. 112287, December 12, 1997.
4
Planters Products, Inc. vs. Court of Appeals, G.R. 101503, September 15, 1993.
113
Application of the Law (private bus service for school children)
Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They used
the bus principally in connection with a bus service for school children which they operated in
Manila. The couple had a driver, Porfirio J. Cabil, whom they hired in 1981. His job was to take
school children to and from the St. Scholastica’s College in Malate, Manila. On November 2,
1984, the Word for the World Christian Fellowship Inc. (WWCF) arranged with Spouses Fabre
for the transportation of 33 members of its Young Adults Ministry from Manila to La Union
and back in consideration of 53,000.00.
Are spouses Fabre considered a common carrier or a private carrier?
Legal Opinion: Spouses Fabre are engaging in a business as a common carrier. They need not
have to be engaged in the business of public transportation for the provisions of the Civil Code
on common carriers to apply to them. Under Art. 1732 of the Civil Code, “Common carriers are
persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation, offering their services to
the public.” The article makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as “a sideline”). Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the “general public,” i.e., the
general community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1732 deliberately refrained
from making such distinctions.5
Nature of Contract of Carriage

A contract to transport passengers is quite different in kind and degree from any other
contractual relation, and this is because of the relation which an air carrier sustains with the
public. It invites people to avail the comforts and advantages it offers. The contract of carriage,
therefore, generates a relation attended with a public duty. Neglect or malfeasance of the
carrier’s employees naturally could give ground for an action for damages.6
Responsibility of Common Carriers
The Law
Article 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them, according to all the circumstances
of each case.
Article 1755. A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances.
Article 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in Articles 1733 and 1755.
5
Fabre vs. Court of Appeals, G.R. No. 111127, July 26, 1996, 259 SCRA 426.
6
Philippine Air Lines vs. Court of Appeals, 275 SCRA 621 (1997).
114
Article 1757. The responsibility of a common carrier for the safety of passengers as
required in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by
the posting of notices, by statements on tickets, or otherwise.

As soon as the passenger puts his foot on the platform, the obligation of extraordinary
diligence of the common carrier begins.7 The relation of carrier and passenger does not cease
at the moment the passenger alights from the carrier’s vehicle at a place selected by the carrier
at the point of destination, but continues until the passenger has had a reasonable time or a
reasonable opportunity to leave the carrier’s premises.8
A certificate of public convenience is not a requirement in order for a common carrier to
incur liability. Such liability arises from the moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has been granted a certificate of public convenience
or has complied with the requirements of the applicable implementing regulations.9
The term “extraordinary diligence” has been defined as the standard of care required of
common carrier in bringing safely its passengers (and goods) from one place to another.10
In a contract of carriage of passengers, it is the obligation of the common carrier to bring
the passengers safely to the point of destination. If injured, or death occurs, the presumption of
negligence automatically arises, and the common carrier can be held liable if he fails to prove
extraordinary diligence for the duration of the carriage.

Fortune Express is a bus company in northern Mindanao. Diosdado Bravo, the Operations
Manager of Fortune Express received an investigation report from the Philippine Constabulary
Regional Headquarters at Cagayan de Oro City that certain Maranaos are planning to take
revenge on Fortune Express due to an accident with a jeepney in Kauswagan, Lanao del Norte,
resulting in the death of two Maranaos. Bravo assured the Philippine Constabulary that certain
precautions in protecting lives and properties will be made. Normal operations continued in
Fortune Express without taking the necessary precautions (such as frisking the passengers or
inspecting their baggage before boarding the bus). It was until November 22, 1989, when three
armed Maranaos who pretended to be passengers, seized a bus of Fortune Express at Linamon,
Lanao del Norte while on its way to Iligan City. Shots ensued which resulted to the burning of
the bus, the injury of passengers and the death of Atty. Caorong.
Should Fortune Express be held liable for the injury and death of its passengers due to the
hijacking of three armed Maranaos?
Legal Opinion: Yes, Fortune Express should be held liable. It is evident that the bus company
through its Operations Manager Diosdado Bravo, was informed of the “rumors” that the
Moslems intended to take revenge on Fortune Express. Yet despite this information, the bus
company did not take proper precautions. Frisking of passengers picked up along the route
and for those boarding at the bus terminal could have been implemented by the bus conductor.
On hindsight, the handguns and especially the gallon of gasoline used by the felons all of which
were brought inside the bus would have been discovered, thus preventing the burning of the
bus and the fatal shooting of the victim. The least thing that the bus company could have done
in response to the report was to adopt a system of verification such as frisking of passengers
boarding its buses. Nothing, and to repeat, nothing at all, was done by Fortune Express to
protect its innocent passengers from the danger arising from the “Maranao threats.”
7
Dangwa Transportation Co., Inc. et al. vs. Court of Appeals, G.R. No. 95582, October 7, 1991.
8
La Mallorca vs. Honorable Court of Appeals, G.R. No. L-20761, July 27, 1966.
9
Loadstar Shipping Co., Inc., vs. Court of Appeals, G.R. No. 131621, September 28, 1999.
10
115
In the case of Gacal vs. Philippine Air Lines, Inc., [183 SCRA 189, 195-196, G.R. No. 55300,
March 15, 1990] the Supreme Court intimated that a common carrier can be held liable for failing to
prevent a hijacking by frisking passengers and inspecting their baggage.
Article 1755 of the Civil Code provides that “a common carrier is bound to carry the
passengers as far as human care and foresight can provide, using the utmost diligence of very
cautious person, with due regard for all the circumstances.” Thus, for failure to use utmost
diligence of a very cautious person, the bus company should be held liable.11
Liabilities of Common Carriers for the Acts

of Employees and Strangers
The Law
Article 1759. Common carriers are liable for the death or injuries to passengers through
the negligence or willful acts of the former’s employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised the
diligence of a good father of a family in the selection and supervision of their employees.

For a bus company, due diligence in selection of employees is not satisfied by finding
that the applicant possessed a professional driver’s license. The employer should also
examine the applicant for his qualifications, experience and record of service. Due diligence
in supervision, on the other hand, requires the formulation of rules and regulations for the
guidance of employees and issuance of proper instructions as well as actual implementation
and monitoring of consistent compliance with the rules.12 For a shipping company, the vessel
must be considered seaworthy, adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew.13

At about 10:00 p.m. of March 15, 1987, the cargo truck marked “Condor Hollow Blocks and
General Merchandise” was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon
reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one
of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the
national highway and removed the damaged tire to have it vulcanized at a nearby shop, about
700 meters away. Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle,
and instructed the latter to place a spare tire six fathoms away behind the stalled truck to serve
as a warning for oncoming vehicles. The truck’s tail lights were also left on.
At about 4:45 a.m. of March 16, 1987, D’ Rough Riders passenger bus driven by Virgilio
Te Laspiñas was cruising at a speed of 40-45 kilometers per hour along the national highway of
Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City.
Among its passengers were the spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado,
who were seated at the right side of the bus.
11
Fortune Express, Inc. vs. Court of Appeals, G.R. No. 119756, March 18, 1999.
12
Fabre vs. Court of Appeals, G.R. No. 111127, July 26, 1996.
13
Trans-Asia Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 118126, March 4, 1996.
116
As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then
about 25 meters away. He applied the breaks and tried to swerve to the left to avoid hitting the
truck. But it was too late and the bus rammed into the truck’s left rear. The impact damaged the
right side of the bus and left several passengers injured. Pedro Arriesgado lost consciousness
and suffered a fracture in his right colles. His wife, Felisa, was brought to the Danao City
Hospital. She was later transferred to the Southern Island Medical Center where she died
shortly thereafter.
Is the bus company liable for the death of Felisa Arriesgado?
Legal Opinion: Yes, the bus company is liable for the death of Felisa Arriesgado. It is such a
firmly established principle that the negligence of the employee gives rise to the presumption
of negligence on the part of the employer. This is the presumed negligence in the selection and
supervision of employee. The theory of presumed negligence, in contrast with the American
doctrine of respondeat superior, where the negligence of the employee is conclusively presumed
to be the negligence of the employer, is clearly deducible from the last paragraph of Article
2180 of the Civil Code which provides that the responsibility therein mentioned shall cease if
the employers prove that they observed all the diligence of a good father of a family to prevent
damages.
Indeed, Laspiñas’ negligence in driving the bus is apparent in the records. By his own
admission, he had just passed a bridge and was traversing the highway of Compostela, Cebu
at a speed of 40 to 50 kilometers per hour before the collision occurred. The maximum speed
allowed by law on a bridge is only 30 kilometers per hour. And, as correctly pointed out by the
trial court, petitioner Laspiñas also violated Section 35 of the Land Transportation and Traffic
Code, Republic Act No. 4136. Any defense of the bus company on efficiency and in-service
training of its drivers is insufficient to prove that it observed the diligence of a good father of a
family in the selection and supervision of his employees.14
Enforcement of Liability of Common Carriers

The liability of common carriers can be enforced on the following causes of action:
(1) In case of death or injury caused to passengers, the victim may file a case of breach of contract
of carriage or culpa contractual against the owner of the common carrier.
(2) In case of death or injury caused to a stranger or pedestrian, the victim may file a criminal
complaint against the driver of the common carrier for reckless imprudence resulting
in homicide and damage to property. The victim may also file a civil suit against the
common carrier and its driver on the ground of culpa-aquiliana or quasi-delict.
Damages Recoverable from Common Carriers

In an action based on culpa contractual or culpa aquiliana, the damages that are recoverable
are as follows: actual damages, compensatory damages, moral damages, exemplary damages,
death indemnity and attorney’s fees. Nominal damages may be awarded in case moral or
exemplary damages may not be awarded.
(a) Actual damages consist in expenses for medicine, hospitalization, etc.
(b) Unrealized profits are recoverable as compensatory damages which shall be fixed by
determining the net yearly income of the injured or deceased passenger and multiplying
the same by the number of years that he was expected to live or lead a gainful existence
as determined by mortality tables of life insurance companies of the Philippines.
14
William Tiu et al. vs. Pedro A. Arriesgado et al., G.R. No. 138060, September 1, 2004.
117
(c) Moral damages may be awarded when the mishap resulted in the death of a passenger,15 or
when the heirs of the deceased suffered mental anguish,16 or when the carrier was guilty
of fraud or bad faith, even if death did not result.17 The big amount of damages will be
awarded in view of the importance of the person of the passenger.18
(d) Exemplary damages or corrective damages are awarded by way of example or correction of
the public good,19 or when the common carrier acted in wanton, reckless and oppressive
manner.20 While the immediate beneficiaries of the standard of extraordinary diligence
are, of course, the passengers and owners of cargo carried by a common carrier, they are
not the only persons that the law seeks to benefit. Article 2231 of the Civil Code explicitly
authorizes the imposition of exemplary damages in cases of quasi-delicts “if the defendant
acted with gross negligence.”21
(e) Award for death indemnity is in accordance with current rulings of the Court.22
(f) Award for attorney’s fees may be recovered when exemplary damages are awarded. Under
Article 2008 of the Civil Code, attorney’s fees may be recovered when exemplary damages
are awarded. In the case of Metro Manila Transit Corporation vs. Court of Appeals [298 SCRA
495 (1998)] it was held that an award of 550,000.00 as attorney’s fees is reasonable.23
(g) In case moral damages cannot be awarded without proof of the carrier’s bad faith, ill will,
malice or wanton conduct, nominal damages may be allowed under the circumstances.
Nominal damages may be awarded as provided under Articles 2221 and 2222 of the Civil
Code of the Philippines for the purpose of indemnifying the victim for any loss suffered
by him. Nominal damages are recoverable if no actual, substantial or specific damages
were shown to have resulted from the breach. The amount of such damages is addressed
to the sound discretion of the court, taking into account the relevant circumstances.24
The Law
Nature of Airline, Bus and Shipping Tickets
The best evidence of a contract of carriage is the passage ticket.25 Under our jurisprudence,
an airline, bus or shipping ticket is a contract of adhesion considering that all the provisions
thereof are prepared and drafted only by the carrier. The only participation left of the other
party is to affix his signature thereto. In such situation, the Supreme Court ruled that the terms
thereof must be interpreted against the party who drafted the same, in this case the carrier.26

Such contracts of adhesion are not entirely prohibited and are in fact binding regardless
of whether or not the passenger or shipper had read the provisions thereof.27
15
Article 1764 in relation to Article 2206, Civil Code of the Philippines.
16
Victory Liner, Inc. vs. Heirs of Andres Malecdan, G. R. No. 154278, December 27, 2002.
17
18
Francisco Ortigas, Jr. vs. Lufthansa German Airlines, G.R. No. L-28773, June 30, 1975.
19
20
Northwest Airlines, Inc. vs. Cuenca, G.R. No. L-22425, August 31, 1965.
21
William Tiu et al. vs. Pedro A. Arriesgado, G.R. No. 138060, September 1, 2004.
22
Fortune Express Inc. vs. Court of Appeals, G.R. No. 119756, March 18, 1999; Victory Liner vs. Heirs of Andres Malacdan, G.R. 154278,
December 27, 2002.
23
Article 2008, Civil Code of the Philippines; Victory Liner vs. Heirs of Andres Malacdan, G.R. 154278, December 27, 2002.
24
Victorino Savellano et al. vs. Northwest Airlines, G.R. No. 151783, July 8, 2003.
25
Sweet Line, Inc. vs. Teves, G.R. No. L-37750, May 19, 1978.
26
Victorino Savellano et al. vs. Northwest Airlines, G.R. No. 151783, July 8, 2003.
27
Philippine Airlines, Inc., vs. Court of Appeals et al., G.R. No. 119706, March 14, 1996.
118
Thus it was held that even if the passenger had not signed the plane ticket, he is
nevertheless bound by the provisions thereof. Such provisions have been held to be a part of
the contract of carriage, valid and binding upon the passenger regardless of the latter’s lack of
knowledge or assent to the regulation. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.28 Even if the conditions are printed in small
letters does not make the ticket or bill invalid.29
However, the courts will exercise greater vigilance when dealing with contracts of adhesion
in that the said contracts must be carefully scrutinized in order to protect the weaker party
from deceptive schemes contained in ready-made stipulations. This is in recognition of Article
24 of the Civil Code which mandates that “in all contractual, property or other relations, when
one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, the courts must be vigilant for his protection.”30

Sweet Line Inc. is a shipping company transporting inter-island passengers and cargoes. A
stipulation in its passenger ticket states that: “It is hereby agreed and understood that any and
all actions arising out of the conditions and provisions of this ticket, irrespective of where it is
issued, shall be filed in the competent courts in the City of Cebu.” Is the stipulation valid?
Legal Opinion: No, such stipulation is void. Such stipulation subverts the public policy on
transfer of venue of proceedings of this nature, since the same will prejudice rights and interests
of innumerable passengers in different parts of the country who will have to file suits against
Sweet Line, Inc. only in the City of Cebu. The protection by the courts of the disadvantaged is
expressly enjoined by Article 24 of the Civil Code which states: “In all contractual, property or
other relations, when one of the parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age and other handicap, the courts must be
vigilant for his protection.”31
Regulation of the Transportation Business

The Department of Transportation and Communications (DOTC) is the primary policy,
planning, programming, regulating and administrative entity of the Executive branch of
government in the promotion, development and regulation of dependable and coordinated
networks of transportation and communications systems as well as in the fast, safe, efficient
and reliable postal, transportation and communications services (Administrative Code of 1987,
Book IV, Title XV, Sec. 2). It has the power, authority and technical expertise to determine
whether or not a specific transportation or communications project is necessary, viable and
beneficial to the people. (Bureau Veritas vs. Office of the President, 205 SCRA 705 [1992].)
Regulation of Air Transportation Business

Legislative Act No. 3909 passed by the Philippine Legislature on November 20, 1931
created an Office under the Department of Commerce and Communications to handle aviation
matters, particularly the enforcement of rules and regulations governing commercial aviation
as well as private flying. It was amended by Act 3996 to include licensing of airmen and
aircraft, inspection of aircraft concerning air traffic rules, schedules and rates and enforcement
of Aviation Laws.
28
Telengtan Brothers & Sons, Inc. (La Suerte Cigar & Cigarette Factory) vs. The Court of Appeals et al., G.R. No. 110581, September 21, 1994;
citing Ong Yiu vs. Court of Appeals, 91 SCRA 223.
29
Everett Steamship Corporation vs. Court of Appeals et al., G.R. No. 122494, October 8, 1998.
30
Ibid.
31
Sweet Line, Inc. vs. Teves, G.R. No. L-37750, May 19, 1978.
119
On June 20, 1952, Republic Act No. 776, otherwise known as the Civil Aeronautics Act
of the Philippines was enacted which defined the powers and duties of the Civil Aeronautics
Board, personnel and the regulations of Civil Aviation. On April 4, 1987, Executive Order No.
125 was enacted creating the Air Transportation Office.
The Civil Aeronautics Board (CAB) regulates the economic aspect of air transportation
and has general supervision and regulation of and jurisdiction and control over air carriers as
well as their property, property rights, equipment, facilities, and franchise.32 It has the power to
fix and determine reasonable rates, charges or fares which an air carrier may demand, collect,
or receive for any service in connection with air commerce.33 It also has the power to issue, deny,
amend, revise, alter, modify, cancel, suspend or revoke any temporary permit or Certificate of
Public Convenience and Necessity (CPCN). In case of foreign air carriers, the permit shall
be issued with the approval of the President of the Republic of the Philippines.34 It has been
ruled that the Legislature has validly delegated the CAB the authority to issue a Certificate of
Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic
air transport operator which does not possess a legislative franchise to operate.35
Persons authorized to engage in domestic air transportation (air transportation within
the limits of the Philippine territory)36 shall be reserved only to citizens of the Philippines,
except as otherwise provided in the Constitution and existing treaty or treaties.37 The term
“citizen of the Philippines” means:
(a) any individual who is a citizen of the Philippines; or
(b) a partnership of which each member is such an individual; or
(c) a corporation or association created or organized under the laws of the Philippines, of
which the directing head and 2/3 or more of the Board of Directors and other managing
officers are citizens of the Philippines, and in which 60% of the voting interest is owned
or controlled by persons who are citizens of the Philippines.38
The CAB issues the CPCN if it finds:
(a) that the applicant is fit, willing and able to perform service to the public;
(b) that such service is required by public convenience and necessity.39
The Air Transportation Office (ATO) is primarily charged with the technical and
operational phase of civil aviation matters.40 It performs the following functions:
• Establish and enforce rules and regulations for the inspection and registration of all
aircraft owned and operated in the Philippines and all air facilities;
• Establish and prescribe the corresponding rules and regulations for the enforcement
of laws governing air transportation;
• Impose and prescribe charges and/or rates pertinent to the operation of public
air utility facilities and services (i.e., collection of landing fees, parking space fees,
terminal fees, etc.);
• Administer and operate the Civil Aviation Training Center (CATC);
32
Section 10(A), Republic Act No. 776.
33
Section 10 (C) (2), Republic Act No. 776.
34
Section 10(C) (3), Republic Act No. 776.
35
Philippine Air Lines, Inc. vs. Civil Aeronautics Board, G.R. No. 119528, March 26, 1997.
36
Section 3(v), Republic Act 776.
37
38
Section 3 (r), Republic Act 776.
39
40
Section 32 (1), Republic Act No. 776.
120
• Operate and maintain national airports, air navigation and other similar facilities;41
• Promulgate rules and regulations in the interest of safety in air commerce;
• Investigate aircraft accidents; and
• Issue, deny, cancel or revoke any certificate, permit or license pertaining to aircraft,
airmen and air agencies.42
Registration of Aircraft
The Law
Only aircraft owned by or leased to a citizen or citizens of the Philippines, and which are
not registered under the laws of any foreign country may be eligible for registration.

The certificate of registration is conclusive evidence of ownership, except in a proceeding
where such ownership is in issue or when the aircraft is only under lease.43

Pilipinas Airline Company Flight 888 crashed in the mountains of Bukidnon killing all
the passengers of the aircraft. The airline company wants to know what really happened. Who
has the jurisdiction to investigate the accident?
Legal Opinion: The Air Transportation Office has the jurisdiction to investigate the aircraft
accident and must submit its investigation report to the Civil Aeronautics Board.44

Grand Airline Company wants to engage in the business of carrying passengers and
goods by air. In addition its pilots want to be licensed to operate the aircraft of Grand Airline
Company. In what government agency should Grand Airline Company and its pilots apply so
that it will be accredited?
Legal Opinion: Grand Airline Company should apply to the Civil Aeronautics Board for a
certificate of public convenience to operate as a common carrier. However, the pilots must
secure a license to operate at the Air Transportation Office.
Regulation of the Shipping Industry
The Maritime Industry Authority (MARINA) was created on June 1, 1974 with the issuance
of Presidential Decree No. 474 to integrate the development, promotion and regulation of the
maritime industry in the country. It was originally placed under the Office of the President. With
the creation of the Ministry (now, Department) of Transportation and Communications by virtue
of Executive Order No. 546 “the MARINA” was attached to the DOTC for policy and program
coordination on July 23, 1979.
41
www.ato.gov.ph
42
43
Section 34, Republic Act 776, as amended by B.P. 504.
44
121
By virtue of Republic Act No. 9295 (May 03, 2004), MARINA has the following
functions:
(1) Register vessels;
(2) Issue certificates of public convenience or any extensions or amendments thereto,
authorizing the operation of all kinds. Classes and types of vessels in domestic shipping:
Provided, That no such certificate shall be valid for a period of more than twenty-five (25)
years;
(3) Modify, suspend or revoke at any time upon notice and hearing, any certificate, license or
accreditation it may have issued to any domestic ship operator;
(4) Establish and prescribe routes, zones or areas of operations of domestic ship operators;
(5) Require any domestic ship operator to provide shipping services to any coastal area,
island or region in the country where such services are necessary for the development of
the area, to meet emergency sealift requirements, or when public interest so requires;
(6) Set safety standards for vessels in accordance with applicable conventions and
regulations;
(7) Require all domestic ship operators to comply with operational and safety standards
for vessels set by applicable conventions and regulations, maintain its vessels in safe
and serviceable conditions, meet the standards of safety of life at sea and safe manning
requirements, and furnish safe, adequate, efficient, reliable and proper service at all
times;
(8) Inspect all vessels to ensure and enforce compliance with safety standards and other
regulations;
(9) Ensure that all domestic ship operators shall have the financial capacity to provide and
sustain safe, reliable, efficient and economic passenger or cargo service, or both;
(10) Determine the impact which any new service shall have to the locality it will serve;
(11) Adopt and enforce such rules and regulations which will ensure compliance by every
domestic ship operator with required safety standards and other rules and regulations on
vessel safety;
(12) Adopt such rules and regulations which ensure the reasonable stability of passengers and
freight rates and, if necessary, to intervene in order to protect public interest;
(13) Hear and adjudicate any complaint made in writing involving any violation of this law
or the rules and regulations of the MARINA;
(14) Impose such fines and penalties on, including the revocations of licenses of any domestic
ship operator who shall fail to maintain its vessels in safe and serviceable condition, or
who shall violate or fail to comply with safety regulations;
(15) Investigate any complaint made in writing against any domestic ship operator, or any
shipper, or any group of shippers regarding any matter involving violations of the
provisions of this Act;
(16) Upon notice and hearing, impose such fines, suspend or revoke certificates of public
convenience or other license issued, or otherwise penalize any ship operator, shipper or
group of shippers found violating the provisions of this Act; and
(17) Issue such rules and regulations necessary to implement the provisions of this Act:
Provided, That such rules and regulations cannot change or in any way amend or be
contrary to the intent and purposes of this Act.45
45
122
Authority to Operate
No franchise, certificate or any other form authorization awarded by MARINA for the
carriage of cargo or passenger, or both in the domestic trade, shall be granted except to domestic
ship owners or operators.46 The term “domestic ship owner or operator” means a citizen of the
Philippines, or a commercial partnership wholly owned by Filipinos, or a corporation at least
sixty percent (60%) of the capital of which is owned by Filipinos, which is duly authorized by
the Maritime Industry Authority (MARINA) to engage in the business of domestic shipping.47
However, foreign vessels who may wish to engage in trade and commerce within Philippine
territorial waters may be granted a Special Permit by the MARINA when no domestic vessels
are available or suitable to provide the needed shipping service and where public interest
warrants the same.48
By reason of the deregulation of the domestic shipping industry as mandated by Republic
Act No. 9295 and to encourage investments in the domestic shipping industry, domestic ship
operators are now authorized to establish their own shipping rates provided that effective
competition is fostered and public interest is served.49
Regulation of the Land Transportation

The concept of land transportation system in the Philippines started when our ancestors
invented means of locomotion. The early means of transportation used were animals in moving
people and goods from place to place. Although the means of land transportation during the
early days were not as sophisticated as the modern vehicles of today and the roads were not as
well constructed, the early Filipinos also observed some forms of laws to govern their mobility.
These laws were as informal and simple as specifying which animal could be used for certain
purposes. However, the existence of these rules showed that our ancestors had already felt the
need to regulate the transportation system.
Today, it is the Land Transportation Office (LTO) and the Land Transportation Franchising
and Regulatory Board (LTFRB)50 which are the agencies involved in the regulation of the land
transportation industry.
The LTO is the proper agency which controls the registration and operation of motor
vehicles and the licensing of owners, dealers, conductors, drivers and similar matters. Under the
Clean Air Act of 1999, vehicles must pass the emission testing requirements to be administered
by the Department of Transportation and Communications as a prerequisite for registration.
On the other hand, the functions of the LTFRB are as follows:
a. To prescribe and regulate routes of service, economically viable capacities and zones
or areas of operation of public land transportation services provided by motorized
vehicles in accordance with the public land transportation development plans and
programs approved by the Department of Transportation and Communications;
b. To issue, amend, revise, suspend or cancel Certificates of Public Convenience or
permits authorizing the operation of public land transportation services provided
by motorized vehicles, and to prescribe the appropriate terms and conditions therefor;
c. To determine, prescribe and approve and periodically review and adjust, reasonable
fares, rates and other related charges, relative to the operation of public land
transportation services provided by motorized vehicles;
46
47
Section 3 (c), Republic Act 9295.
48
49
50
Executive Order 202, June 19, 1987.
123
d. To issue preliminary or permanent injunction, whether prohibitory or mandatory,
in all cases in which it has jurisdiction, and in which cases the pertinent provisions
of the Rules of Court shall apply;
e. To punish for contempt of the Board, both direct and indirect, in accordance with
the pertinent provisions of, and the penalties prescribed by, the Rules of Court;
f. To issue subpoena and subpoena duces tecum and summon witnesses to appear in
any proceedings of the Board, to administer oaths and affirmations;
g. To conduct investigations and hearings of complaints for violation of the public
service laws on land transportation and of the Board’s rules and regulations, orders,
decisions and/or rulings and to impose fines and/or penalties for such violations;
h. To review motu proprio the decisions/actions of the Regional Franchising and
Regulatory Office herein created;
i. To promulgate rules and regulations governing proceedings before the Board and the
Regional Franchising and Regulatory Office: Provided, That except with respect to
paragraphs d, e, f and g hereof, the rules of procedure and evidence prevailing in
the courts of laws should not be controlling and it is the spirit and intention of said
rules that the Board and the Regional Franchising and Regulatory Offices shall use
every and all reasonable means to ascertain facts in its case speedily and objectively
and without regard to technicalities of law and procedures, all in the interest of due
process;
j. To fix, impose and collect, and periodically review and adjust, reasonable fees and other
related charges for services rendered;
k. To formulate, promulgate, administer, implement and enforce rules and regulations on
land transportation public utilities, standards of measurements and/or design, and
rules and regulations requiring operators of any public land transportation service
to equip, install and provide in their utilities and in their stations such devices,
equipment facilities and operating procedures and techniques as may promote
safety, protection, comfort and convenience to persons and property in their charges
as well as the safety of persons and property within their areas of operations;
l. To coordinate and cooperate with other government agencies and entities concerned
with any aspect involving public land transportation services with the end in view
of effecting continuing improvement of such services; and
m. To perform such other functions and duties as may be provided by law, or as may
be necessary, or proper or incidental to the purposes and objectives of this Executive
Order.51
The LTFRB has been delegated the authority by the Legislature to fix the rates of public
services. However, this authority cannot be delegated to a common carrier, a transport operator,
or other public service.52
Accreditation of Transportation Vehicles by the Department of Tourism

This involves the minimum requirements for the operation, establishment and
maintenance of transportation vehicles 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 transportation vehicle.
51
Sec. 5, Executive Order 202 June 19, 1987.
52
Kilusang Mayo Uno Labor Center vs. Hon. Jesus B. Garcia, Jr., et al., G.R. No. 115381, December 23, 1994.
124
Standard Requirements for Tourist Land Transport Vehicles
To be registrable, every tourist transport must be found roadworthy upon inspection by a
team from the Department of Tourism. In the case of bus or coaster, it shall not be more than ten
(10) years reckoned from the year of manufacture. For a tourist car, it shall not be more than five
(5) years reckoned from the year of manufacture, provided however, that tourist luxury cars
shall have a maximum allowable age of ten (10) years. For this purpose, luxury cars shall refer
to passenger cars with engine displacement of not less than 2190 cc and which are not locally
assembled/manufactured.53 Every tourist transport shall be provided with a left-hand drive,
it shall be properly equipped with adequate air-conditioning units, and it shall be provided or
installed with at least one portable fire extinguisher for the protection of its passengers.
For tourist buses or coasters, a public address system shall be installed. Every tourist
transport unit shall be provided with a first-aid kit and an adequate supply of emergency
medicines. It shall have clean and comfortable seats, and shall have enough legroom and sufficient
storage space.
Lastly, every tourist transport operator shall provide an adequate garage and repair shop
for the maintenance of its equipment, as well as a parking space sufficient to accommodate all
its registered units. 54
In case of original registration and/or transfer of ownership of tourist transport, the
necessary clearance from the appropriate unit of the Philippine National Police should be
secured prior to registration. 55
Standard Requirements for Tourist Water Transport Vessels

There should be at least one restroom each with toilet and washing facilities for male and
female located at the passenger accommodation area. In addition, there should be a common
toilet and bath at the cabin area for long-haul trip. Tissue paper, soap and hand/paper towel
should also be provided. A receptionist should be available to usher in guests. There should
be a refreshment area which should be well-stocked at all times. In case of long-haul trips, a
dining area capable of seating, at least, one-fourth (1/4) of the total passengers at one serving
should be provided with appropriate and well-maintained furniture. There should be a
promenade or airing space at the upper deck for the exclusive use of passengers. There should
be a baggage area provided with racks or similar convenient and safe storage in the passenger
accommodation areas.
Adequate number of well-trained, well-groomed, experienced, efficient and courteous
staff should be employed. They shall wear clean uniforms at all times. Front-line staff should
have a good speaking knowledge of English.
Adequate lighting arrangement and fixtures should be installed in all levels of the vessel
in accordance with the Philippine Merchant Marine Rules and Regulations. 56
Standard Requirements for Tourist Air Transport

Adequate life-saving devices and adequate communication equipment should be
provided in accordance with the requirements prescribed by the Air Transportation Office. 57
53
DOT Memorandum Circular No. 98-05, April 23, 1998.
54
Section 16, Rules and Regulations to Govern the Accreditation of Travel and Tour Services.
55
56
57
125
Documents Required to Support Application for Accreditation to Operate as Tourist Transport
Operator
a. Mayor’s Permit and/or Municipal License;
b. Business name certificate and all amendments thereto, if any, in the case of single
proprietorship. In the case of a corporation or partnership, a certified true copy of the
Articles of Incorporation, its By-laws or Articles of Partnership and amendments thereto,
if any, duly registered with the Securities and Exchange Commission;
c. Proof of ownership or contract of lease over an area adequate to serve as maintenance
depot and garage for all its units (not applicable to water transport);
d. A list of names of all officials and employees, and their respective designations, nationalities,
home addresses, certified correct under oath by the General Manager/President; and
e. Such other papers or documents as may be required from time to time by the Department.58
For Land Transport

• A copy of the LTFRB certificate of franchise or authorization for tourist car/bus service
• A copy of the transportation rates as approved by the LTFRB
• Pictures of the vehicles showing the side, back and front views thereof with the
company’s name and logo imprinted at its rear and sides, respectively;
• Such other papers or documents as may be required from time to time by the
Department.
For Water Transport

• A copy of the Certificate of Public Convenience and Necessity issued by Maritime
Industry Authority
• A copy of the transportation rates as approved by the Maritime Industry
Authority;
• Pictures of the vessel showing the side, back and front view thereof with the
company’s name and/or logo imprinted at its sides;
• A copy of routes to be served and schedules;
Department.
For Air Transport

• A copy of the Certificate of Public Convenience and Necessity issued by the Civil
Aeronautics Board;
• A copy of the transportation rates as approved by the Civil Aeronautics Board;
• Pictures of the plane showing the side, back and front views thereof with the
company’s name and/or logo imprinted at its sides;
• List of operations and maintenance officials and personnel with their ATO licenses;
• Copy of the routes to be served and flight schedules; and
Department.59
58
59
126
Accreditation of Motorized Boat/Banca Engaged in Tourism Activities and Services
A motorized boat/banca engaged in tourist services shall mean a vessel of 20 Gross
Tonnage (GRT) and below engaged in providing water transport services including sightseeing
and water-related tourism activities to foreign or domestic tourists for a fee or any form of
compensation.60
For purposes of accreditation, the boat/banca should be made of good quality materials
and in accordance with MARINA standards.
The boat/banca should be provided with the following equipment:
(a) Life-saving and firefighting equipment and facilities;
(b) Adequate number of lifevest as specified in the MARINA Certificate of Inspection to be
given to and worn by passengers upon boarding;
(c) Adequate number of required firefighting facilities in accordance with the Philippine
Merchant Marine Rules and Regulations (PMMRR);
(d) First aid kit with adequate supply of emergency medicines.
Adequate lighting, flashlights and radio equipment shall be provided. The boat/banca
should be provided with adequate waste bins; and there should be a short briefing on boat
rules on safe travel, proper waste disposal and other concerns before boarding or an adequate
notice thereof or brochures should be conspicuously displayed on the motorized boat/banca
are given to passengers.
The boat/banca should be manned by at least two (2) boatmen who are well trained,
efficient and courteous and with proper work permit/license from MARINA. The boatmen
should wear Identification Cards and clean uniform prescribed by the Department of Tourism
at all times and should provide optimum service geared on passenger safety, comfort and
convenience.61
The following may apply for accreditation as operator of motorized boat/banca engaged
in tourism activities and services:
(a) single proprietorship owned by a resident Filipino citizen;
(b) a partnership organized under the laws of the Philippines, at least 60% of its capital
being owned by Filipino citizens; and
(c) a corporation organized under the laws of the Philippines, at least 60% of the
subscribed common or voting shares of stocks of which is owned by Filipino citizens
and the composition of its Board of Directors being at least 60% Filipinos.62
The application for accreditation should be accompanied by the following documents:
(a) In the case of single proprietorship, a Business Name Certificate and all amendments
thereto duly registered with the Bureau of Trade Regulation and Consumer
Protection, Department of Trade and Industry; in the case of a corporation/
partnership, a certified copy of the Articles of Incorporation/Partnership and its
By-laws and amendments thereto, duly registered with the Securities and Exchange
Commission;
(b) Mayor’s Permit and/or Municipal License;
(c) Resolution of the Board of Directors authorizing the filing of application and
designating the person authorized to sign and act for and in its behalf and transact
business with the Department. If single proprietorship or partnership, a letter of
authority from the owner/partners;
60
Section 1, Rules and Regulations to Govern the Accreditation of Motorized Boat/Banca Engaged in Tourism Activities and Services.
61
62
127
(d) Complete list of its officers and employees, indicating therein the nationality, home
address and position, certified correct under oath by the general manager/president;
(e) MARINA Documents:
• Copy of MARINA certificate of inspection which validity shall not be less than
three (3) months from the date of filing of application with the Department; and
• Valid Certificate of Public Convenience (CPC)/Provisional Authority (PA)
Special Permit (SP);
(f) Valid copy of the Compulsory Passenger Insurance with appropriate coverage for
each passenger;
(g) Copy of rates and routes to be served and schedules; and
(h) Such other documents that the Department may require from time to time.63
Seatbelt Law
The Law
The Seatbelt Law was enacted to secure and safeguard its citizenry, particularly the
passengers and drivers of private and public motor vehicles, from the ruinous and extremely
injurious effects of vehicular accidents. In order to secure the safety of the passengers and
drivers at all times, the mandatory enforcement of the use of seatbelt devices by the drivers and
front seat passengers of private and public motor vehicles shall be enforced.64

The highlights of the law are as follows:
(1) The driver and front seat passengers of a public vehicle are required to wear or use their
seatbelt devices while inside a vehicle of running engine on any road or thoroughfare. In
addition, the driver of a public motor vehicle shall be required to immediately inform and
require the front seat passengers upon boarding a vehicle of running engine to wear the
prescribed seatbelts. Any passenger who refuses to wear seatbelts shall not be allowed to
continue his/her trip.
(2) Infants and/or children ages six (6) years and below shall be prohibited to sit in the front seat
of any running motor vehicle.
(3) It shall be unlawful for any person to import or cause the importation of any vehicle
without appropriate and operational seatbelt devices.
(4) For new vehicles, compliance is required for registration.
Failure to comply shall disallow the registration and/or renewal of the registration of
vehicle at the LTO.

Case: Mr. Jorge San Jose is an operator of 100 units of taxicabs with Makati – Cubao as the route
area. Ronnie Boy, one of the drivers of the taxicabs being operated by Mr. San Jose, was caught
by a police officer who imposed a fine on Ronnie Boy for not wearing any seatbelt at the time
he was driving. In Ronnie Boy’s defense, Mr. San Jose stipulated that Ronnie Boy should not
63
64
128
have been imposed a fine because although the latter was not wearing the same at the time
he was driving, nevertheless the seatbelt was installed in the taxicab in compliance with the
Seatbelt Law. Is the police officer correct in imposing a fine on Ronnie Boy who was caught not
wearing a seatbelt at that time?
Legal Opinion: Yes, the police officer was correct in imposing a fine on Ronnie Boy for not
wearing a seatbelt at that time. Under Section 4 of RA 8750, also known as Seatbelts Use Act of
1999, the driver of a public motor vehicle is required to wear or use their seat belt devices while
inside a vehicle of running engine on any road or thoroughfare. In case of violation, the Land
Transportation Office, through its authorized representative, may impose a fine or penalty in
case of non-compliance.
Law on Transportation of Animals
The Law
By virtue of Republic Act 848565, also known as the “Animal Welfare Act of 1998,” it
shall be the duty of any operator of any land, air or water public utility transporting pets,
wildlife and all other animals to provide in all cases adequate, clean and sanitary facilities for
the safe conveyance and delivery thereof to their consignee at the place of confinement. These
animals shall be provided sufficient food and water while in transit for more than (12) hours
or whenever necessary.
No public utility shall transport any such animal without a written permit from the
Director of the Bureau of Animal Industry or his/her authorized representative. Any form of
cruelty shall be penalized even if the transported has obtained a permit from the Bureau of
Animal Industry. Cruelty in transporting includes overcrowding, placing animals in the trunks
or under the food trunks of the vehicles.66

In order to assure safety of passengers and crew members of aircrafts or vessels, it is
necessary to obtain a shipping permit from the Bureau of Quarantine before an animal may
be allowed to be transported on board.67 The Bureau of Quarantine has required the following
documents as certified by a licensed veterinary doctor or veterinary clinic/hospital to be
presented before a shipping permit will be issued:
1) Certificate of rabies vaccination for not less than 30 days; in case of international carriage,
a certificate of “5 in 1” vaccination (parvo influenza, lepto, deworming, distemper and
hepatitis) may also be required.
2) For agricultural animals, a certificate of clearance from the coggin test and FMD (food
and mouth disease) test is required.
On the other hand, a person planning to bring any animal into the Philippines from
abroad must apply in writing for an import permit at the following address:
The Director, Bureau of Animal Industry

Visayas Ave., Quezon City Philippines
Attention: Animal Health Division
Tel. No. (63 2) 966-883, 980-971, 926-6883, 927-0971
Fax No. (63 2) 926-6866, 928-2429, 928-2836
65
Approved on February 11, 1998.
66
67
Republic Act 123, June 14, 1947.
129
A valid health and rabies certificate must be obtained from the agency concerned at the port
of origin shortly before shipment. The certificate will be required by the Veterinary Quarantine
Officer upon arrival at the port of disembarkation. Any pet without such a certificate will be
detained by the Bureau of Animal Industry (BAI) until cleared.
For countries declared to be rabies-free, the rabies vaccination is waived. The appropriate
authorities in the country of origin can provide this information. For pet fishes, in lieu of a
health certificate, a prior import permit must be obtained from the Bureau of Fisheries and
Aquatic Resources (BFAR).
All animals imported into the Philippines shall be subject to such quarantine and tests
as may be prescribed by the Director of Animal industry and those found to be infected
with dangerous communicable animal diseases shall immediately be condemned, killed and
properly burned or buried in the presence of a representative of the Bureau of Animal Industry
at the expense of the importer.

Case: Mr. David Thomas, an American citizen, wants to visit the Philippines. He has a pet beagle
dog which he wants to bring in the Philippines. What are the requirements which Mr. Thomas
should comply in order that he may be allowed to bring his pet dog in the Philippines?
Legal Opinion: The first step is for Mr. Thomas to apply in writing for an import permit at
the Bureau of Animal Industry. The second step is for Mr. Thomas to secure a valid health and
rabies certificate from the agency concerned at the port of origin shortly before shipment. The
certificate will be required by the Veterinary Quarantine Officer upon arrival at the port of
disembarkation. Any pet without such a certificate will be detained by the Bureau of Animal
Industry (BAI) until cleared.
If the United States is declared to be rabies-free, the rabies vaccination is waived. Mr.
Thomas must provide the Philippine authorities with such documents. The pet dog of Mr.
Thomas shall be subject to such quarantine and tests as may be prescribed by the Director of
Animal Industry.
Law on Importation of Vehicles
The Law
There are relevant laws on the importation of vehicles which may be useful for the
transportation business, namely:
Republic Act 7227 allows the free flow of goods and capital within the Subic Bay Freeport
in Subic, Province of Zambales in order to attract investors to invest their capital in a business
climate with the least government intervention.
President Arroyo’s Executive Order 156 prohibits the importation of used motor vehicles
into the country except:
(a) on territories that are declared Freeport Zone, such as the Subic Bay Freeport in Subic,
Province of Zambales by virtue of Republic Act No. 7227;68
(b) if the vehicle is owned by a returning resident or immigrant and covered by an authority
to import issued under the No-Dollar Importation Program;
(c) if the vehicle is for the use of an official of the diplomatic corps and authorized to be
imported by the Department of Foreign Affairs (DFA); and
68
Hon. Executive Secretary et al. vs. Southwing Heavy Industries et al., G.R. 164171-72, G.R. 1687841, February 21, 2006.
130
(d) if the vehicle falls under the category of “special purpose vehicles” such as ambulances, fire
trucks, reefers, tanker trucks and crane lorries.69
Under Republic Act No. 6537 which was enacted on August 26, 1972, or otherwise
known as the Anti-Carnapping Act of 1972, it shall be the duty of the Collector of Customs
having jurisdiction of the principal port of entry where an imported motor vehicle is unloaded
to make a report of the shipment of the vehicle to the Land Transportation Office within
seven days after the arrival of the imported motor vehicle, specifying the make, type and serial
numbers of the motor vehicle engine, engine block and chassis or body, and stating the names and
addresses of the owner or consignee thereof. If the motor vehicle engine, engine block, chassis or
body does not bear any serial number, the Collector of Customs concerned shall hold the motor
vehicle engine, engine block, chassis or body until it is numbered by the Land Transportation
Commission.70 In this regard, any person engaged in the importation of motor vehicles shall
keep a permanent record of his stocks, stating therein their type, make and serial numbers,
and the names and addresses of the persons from whom they were acquired and the names and
addresses of the persons to whom they were sold, and shall render an accurate monthly report of
his transactions in motor vehicles to the Land Transportation Commission.71
Under the Philippine Clean Air Act of 1999, any imported new or locally assembled new
motor vehicle shall not be registered at the LTO unless it complies with the emission standards
set as evidenced by the Certificate of Conformity by the Department of Environment and
Natural Resources.
Under Republic Act No. 8750 or known as the Seat Belts Use Act of 1999, it shall be unlawful
for any person to import or cause the importation of any vehicle without appropriate and
operational seatbelt devices.
Public Service Laws
The Law
Public service includes every person who may own, operate, manage or control in the
Philippines for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad or street railway, traction railway, subway motor vehicle, steamboat, or steamship
line, ferries, and water craft, shipyard, x x x.72
Unless otherwise exempt, no public service shall operate without having been issued a
certificate of public convenience or a certificate of public convenience and necessity.73

Public utilities are privately owned and operated businesses whose service is essential
to the general public. They are enterprises which specially cater to the needs of the public and
conduce to their comfort and convenience. As such, public utility services are impressed with
public interest and concern. The same is true with respect to the business of common carrier
which holds such a peculiar relation to the public interest that there is superinduced upon it
the right of public regulation when private properties are affected with public interest.74
69
Article 2, Section 3 (1), Executive Order 156.
70
Section 7, R.A. No. 6537.
71
Section 8, R.A. No. 6537.
72
Sec. 13[b], Commonwealth Act No. 146, known as the Public Service Act.
73
Ibid., Sec. 15.
74
Kilusang Mayo Uno Labor Center vs. Hon. Jesus B. Garcia, Jr., et al., G.R. No. 115381, December 23, 1994.
131
As mandated by law, no public service shall operate without having been issued a
certificate of public convenience (which is considered a privilege and not a property right).
A certificate of public convenience is an authorization granted by the proper government
agency for the operation of public service for which a franchise is required by law for public
use as required by law.
The requisites before a certificate of public convenience may be granted are:
(1) The applicant must be a citizen of the Philippines, or a corporation or co-partnership,
association or joint-stock company constituted and organized under the laws of the
Philippines, at least 60 percent of its stock or paid-up capital must belong entirely to
citizens of the Philippines.
(2) The applicant must be financially capable of undertaking the proposed service and
meeting the responsibilities incident to its operation;
(3) The applicant must prove that the operation of the public service proposed and the
authorization to do business will promote the public interest in a proper and suitable
manner.75
The following are the government agencies which have the authority to grant a certificate
of public convenience:
(1) Civil Aeronautics Board (CAB) (Republic Act 776) for Air Transportation;
(2) Land Transportation, Franchising and Regulatory Board (LTFRB) (Executive Order 202)
for Land Transportation; and
(3) Marine Industry Authority (MARINA) (Presidential Decree No. 474) for Water
Transportation.
Traffic Laws
Republic Act No. 4136, which is enacted on June 20, 1964 is a compilation of laws relative
to traffic rules and regulations. Some of the highlights of the law are as follows:
Rules on Registration of Motor Vehicles

(1) No motor vehicle shall be used or operated on or upon any public highway of the
Philippines unless the same is properly registered at the LTO.
(2) Tourists bringing their own motor vehicles to the Philippines may, without registering such
motor vehicles, use the same during but not after ninety days of their sojourn: Provided,
That the motor vehicle displays the number plates for the current year of some other
country or state, and said number plates as well as the name and address (permanent and
temporary) of the owner thereof are registered in the Land Transportation Commission
prior to the operation of the motor vehicle.
(3) For public utility automobiles, application for registration shall be accompanied by a
certificate of public convenience and motor vehicles registered shall be subject to the
Public Service Law, rules and regulations.
(4) No person shall operate any motor vehicle without first procuring a license to drive a
motor vehicle for the current year, nor while such license is delinquent, invalid, suspended
or revoked. The license shall be carried by the driver at all times when operating a motor
vehicle, and shall be shown and/or surrendered for cause and upon demand to any person
with authority under this Act to confiscate the same. An examination or demonstration to
show any applicant’s ability to operate motor vehicles may also be required.
75
Ibid.
132
(5) No person operating any vehicle shall allow more passengers or more freight or cargo in
his vehicle than its registered carrying capacity. No driver shall permit any person to ride
on the running board, step board, or mudguard of his motor vehicle for any purpose.
(6) Every vehicle must be provided with sufficient car accessories such as tires, brakes, horns,
headlights, taillights, stoplight, windshield wipers, mufflers and lights when disabled for
the security and safety of the motor vehicle. Under Letter of Instruction dated December 2,
1974, every motor vehicle must have at all times at least one (1) pair of early warning device
consisting of triangular, collapsible reflectorized plates in red or yellow colors at least 15 cms.
at the base and 40 cms. at the sides.
Restriction as to Speed
(1) Any person driving a motor vehicle on a highway shall drive the same at a careful and
prudent speed, not greater nor less than is reasonable and proper, having due regard
for the traffic, the width of the highway, and of any other condition then and there
existing; and no person shall drive any motor vehicle upon a highway at such a speed
as to endanger the life, limb and property of any person, nor at a speed greater than will
permit him to bring the vehicle to a stop within the assured clear distance ahead.
(2) Subject to the provisions of the preceding paragraph, the rate of speed of any motor
vehicle shall not exceed the following:
Passenger Cars and Motor Trucks and

Maximum Allowable Speed
Motorcycles Buses
1. On open country roads, with no “blind corners” not closely

80 km. per hour 50 km. per hour
bordered by habitations.
2. On “through streets” or boulevards, clear of traffic, with no

“blind corners,” when so designated.
3. On city and municipal streets, with light traffic, when not

designated “through streets.”
4. Through crowded streets, approaching intersections at

“blind corners,” passing school zones, passing other
vehicles which are stationery, or for similar dangerous
circumstances.
Restrictions on Overtaking and Passing

The driver of a vehicle shall not drive to the left side of the center line of a highway in
overtaking or passing another vehicle proceeding in the same direction, unless such left side
is clearly visible, and is free of oncoming traffic for a sufficient distance ahead to permit such
overtaking or passing to be made in safety.
Right of Way
(a) When two vehicles approach or enter an intersection at approximately the same time, the
driver of the vehicle on the left shall yield the right of way to the vehicle on the right.
(b) The driver of any vehicle upon a highway within a business or residential district shall
yield the right of way to a pedestrian crossing such highway within a crosswalk, except
at intersections where the movement of traffic is being regulated by a peace officer or
by traffic signal. Every pedestrian crossing a highway within a business or residential
district, at any point other than a crosswalk shall yield the right of way to vehicles upon
the highway.
133
(c) The driver of a vehicle upon a highway shall bring to a full stop such vehicle before
traversing any “through highway” or railroad crossing. Provided, That when it is apparent
that no hazard exists, the vehicle may be slowed down to five miles per hour instead of
bringing it to a full stop.
Parking Prohibition
No driver shall park a vehicle, or permit it to stand, whether attended or unattended,
upon a highway in any of the following places:
(a) Within an intersection;
(b) On a crosswalk;
(c) Within six meters of the intersection of curb lines;
(d) Within four meters of the driveway entrance to and fire station;
(e) Within four meters of fire hydrant;
(f) In front of a private driveway;
(g) On the roadway side of any vehicle stopped or parked at the curb or edge of the highway;
and
(h) At any place where official signs have been erected prohibiting parking;
Driving or Parking on Sidewalk

No person shall drive or park a motor vehicle upon or along any sidewalk, path or alley
not intended for vehicular traffic or parking.
Driving and Substance Intake

No person shall drive a motor vehicle while under the influence of liquor or narcotic
drug.
Obstruction of Traffic
No person shall drive his motor vehicle in such a manner as to obstruct or impede the
passage of any vehicle, nor, while discharging or taking on passengers or loading or unloading
freight, obstruct the free passage of other vehicles on the highway.
Duty of Driver During an Accident

In the event that any accident should occur as a result of the operation of a motor vehicle
upon a highway, the driver present, shall show his driver’s license, give his true name and
address and also the true name and address of the owner of the motor vehicle.
No driver of a motor vehicle concerned in a vehicular accident shall leave the scene of the
accident without aiding the victim, except under any of the following circumstances:
1. If he is in imminent danger of being seriously harmed by any person or persons by reason
of the accident;
2. If he reports the accident to the nearest officer of the law; or
3. If he has to summon a physician or nurse to aid the victim.
134
Laws Regulating Tricycles, Pedicabs, Calesas and Other Related Provisions under the
Local Government Code of 1991
In case of regulating tricycles, pedicabs and calesas, the local government unit concerned,
through the city or municipality, has the power to regulate the same by virtue of the Local
Government Code. Regulation of tricycles by the city or municipality shall be subject to the
guidelines prescribed by the Department of Transportation and Communications. 76
Limited Access Highway Act (R.A. 2000, June 22, 1957), as amended by Executive Order 546
Under said law, the Department of Transportation and Communications is authorized to
design any limited access facility and to regulate, restrict, or prohibit access as to best serve the
traffic for which such facility is intended. On 19 February 1968, Secretary Antonio V. Raquiza
of the Department of Public Works and Communications issued Administrative Order (AO)
#1, which prohibited motorcycles, pedicabs, tricycles and bicycles on limited access highways.
The pertinent provisions of AO 1 read:
Subject: Revised Rules and Regulations
Governing Limited Access
Highways
By virtue of the authority granted the Secretary of Public Works and
Communications under Section 3 of R.A. 2000, otherwise known as the Limited
Access Highway Act, the following rules and regulations governing limited access
highways are hereby promulgated for the guidance of all concerned:
xxxx
Section 3 – On limited access highways, it is unlawful for any person or group
of persons to:
xxxx
(h) Drive any bicycle, tricycle, pedicab, motorcycle or any vehicle (not
motorized).
The use of public highways is subject to regulation as an exercise of the police power of
the state. The police power is far-reaching in scope and is the “most essential, insistent and
illimitable” of all government powers. The tendency is to extend rather than to restrict the
use of police power. The sole standard in measuring its exercise is reasonableness. What is
“reasonable” is not subject to exact definition or scientific formulation. No all-embracing test
of reasonableness exists, for its determination rests upon human judgment applied to the facts
and circumstances of each particular case. 77
Accreditation of Calesa Drivers

A resident Filipino citizen who is at least eighteen (18) years of age, physically and
mentally fit and of good moral character may apply for accreditation as calesa driver.78
The application for accreditation shall be accompanied by the following documents:
a. Appropriate mayor’s permit and/or municipal license;
b. Proof that the driver has passed a seminar for calesa driver conducted by the Department
or any organization duly authorized by the Department;
76
Sections 447 (3)(vi), (5)(v) and 458 (3)(vi), (5)(v), Local Government Code.
77
James Mirasol et al. vs. Department of Public Works and Highways et al., G.R. 158793, June 8, 2006.
78
Chapter III Section 1, Rules and Regulations Governing the Accreditation of Calesas Providing Transport Services to Tourists.
135
c. Police clearance and/or barangay clearance;
d. Certificate of good health issued by a duly licensed physician and veterinarian for the
calesa driver and horse, respectively; and
e. Other documents that the Department may require from time to time.79
For purposes of accreditation, the following are the minimum requirements for the
operation and maintenance of a calesa:
a. Physical appearance of the carriage:
• The carriage shall be made of good quality materials and shall be of excellent
workmanship.
• It shall be neatly painted with a color/numeral markings duly prescribed or assigned
by the Department.
• It shall have a non-skid stepping board.
• It shall be clean, well-maintained and provided with comfortable seats.
b. Horse - The horse shall be in good physical condition.
c. Roadworthiness - The calesa shall be fit for operation on all public thoroughfares.
d. Seating capacity - The calesa shall have a maximum load of two (2) passengers.
e. First-Aid Kit - The calesa shall have a first-aid kit.
f. Horse Waste Receptacle - Every calesa shall have a horse waste receptacle at the rear end
of the horse below the tail.
g. Calesa Drivers - The drivers shall be trained, well-groomed, courteous and shall wear
the prescribed uniform and DOT ID at all times during actual operating hours and shall
provide service that is safe, comfortable and convenient as possible. Moreover, they shall
look after the welfare of their respective horses.
h. Routes
• The calesa shall serve routes which are considered tourist zone/belt areas and shall
not disrupt the normal flow of traffic.
• The service shall be limited to the boundary of the city or municipality issuing the
pertinent mayor’s permit or municipal license.
i. Fares - The calesa driver shall charge only such fares for his services as may be approved
or fixed by any competent government agency.80
1. What is a common carrier?

2. What does the term “extraordinary diligence” mean?
3. What does the term “public service” mean?
4. What is a certificate of public convenience?
5. What are the requirements in order for a certificate of public convenience to be issued?
79
Chapter III, Section 2, Ibid.
80
Chapter II, Section 1, Ibid.
136
6. Is a bus ticket considered an evidence of agreement between the bus company and the
passenger?
7. What agencies of government regulate land, air and sea transportation in the
Philippines?
8. What are the advantages of having a DOT accreditation for transportation vehicles?
9. What is the rationale of the seatbelt law?
10. Take the case of Mr. Chiong who is traveling to Paris with his prized pet, a Dalmatian,
onboard a Northwest flight. Suggest ways on how animals should be transported.
11. Why are traffic laws necessary?
12. Enumerate the requirements in importing vehicles.
13. Why are the acts of the driver of a vehicle transporting travelers equated as the acts of
the company?
14. What are different kinds of speed limits?
15. What law affects the operation of boats and bancas?
16. What are the possible remedies for pieces of lost luggage in airlines?
17. Cite the significant functions of the following government agencies:
a) Land Transportation Office
b) Land Transportation & Franchising Regulatory Board
c) Air Transportation Office
d) Civil Aeronautics Board
e) Marine Industry Authority
What’s in Your Airline Ticket?

Secure a copy of a used airline ticket. Scrutinize all the
pages. What are the important provisions stated at the back of
the ticket? Discuss in class the details of these provisions.
Law on Life Jackets and Pranksters

When one boards a plane, one of the strictly implemented
reminders of flight attendants to passengers is not to remove the life
jacket unnecessarily as this may violate a law. Discuss this law in class.
What penalties are imposed on violators? Airline staff who receive
bomb pranks or jokes from passengers take seriously any word that
could connote compromising the safety and security of the flight.
Discuss the procedure in handling such incidents and the penalties
imposed on violators.
137
Revisiting 911
Terrorism has become the number one concern of many
airlines since the September 11 bombing of the World Trade
Center using commercial planes. Security systems in airports
have been upgraded and have become more stringent. In some
cases, many flights were delayed or even cancelled because of
suspected breach of security. Suggest ways on how to make
airlines more safe for travelers. Group the class into 6 groups
and allow 10 minutes for brainstorming.
RESEARCH PROJECT
Lost pieces of luggage are a common occurrence in

airports. Human errors can happen. Sometimes, luggage tags
have been removed or interchanged. In some cases, pieces of
luggage have been transported to the wrong airports. These
incidents can be very traumatic to travelers who are staying
in their destination only for a few days. Thousands of luggage
are lost every day especially in busy airports. Research on the
company policies of different airlines on handling lost luggage.
How do they handle damaged suitcases? How do they handle
delayed arrival of suitcases? What is the maximum amount
airlines can reimburse aggrieved passengers?
138
Accommodation Establishments
Hotels nowadays simulate the ambience of a home away from home. Thus, it should be clean,
comfortable, functional and safe. (Farid Schoucair, former general manager, Hyatt Regency Manila)
Case of the Missing Television Set

In one particular deluxe hotel in Metro Manila, the management
takes pride in the excellent service given by its staff to all its hotel guests.
Approximately 10% of the in-house guests are Filipino balikbayans. One
day a Filipino balikbayan checked in with two pieces of luggage – a huge
suitcase and a big balikbayan box. The guest was staying only overnight.
The bellman brought the luggage to the designated guestroom. The
following day, the guest checked out with the same number of luggage.
The bellman called for a taxi cab to take the guest to his next destination.
The housekeeping attendant entered the vacant guestroom to clean it.
The housekeeping attendant was surprised to note that the television
unit in the living room was no longer in the armoire or TV cabinet. The
housekeeping attendant also found plenty of huge rocks in the bathtub.
This was reported right away to security. It was investigated also by the
human resources department. This was obviously a case of theft. However,
the investigation report also indicated that the housekeeping staff, front
desk clerk and bellman were all irresponsible in allowing the guest to check
out without clearing the guestroom, i.e. to ensure that nothing is missing.
The book value of the missing television set was charged to the negligent
employees. Do you agree with this verdict? How can hotels prevent this
incident?
Learning Objectives
• 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
The Philippine Medium-Term Development Plan: 2001-04 identifies the tourism sector as
one of the banner industries that will pole vault the economy. The results of the study on the
“Effects on the Competitiveness of the Philippine Tourism,” revealed that the Philippine tourism
industry needs to improve its competitiveness to catch up with its neighboring countries.
Tourism competitiveness is defined as the “ability of a destination to deliver goods and
services that perform better than other destinations on those aspects of the tourism experience
considered to be important by tourists.” In assessing the state of competitiveness of Philippine
tourism vis-à-vis its major ASEAN neighbors, the study utilized the results of the rankings
made by the World Travel and Tourism Council (WTTC) on the basis of eight (8) criteria—price
competitiveness, human tourism, infrastructure, environment, technology, openness, and
social and human resources.
139
Of the eight criteria, the Philippines only got the highest rank in human resources
development, which indicates the high quality of its human resources, second in terms of price
competitiveness, and third in infrastructure. The price competitiveness criteria uses data of
costs of travel, accommodation, goods and services, exchange rate, and purchasing power
parity. The infrastructure criterion refers to the accessibility and availability of roads, railways,
and sanitation facilities.
This shows that, aside from the eight criteria, there are other factors which tourists
consider in deciding to visit a country, such as the known and perceived peace and order
situation in a country of destination. Improving the industry’s competitiveness, therefore, also
depends on ensuring the tourists’ personal security.1
There is a clear indication of the steadily increasing number of tourist arrivals in the
Philippines. That is why the Department of Tourism reiterated the need to construct 20,000
more hotel rooms to accommodate the target of 5 million tourists by 2010. There has been a
marked increase average hotel room occupancies particularly in Metro Manila deluxe hotels
between 2003 and 2007 as reported by the Department of Tourism.2
This confirms the major role accommodation establishments play in boosting the tourism
industry. This chapter will deal with the different laws regulating different accommodation
establishments. Basic provisions of the National Building Code of the Philippines and its
supporting laws, including rules on security and registration of guests and occupants have
also been incorporated in this chapter.
Nature and Description of the Business
The Law
Business entities engaged in the operation of tourist accommodation establishments may
be organized as a single proprietorship, 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 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.3
1
Report dated July 2003 by Jeanette D. Tana, Chief Labor and Employment Officer, Institute of Labor Studies.
2
Department of Tourism.
3
Chapter 1, Section 1, Rules and Regulations to Govern the Accreditation of Hotels, Tourist Inns, Apartels, Resorts, Pension Houses and Other
Accommodation Establishments.
140
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)4
Classification of hotels is based on a number of criteria such as:
a) Location;
b) Bedroom Facilities and Furnishings (with emphasis on dimensions)
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.
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).5
Resorts shall be classified as follows:
a. Class AAA;
b. Class AA;
c. Class A;
d. Special Interest Resort.6
4
Section 2, Ibid.
5
Section 7, Ibid.
6
Section 8, Ibid.
141
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 El 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.
Rules on the Operation and Management of Resorts

a. Sanitation measures shall be adopted in accordance with the standards prescribed under
P.D. 856 Code on Sanitation of the Philippines.
b. All resorts shall provide the services 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,
and adequate security whenever there are guests.
c. All resorts shall provide the services of a physician, either on-call or on full-time basis,
depending on their volume of operation and accessibility to 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.
142
(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 plant.7
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:
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.8
On the departure of the guests, the motel clerk shall record in the Registry Book the date and
hour of their departure.9
No motel shall accept for lodging or accommodation any person below 18 years of age unless
accompanied by a parent or guardian.10
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 Pensione 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.11
7
Section 13, Ibid.
8
Section 17, Ibid.
9
Section 20, Ibid.
10
Section 19, Ibid.
11
Section 23, Ibid.
143
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.12
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.13
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.14
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
of paying damages, Article 2180, paragraph (4) of the same Code provides that the owners and
managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion
of their functions. Thus, if an employee is found negligent, it is presumed that the employer
was negligent in selecting and/or supervising him for it is hard for the victim to prove the
12
Section 24, Ibid.
13
Section 31, Ibid.
14
Section 33, Ibid.
144
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.15

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
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 2193.16
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 Philippines (NBCP)
contains up-to-date and modern technical knowledge on building design, construction, use,
occupancy and maintenance.
15
YHT Realty Corporation et al. vs. Hon. Court of Appeals, G.R. No. 126780, February 17, 2005.
16
YHT Realty Corporation vs. Hon. Court of Appeals, G.R. No. 126780, February 17, 2005.
145
The Law
Section 104. General Building Requirements
(a) All buildings or structures as well as accessory facilities thereto shall conform in all
respects to the principles of safe construction and must be suited to the purpose for
which they are designed.
(b) Buildings or structures intended to be used for the manufacture and/or production of
any kind of article or product shall observe environmental safeguards.
(c) Buildings or structures and all parts thereof as well as all facilities found therein shall
be 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.

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 (P.D. 856). The law provides that no establishment
shall be operated and opened for public patronage without a sanitary permit issued
by the Secretary of Health or his duly authorized representative. Under said law, such
establishments must provide adequate water supply, toilet and bath facilities, shall be
kept clean at all times, and with periodic insect and vermin control 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.17
2) Ecological Solid Waste Management Act of 2000 (R.A. 9003). The law provides for the
minimum standards for solid waste management, as well as penalties for violation
thereof.
3) Fire Code of the Philippines (P.D. 1185). The law requires owners, administrators or occupants
of buildings, structures and their premises or facilities and other responsible persons to
comply with the following, as may be appropriate:
a. A fire safety inspection shall be conducted as prerequisite to the grants of permits
and/or 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;
17
Sections 64, 65, P.D. 856.
146
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 or
widely spread combustible stock; (7) Metallic magnesium in any form; (8) Corrosive
liquids, oxidizing materials, organic peroxide, nitro methane, ammonium nitrate,
or any amount of highly toxic, pyrophoric, hypergolic, or cryogenic materials
or poisonous gases as well as material compounds which when exposed to heat
or flame become a fire conductor, or generate excessive smoke or toxic gases; (9)
Blasting agents, explosives and special industrial explosive materials, blasting caps,
black powder, liquid nitro-glycerine, dynamite, 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 ashes,
live coals and embers; (13) Mineral, vegetable or animal oils and other derivatives/
by products; (14) Combustible waste materials for recycling or resale; (15) Explosive
dusts and vapors; and (16) Agriculture, forest, marine or mineral products which
may undergo spontaneous combustion.
c. Fire safety measures shall be required for the following hazardous operation/
processes: (1) Welding or soldering; (2) Industrial baking and drying; (3) Waste
disposal; (4) Pressurized/forced-draft burning equipment; (5) Smelting and forging;
(6) Motion picture projection using electrical arc lamps; (7) Refining, distillation and
solvent extraction; and (8) Such other operations or processes as may hereafter be
prescribed in the Rules and Regulations.
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 source
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.18
4) Philippine Environmental Code (P.D. 1152). The law provides for the minimum standards
for air quality management, water quality management, land use management,
natural resources management and conservation, and waste management.
5) Environmental Impact System (P.D. 1586) and its Implementing Rules and Regulations
(AO 2003-30) by the Department of Environment and Natural Resources. Under the law,
no person, partnership or corporation shall undertake or operate any such declared
environmentally critical project or area without first securing an Environmental
Compliance Certificate issued by the President of the Philippines through the
18
147
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.19
6) Rules and Regulations to Govern the Accreditation of Hotels, Tourist Inns, 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.20

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?
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.
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:
19
Article II Section 1, Scope of the EIS System, DENR Administrative Order No. 37, Series of 1996.
20
Section 1, B.P. 344.
148
(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 five 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.

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.21
It must be emphasized the no building or structure shall be used or occupied until the
Building Official has issued a Certificate of Occupancy.22
General Requirements of All Buildings

by Use or Occupancy
The Law
Section 704. Location on Property
(a) General
No building shall be constructed unless it adjoins or has direct access to a public space,
yard or street on at least one of its sides.
(b) Fire Resistance of Walls
Exterior walls shall have fire resistance and opening protection x x x.

Accommodation establishments belong to the Group B Occupancies under the National
Building Code. Accordingly, it shall consist of multiple dwelling units including boarding or
lodging houses, hotels, apartment buildings, and other similar buildings which accommodate
more than 10 people. The foregoing provision gives the general requirement for the location of
the property to be established.
21
Section 303, P.D. 1096.
22
Section 309. P.D. 1096.
149
Case: Mr. Norman Ramos is very delighted to have bought a 10,000 square-meter lot in Ilocos
Norte at the rate of 5400 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 Ilocos, 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
View, 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) All buildings shall face a street or public alley or a private street which has been duly
approved.
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 rooms – 14.00 cubic meters of air space per person.
Article 808. Window Openings

(a) Every room intended for any use, not provided with artificial ventilation system as
herein specified in this Code, shall be provided with a window or windows with a
total free area of openings equal to at least 10 percent of the floor area of room, and
such window shall open directly to a court, yard, public street or alley, or open water
courses.
150
Article 811. Artificial Ventilation
(a) Whenever artificial ventilation is required, the equipment shall be designed and
constructed to meet the following minimum requirements in air changes:
xxx
(b) For rooms entirely above grade and used as bakeries, hotel or restaurant kitchens,
laundries other than accessory to dwellings, and boiler rooms – not less than ten
changes of air per hour shall be provided.

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.

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 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 II 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.

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.23
23
Section 902, P.D. 1096.
151
Sanitary sewage from buildings shall be discharged directly into the nearest street sanitary
main sewers under existing municipal or city sanitary sewerage system in accordance with the
criteria set by the Code on Sanitation and the National Pollution Control Commission. All
buildings located in areas where there are no available sanitary sewerage system shall dispose
their sewerage through septic tanks. Such sanitary plumbing installations must conform to the
provisions of the National Plumbing Code. Adequate provisions shall be made for rainwater
drainage which shall not be discharged to the sanitary sewer system.24
All buildings with hollow and/or wood construction shall be provided with rat proofing.
Garbage bins and receptacles shall be provided with ready means for cleaning and with positive
protection against entry of pest and vermin. It is advisable though that dining rooms for public
use must be provided with artificial ventilation.25

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 (P.D. 856) and the National Building Code (P.D. 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 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 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.”

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.26
24
Sections 903 and 904, P.D. 1096.
25
Section 905, P.D. 1096.
26
Section 1202, P.D. 1906.
152
Footings and foundations shall be of the appropriate type, of adequate size, and capacity in
order to safely sustain the superimposed loads under seismic or any condition of external
forces that may affect the safety or stability of the structure. It shall be the responsibility of the
architect and/or engineer to adopt the type and design of the same.27
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.28
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. 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.29 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.30
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 10.31
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.32
27
Section 1202 (c) (1), P.D. 1906.
28
Section 1204, P.D. 1906.
29
Section 1207 (b) (1), P.D. 1906.
30
Section 1207 e (1), P.D. 1906.
31
Section 1212 (a), P.D. 1906.
32
Sections 1301 and 1302, P.D. 1906.
153
No signboard shall be erected or constructed as to unduly obstruct the natural view of the
landscape, distract or obstruct the view of the public as to constitute traffic hazard, or otherwise
defile, debase, or offend aesthetic and cultural values and traditions.33 Sign structures shall be
designed and constructed to resist all forces in accordance with the National Structural Code
for Buildings.34 No signs or sign structures shall be erected in such a manner that will interfere
in any way the free use of any fire escape, exit or standpipe.35

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 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.36
Registration of Guests and Occupants

The Civil Code of the Philippines37 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.38 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.39 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.40
The liability of the hotelkeepers shall extend to the following cases:
(1) In case the loss or injury is caused by his servants or employees, as well as by strangers;41
33
Section 2001, P.D. 1906.
34
Section 2003, P.D. 1906.
35
Section 2005, P.D. 1906.
36
See Juan Nakpil et al. vs. The Court of Appeals et al., G.R. No. L-47851, October 31, 1986.
37
See Articles 1998 up to 2004, inclusive.
38
39
40
41
154
(2) In case the loss or injury is caused by the act of a thief or robber without the use of arms
and irresistible force.42
However, the hotelkeeper shall not be liable in the following cases:

(1) The loss or injury is caused by force majeure like flood, fire,43 robbery by force or
intimidation; 44
(2) The loss is due to the acts of the guest, his family, servants or visitors;45
The Law
DOT Memorandum Circular No. 2006-09,
Series of 2006
x x x.
Adoption of Safety and Security Measures in Hotels, Resorts, and Other Similar
Accommodation Establishments
x x x;
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, etc.;
2. Efficient recording of information on vehicles (make/model, color, plate number and
name for taxicabs) ferrying tourists/guests to and from the hotel shall be provided;
Failure to comply with this Memorandum Circular shall be a valid ground to review the
accreditation of the establishment by the Department of Tourism.

Under DOT Memorandum Circular No. 2006-09, Series of 2006, all DOT accredited
hotels, resorts and other accommodation establishments are enjoined to adopt and implement
the mandatory requirement of registration of guests and occupants. This is in line with the
Department’s thrust of enduring safe, convenient and enjoyable stay and travel of both local
and foreign tourists as mandated by Executive Order 120. Failure to comply shall be a ground
to review the accreditation of such establishment by the Department of Tourism.
National Homestay Program

The National Homestay Program is a program of the Department of Tourism which
provides travelers with comfortable accommodations with Filipino families in areas near
tourist attractions.46
For purposes of accreditation by the Department of Tourism, the following are the
minimum requirements for the operation and maintenance of Homestay Sites:
42
43
44
45
46
Section 1 (i), Rules and Regulation to Govern the Accreditation of Tourism-Related Establishment.
155
Homestay Sites
1. There is prevailing peace and order situation in the area;
2. There are existing natural and man-made attractions in the community;
3. Site is easily accessible to tourists and with existing transportation services, good road
condition and other basic community infrastructures;
4. The host community is willing to join the National Homestay Program; and
5. There is a dearth of commercial accommodation facilities in the area to service tourists.
Home Facilities
1. Structures are of durable building materials and are in good, presentable condition;
2. The surroundings are pleasant and healthful;
3. There shall be at least one (1) adequately furnished guestroom to accommodate paying
visitors; and
4. The following shall be available: (a) extra bed/s; (b) adequate lighting system; (c) running
water or if not available, adequate supply of water; (d) clean and well-maintained toilet
and bathroom facilities; (e) meals at reasonable rates; (f) electric fan or other means of
ventilation.
Training
Family members shall have completed the Department’s training workshop on Homestay
Program.47
Waste Management
Under Presidential Decree No. 1152, also known as the Environmental Code of the
Philippines (June 6, 1977), the dumping or disposal of solid wastes into the sea and any body of
water in the Philippines, including shorelines and river banks, where these wastes are likely to
be washed into the water is prohibited,48 and might be a ground for the non-renewal of license
to operate within the local government unit concerned.
In this regard, the preparation and implementation of waste management programs shall
be required of all provinces, cities and municipalities. The Department of Interior and Local
Government shall promulgate the guidelines for the formulation and establishment of waste
management programs.49
Accordingly, every waste management program shall include the following:
(a) an orderly system of operation consistent with the needs of the area concerned;
(b) a provision that the operation will not create pollution of any kind or will constitute
public nuisance;
(c) a system for a safe and sanitary disposal of waste;
(d) a provision that existing plans affecting the development, use and protection of air, water
or natural resources shall be considered;
(e) schedules and methods of implementing the development, construction and operation of
the plan together with the estimated costs; and
(f) a provision for the periodic revision of the program to ensure its effective implementation.
47
Chapter VII, Section 9, Rules and Regulation to Govern the Accreditation of Tourism-Related Establishment.
48
49
156
It is the responsibility of every province, city or municipality to provide measures to
facilitate the collection, transportation, processing and disposal of waste within its jurisdiction
in coordination with other government agencies concerned.50
On June 26, 2001, Republic Act 9003, also known as Ecological Solid Waste Management
Act of 2000 was enacted to encourage commercial and industrial establishments, through
appropriate incentives other than tax incentives, to initiate, participate and invest in integrated
ecological solid waste management projects to manufacture environment-friendly products,
to introduce, develop and adopt innovative processes that shall recycle and reuse materials,
conserve raw materials and energy, reduce waste, prevent pollution and to undertake
community activities to promote and propagate effective solid waste management practices.
Under the same law, the segregation of wastes shall primarily be conducted at the source,
to include household, institutional, industrial, commercial and agricultural sources.51
The following shall be the minimum standards and requirements for segregation and storage
of solid waste pending collection:
(a) There shall be a separate container for each type of waste from all sources: Provided, That
in the case of bulky waste, it will suffice that the same be collected and placed in a separate
designated area; and
(b) The solid waste container depending on its use shall be properly marked or identified for
on-site collection as “compostable,” “non-recyclable,” “recyclable” or “special waste,” or
any other classification as may be determined by the Commission.52
Furthermore, the following are considered prohibited acts in violation of RA 9003:
(1) Littering, throwing, dumping of waste matters in public places, such as roads, sidewalks,
canals, esteros or parks, and establishment, or causing or permitting the same;
(2) Undertaking activities or operating, collecting or transporting equipment in violation
of sanitation operation and other requirements or permits set forth in established
pursuant;
(3) The open burning of solid waste;
(4) Causing or permitting the collection of non-segregated or unsorted wastes;
(5) Squatting in open dumps and landfills;
(6) Open dumping, burying of biodegradable or non-biodegradable materials in flood prone
areas;
(7) Unauthorized removal of recyclable material intended for collection by authorized
persons;
(8) The mixing of source-separated recyclable material with other solid waste in any vehicle,
box, container or receptacle used in solid waste collection or disposal;
(9) Establishment or operation of open dumps;
(10) The manufacture, distribution or use of non-environmentally acceptable packaging
materials;
(11) Importation of consumer products packaged in non-environmentally acceptable
materials;
(12) Importation of toxic wastes misrepresented as “recyclable” or “with recyclable content”;
(13) Transport and dumplog in bulk of collected domestic, industrial, commercial, and
institutional wastes in areas other than centers or facilities as prescribed by law;
50
51
52
157
(14) Site preparation, construction, expansion or operation of waste management facilities
without an Environmental Compliance Certificate required pursuant to Presidential
Decree No. 1586 and RA 9003 and not conforming with the land use plan of the LGU;
(15) The construction of any establishment within two hundred (200) meters from open dumps or
controlled dumps, or sanitary landfill; and
(16) The construction or operation of landfills or any waste disposal facility on any aquifer,
groundwater reservoir, or watershed area and or any portions thereof.53
Security and Safety

DOT Memorandum Circular No. 2006-09 Series of 2006 (August 23, 2006) constitutes the
Adoption of Safety and Security Measures in hotels, resorts, and other similar accommodation
establishments. This is in line with the Department’s thrust of ensuring the safe, convenient
and enjoyable stay and travel of both 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;
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
Security Officers of the Philippines, Inc. (AHSOP) or any concerned government agency;
and
10. Linkages with local PNP Commands, hospitals and other concerned agencies shall be
institutionalized to respond to emergency situations.

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?
53
158
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 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.54
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?
54
Primer on Bomb Threat, National Police Commission, Philippine National Police, Police Regional Office 3, Camp Olivas, City of San Fernando,
Pampanga.
159
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?
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.
Hotel Hopping
Organize a class tour of two to three hotels in the city.
Observe keenly the facilities and services offered by the hotels.
When you get back in class, discuss all your observations on
quality and safety standards, waste management, security
systems, communications and records handling, and guest
complaints handling.
Bumping Off Hotel Guests

Interview a hotel front office manager or concierge. Find out
how they handle a hotel guest bumped off due to an overbooking
situation. What approach do they apply in order for the guest
not to complain or worse file a lawsuit against the hotel? What
are the important things to remember when handling room
reservations in order to prevent such situation?
The Deadly Hotel Pool

Swimming pools in hotels are built for recreation
purposes. In some cases, swimming pools cause
damage to hotel guests like falling hair, skin damage
and eye irritation due to excessive chemicals used,
cuts and bruises due to broken tiles and exposed sharp
metal edges, and even drowning especially when there
is no lifeguard on duty. Discuss in class what kind of
liabilities can hotel owners and managers face arising
from problems encountered in the swimming pool.
160
RESEARCH PROJECT
In the mid-1990s, Senator Joker Arroyo and Congressman
Teodoro Locsin Jr. filed a criminal complaint against the owners
and management of The Peninsula Hotel in Makati City. Both
gentlemen alleged received verbal and physical abuse heaped by
an apparently drunk foreigner at the lobby of the hotel. Look
up the details of the case in the Internet. Discuss the potential
liability of the hotel if the case prospered. If you were the hotel
general manager, how would you handle the situation? Suggest
ways in which hotel managers can handle commotions between
hotel guests.
161
Travel and Tour Services
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)
Case of Rampant Sex Tours in the 1970s

In the 1970s, many travel agencies and tour operators have
clandestinely been engaged in sex tours wherein the focal point of the group
tour packages were neither the beautiful tourist attractions of the country
nor the renowned hospitable service of Filipinos but the incorporation of
illicit liaisons with Filipino women in the tour package. Some of these
women were even recruited from the rural areas of the country. Prostitution
became rampant not only in Manila but in other cities like Olongapo and
Cebu. To some extent, minors were also exploited. The clientele coming from
Middle Eastern, European and Asia Pacific countries trooped in busloads.
The largest contingent came from the Japanese market. The country had
been depicted as a prime destination for this type of tour packages during
that decade. In this present decade, the limelight on this type of tours have
been taken away from the Philippines by other more open countries like
Thailand, India, Latin American and Eastern European countries. What
are the social costs of this type of tourism product? Does it fit well in the
Philippine culture and tradition? What are your impressions of a travel
agency or tour operator engaged in such trade? What measures can the
government undertake to prevent a repeat of this era? What laws can
safeguard the ethical conduct of travel agencies and tour operators?
Learning Objectives
• 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
• Give examples of issues, concerns and problems travel agencies and tour operators may have in the
conduct of their business
As part of our tourism industry, the pivotal role of travel agencies is regarded as revenue
support of the nation’s economy. Considering that our tourism industry has already become a
matter of public interest, it calls for its promotion and regulation by our government.1
The laws regulating travel and tour services in this chapter involve implementing rules
and regulations by the Department of Tourism and Supreme Court decisions which define
the nature of the business of a travel agency and tour operator. Likewise, a background on
the validity of E-ticketing in booking customers by virtue of R.A. 8792, also known as the
Electronic Commerce Law has been included.
1
Geraldez vs. Hon. Court of Appeals and Kenstar Travel Corporation, G.R. No. 108253, February 23, 1994.
162
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 conduct 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. 2

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.3
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.4

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
c. Corporations organized under the laws of the Philippines, at least 60% of the subscribed
common or voting shares of stocks of which is owned by Filipino citizens and the
composition of its Board of Directors being at least 60% Filipinos.
2
3
Estela L. Crisostomo vs. Court of Appeals & Caravan Travel & Tours International, Inc., G.R. No. 138334, August 25, 2003.
4
Section 6, RA 8239.
163
Section 3. For purposes of accreditation the following are the supporting documents to
be submitted with the applications:
a. In case of a single proprietorship, a business name certificate and all amendments
thereto; in the case of partnership or corporations, a certified true copy of the articles
of partnership/incorporation and its by-laws and amendments thereto, duly registered
with the Securities and Exchange Commission;
b. Complete list of its executive officers and employees, tour guide and travel
representatives, if any, indicating therein their nationality, home address and
experience, including names and establishments previously or currently affiliated
with, position and length of service showing following:
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 lessee 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 (5500,000.00) 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.

The foregoing provisions provide for the minimum requirements for the accreditation
and operation of a travel agency and/or tour operator by the Department of Tourism. Take
note of the investment limitation of foreigners in engaging as a travel agency or tour operators
in the Philippines.
Accreditation under the International Air Transport Association (IATA)

IATA accredits two distinctive types of travel agencies - Airline Appointed Agencies
holding ticket stock or capable of e-ticketing; and all other categories of travel agencies called
Travel Sales Intermediary (TSI) Agencies. Essential to both programs is a set of objectives, with
appropriate business standards that travel agencies must meet.5
5
www.iatan.org
164
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 IATAN’s 79 customer airlines. Each airline
sets its own standards for appointing travel agencies and each airline may select any number
of appointment criteria. Travel agencies receive remuneration, generally in the form of
commissions, on the sale of air transportation services. The rate of commission is set between
the individual agency and each airline.
Any travel agency holding standard and/or airline ticket stock or capable of e-ticketing
may apply as IATA Airline Appointed Agency. The standards for accreditation will be based
on the following:
(a) Managerial Qualifier – a full-time person authorized to make managerial decisions and
exercise daily supervision of the location, and who has 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 (TSI)

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. TSIs do not hold airline agency
appointments or issue airline tickets.
Any business who wish to obtain accreditation by IATAN as a TSI is required to meet the
following standards:
(a) 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
165
least 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
business.
(g) Proof that the business and location are in compliance with all federal, state, country and
local laws, including but not limited to zoning, registration and business license.
(h) Proof of Sellers of Travel State Registration.
(i) Certification that there are no pending or 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 [1] year if the person has successfully completed and undergraduate
degree in travel and tourism or has earned certification as a Certified Travel Counselor,
a Certified Travel Industry Executive or as a Certified Travel Associate) full-time or
equivalent experience within the last three (3) years in a travel sales capacity at an
accredited agency, corporate travel department, airline, cruise line, hotel, car rental,
railroad, bus company, tour operator, or other travel related business.

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 waived
by the Department where the applicant possesses special academic or professional
qualifications relevant to tourism;
166
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.

The above are the minimum requirements for accreditation as a tour guide by the
Department of Tourism. It is vital that an accredited tour guide must have passed a seminar for
tour guides duly conducted by the Department of Tourism of its duly authorized agencies.

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.6
6
Lydia L. Geraldez vs. Hon. Court of Appeals et al., G.R. No. 108253, February 23, 1994.
167
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 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.7
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.

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 partnerships, 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.8
7
Lydia L. Geraldez vs. Hon. Court of Appeals et al., G.R. No. 108253, February 23, 1994.
8
Section 2, Rules and Regulations Governing Overseas Employment.
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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.9
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.10
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.11
1. What is a tour operator?

2. What is a tour guide?
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?
9
Section 5 (e), Republic Act No. 8792.
10
Refer to Sweet Line, Inc. vs. Teves, G.R. No. L-37750, May 19, 1978.
11
Section 7, Republic Act No. 8792.
169
The Cancelled Trip

Have you planned for a trip that got cancelled? Were you
able to get your money back? Surf the Internet and try to find
out the cancellation policy of 5 or more travel agencies and
compare. Report your findings in class.
Under the Table Dealings

Lulu Pascasio is the adviser of a Tourism class that
has planned a trip to Coron, Palawan utilizing Wonder
Travel’s services. In the bidding process, the travel agency
promised to allot 6 slots free of charge for the teacher-
chaperones which is sufficient for 90 students joining the
trip. At the Manila South Port, Ms. Pascasio brought along
with her onboard the Superferry her entire family, i.e., her
husband and three kids. Divide the class into 3 groups to
brainstorm on 3 questions: (a) Was the travel agent right
in allowing Ms. Pascasio to utilize the slots allocated for teacher-chaperones for her family?
(b) What unethical practices can you identify from this case? (c) Suggest a good process for
bidding group tours in schools.
Walk the Talk

Have you encountered a tour guide who is
tardy in appointments, dishonest, vulgar in language,
unprofessionally groomed and unhygienic? Invite a
tour operator in class to talk about professionalism in
conduct and appearance of tour guides. Ask questions
and seek pointers.
RESEARCH PROJECT
If you were to organize a tour for 40 Australian senior
citizens who are coming to the Philippines for the first
time and you along with one colleague are to do the tour
guiding of Paoay, Ilocos Norte for four days inclusive of bus
travel, present a tour plan comprising of an itinerary and
things you have to remember to make the trip memorable,
organized, and safe. What laws do you need to observe? It
would be helpful if you surf the Internet and learn more
about Paoay, Ilocos Norte.
170
Restaurants and Other
Tourism-Oriented Establishments
Food and entertainment go together. The restaurant business is a little bit complex and stringent
because it directly affects 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)
Case of a Different Kind of Oxtail Stew

Ana Karenina Chua, a Chinese matriarch of an enterprising family
was treated to a sumptuous lunch by her children in celebration of her 65th
birthday. She was brought to her favorite casual dining Filipino restaurant
in Quezon City. Among the many dishes ordered was the family’s favorite,
Kare-kare (oxtail stew with peanut sauce) for which the restaurant was
known for. After some jolly conversations and a few bites on the appetizers,
fresh lumpia (vegetable spring rolls), Mrs. Chua noticed a foreign object
submerged in the peanut sauce of the oxtail stew. To everyone’s surprise,
it was a used band-aid strip mixed with the vegetables. Some members of
the family already ingested some of the oxtail stew. One sibling had to go
to the restroom due to discomfort. They called on the restaurant manager
to inform him the situation. The eldest son managed to take some top view
photos with his camera of the oxtail stew showing the band-aid strip. The
manager was very apologetic and volunteered to replace the contaminated
dish. He was even suggesting that the meal was on the house. What are the
liabilities of the restaurant in this case? What are the possible remedies?
Will going to the media help? How can restaurants prevent contamination?
What are the worst possible consequences of this kind of situation?
Learning Objectives
• 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
While many Filipino restaurants do not have very long life spans, some reliable old brands
are still very much around owing much their stability to the consistency of the quality of their
products and services and continuous patronage of various generations of Filipino families.
Entertaining in the Philippines is not only a ritual but a display of one’s socioeconomic status,
education, and hospitality. Different kinds of entertainment outlets have emerged in the last
two decades catering to varied tastes of the Filipinos and tourists. Karaoke sing-along bars,
comedy bars, and ballroom dancing clubs have replaced the discotheques, folk houses and
nightclubs of the 60s, 70s, and 80s.
171
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.1 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.
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.2
A karaoke bar is any establishment offering karaoke and videoke facilities to tourists
and to the general public.3
A gallery is any establishment that has a formal space for exhibition of paintings,
sculptures, prints, photographs, potteries and mixed media works.4
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.5
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.6
1
Sections 14, 15 and 16, Article XIV, 1987 Philippine Constitution.
2
Chapter 1, Section 1, Rules and Regulations to Govern the Accreditation of Tourism-Related Establishment.
3
Chapter 1, Section 1, Rules and Regulations to Govern the Accreditation of Karaoke Bars.
4
Chapter 1, Section 1, Rules and Regulations to Govern the Accreditation of Gallery.
5
Chapter 1, Section 1, Rules and Regulations to Govern the Accreditation of Tertiary Hospitals for Medical Tourism.
6
Section 1 (a), Revised Rules and Regulations to Govern the Accreditation of Spa Establishments.
172
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.
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 (e.g., 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.7
Restaurants may take many forms such as casual dining restaurants (e.g., Max’s, Gerry’s
Grill, Bubba Gump and Italiannis), fine dining restaurants (e.g., 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
7
Chapter II, Section 2, Rules and Regulations to Govern the Accreditation of Tourism-Related Establishment.
173
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.8
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 approaches 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.9
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 Waterpark. 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 including approaches should be pleasant with proper ingress and egress. The
facade and architectural features should be appropriately designed. An adequate and secured
8
Chapter III, Section 3, Rules and Regulations to Govern the Accreditation of Tourism-Related Establishment.
9
Chapter 4, Section 4, Rules and Regulations to Govern the Acreditation of Tourism-Related Establishment.
174
parking space for customers should be made available. Adequate security should be provided
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.10
Examples of museums are the National Museum, the Provincial Museum of Iloilo, 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 the walls should be covered
with impervious materials of good quality and workmanship and should be kept clean 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 (e.g., 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.11
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
10
Chapter 5, Section 5, Rules and Regulations to Govern the Acreditation of Tourism-Related Establishment.
11 Chapter II, Section 2, Rules and Regulations to Govern the Accreditation of Karaoke Bars.
175
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.12
Examples of galleries are CCP Main Gallery in Pasay City, Galleria Duemila in Pasay City,
Ateneo Art Gallery in Quezon City, and Hiraya Gallery in Manila.
Tertiary Hospitals for Medical Tourism

The minimum requirements for the operation of tertiary hospitals for medical tourism
shall be based on the following criteria:
a. Location – must be accessible and centrally located.
b. 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.
c. Front office/reception (lounge, porter service, foreign exchange counter, overseas call
facilities, reception amenities, business center).
d. Housekeeping (high quality and spotlessly clean linen, towels, blankets, laundry, and dry
cleaning service).
e. Food and Beverage – must have a well-equipped, well-maintained and well-furnished
restaurant; standard includes room service staff and kitchen staff.
f. Engineering and Maintenance – includes ventilation, lighting, emergency power, waste
disposal and management.
g. 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.
h. 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.13
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:
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.
12
Sections 2 and 3 (d), Rules and Regulations to Govern the Accreditation of Gallery.
13
Chapter II, Section 2, Rules and Regulations to Govern the Accreditation of Tertiary Hospitals for Medical Tourism.
176
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 services,
physical fitness, education programming and on-site accommodations where spa cuisine
or healthy food is offered.
Hotel Spa is a spa located within a hotel/urban/out of town providing professionally
administered spa services, fitness and wellness components.
Cruise Spa is a spa aboard a cruise ship that provides professionally administered spa services,
fitness and wellness components and spa cuisine menu choices.
Club Spa is a facility whose primary purpose is fitness, offering a variety of professionally
administered spa services on a day-use basis to both club members and non-members.
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.
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.
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.14
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.
14
Section 1, Revised Rules and Regulations to Govern the Accreditation of Spa Establishments.
177
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.15
All clients should be required to register and fill-up consultancy forms prior to treatment
by therapist to determine any contraindication or special condition. The spa should also
maintain an updated client file. 16
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 1976.17 The entire spa facility should be a no
smoking facility.18
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 games 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 casinos
without direct government involvement.
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.19
15
Chapter 2, Section 3, Revised Rules and Regulations to Govern the Accreditation of Spa Establishments.
16
Section 4, Revised Rules and Regulations to Govern the Accreditation of Spa Establishments.
17
Section 6, Rules and Regulations to Govern the Accreditation of Spa Establishments.
18
Section 9, Rules and Regulations to Govern the Accreditation of Spa Establishments.
19
P.D. 1869, July 11, 1983.
178
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, i.e., basketball,
football, lotteries, etc. whether on land or sea, within the territorial jurisdiction of the Republic
of the Philippines.20
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 (10%) 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.21
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.22 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.23
PAGCOR, being a government owned and controlled corporation created under a
legislative franchise, is governed under Civil Service laws, rules and regulations.24
20
21
22
23
24
1987 Constitution; Philippine Amusement and Gaming Corporation vs. the Court of Appeals et al., G.R. 93396, September 30, 1991.
179
Case: On March 31, 1998, PAGCOR’s board of directors approved an instrument denominated as
“Grant 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.25
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 5150,000,000.00, 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.26
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.27
25
Senator Robert Jaworski vs. Philippine Amusement and Gaming Corporation et al., G.R. 144463, January 14, 2004.
26
Section 12, P.D. 1869, as amended by Presidential Decree No. 1993, October 31, 1985.
27
Section 13 (1), P.D. 1869.
180
Fees or remuneration of foreign entertainers contracted by PAGCOR or the operator shall
also be free of any tax.28
A Franchise Tax of five (5%) 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.29
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 (10%) percent in lieu of the regular income tax
rates.30
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.31

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 550,000.00, 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 Army, Navy, and Air Force; and
c) Persons under 21 years of age or students of any school, college or university in the
Philippines.32
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.
28
Section 13 (2)(b), P.D. 1869.
29
Section 13 (2), P.D. 1869.
30
Section 13 (3), P.D. 1869.
31
Section 27 (C), National Internal Revenue Code of 1997, as amended by R.A. 9337, May 24, 2005.
32
Memorandum Circular No. 8, Enjoining Government Personnel and All Concerned from Entering or Playing in Casinos, August 28, 2001.
181
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
immediate premises.
Keepers, managers or operators should exert all possible efforts not to permit any
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 of immoral or illegal activities.
They should immediately report to the nearest police station the presence in the premises of
any such person.33
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.34
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. 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 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
h. Such other documents as may be required from time to time by the Department of Tourism.
33
Chapter IX, Rules and Regulations to Govern the Accreditation of Tourism-Related Establishment.
34
Chapter III, Sections 3 and 4, Rules and Regulations to Govern the Accreditation of Tertiary Hospitals for Medical Tourism.
182
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.35 A caterer is defined as a
provider of food and provisions.36
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.37
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.38
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
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
35
World Book Dictionary.
36
Lexicon-Webster Dictionary.
37
The Maya Kitchen, Food Service and Catering Management A Practical Guide, 2004, published by Anvil Publishing Corporation, p. 93; Food
Service & Bartending, by Amelia Samson-Roldan and Benito Edica, 2003 Edition, Skills & Development Management Services, p. 111.
38
Section 6, RA 9337, July 1, 2005.
183
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 53,000 plus 52,000, as the 1st Annual Fee which gives
a total of 55,000 (With annual renewal of 52,000)
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 55,000, 510,000 or 520,000 (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 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.39
The word “regulate,” as used in subsection (l), 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.40
39
Sections 447 and 458, Local Government Code of 1991.
40
Hon. Alfredo Lim et al. vs. Hon. Perfecto Laguio, G.R. No. 118127, April 12, 2005.
184
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 (BFAD) 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 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.
Retail Trade Law
The Law
The Retail Trade Liberalization Act of 2000 was enacted on March 7, 2000 which specifically
repealed Republic Act 1180 otherwise known as the “Retail Trade Nationalization Law.”
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.41 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.42
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)43

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:
41
42
Section 3 (1), R.A. 8762.
43
Commercial Law Review by Cesar L. Villanueva, 2002 Edition, Rex Book Store, Inc., pp. 32-33.
185
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 (US$7,500,000) 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.
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 (US$50,000,000) 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.44 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.45

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.
44
45
186
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 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.46
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.47

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.48
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 nightclubs 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
46
See Erlinda Talan and Yap O. Teck vs. The People of the Philippines, G.R. No. 37704, January 30, 1989.
47
Section 16, Local Government Code of the Philippines.
48
Sections 447 (1) (v) and 458 (1) (v), Local Government Code of the Philippines.
187
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
causes 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.49
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.50
In Zamboanga City, Leyte, General Santos and Davao City, there is a prohibition for the
sale of liquor to minors.51
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.

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
need to codify the laws relating to children’s rights to apply the same to the province of Bohol.52
Laws Regulating Churches, Monuments, National Shrines, Landmarks and Other

Important Historic Edifices
The Law
By virtue of Presidential Decree No. 260 (August 1, 1973), the following has been declared
National Shrines, Monuments and Landmarks:
1. The Sta. Ana Site Museum in Manila;
2. The Roman Catholic Churches of Paoay and Bacarra in Ilocos Norte;
3. The San Agustin Church and Liturgical Objects therein in Intramuros, Manila;
4. Fort Pilar in Zamboanga City;
49
www.baguiocity.com
50
www.camarinessur.gov.ph
51
www.cwc.gov.ph
52
See www.bohol.gov.ph
188
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 Treasures;
10. The Barasoain Church in Malolos, Bulacan;
11. Tirad Pass in Cervantes, Ilocos 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 Niňo in Cebu City.

The Sta. Ana Site Museum in Manila; the Roman Catholic Churches of Paoay and
Bacarra in Ilocos 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.53
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 Island in Cebu; the San
Sebastian Church in Quiapo, Manila; and the Church and Convent of Sto. 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.54
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.55 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.56

Case: The San Agustin Paoay Church in Ilocos 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 Ilocos Norte? What government agency can help him?
53
54
55
Section 5, P.D. 260, as amended by P.D. 1505, June 11, 1978.
56
Section 1, P.D. 373, January 9, 1974.
189
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 Ilocos 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 Comitted 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 x x x shall be guilty of malicious mischief.
Article 328. Special cases of malicious mischief. Any person who shall cause damage
to x x x the National Museum or National Library, or to any archive or registry, x x x 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 x x x shall suffer the penalty x x x.
Any person who shall destroy or damage any useful or ornamental painting of a public
nature shall suffer the penalty x x x.57

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
not 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.

Case: Dante Arguelles has this nasty habit of writing his name and other nonsense phrases
(e.g., “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.
57
Act No. 3815, The Revised Penal Code, as amended.
190
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 who, 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.
Article 265. Less serious physical injuries. Any person who shall inflict upon another
physical injuries not described in the preceding articles, but which shall incapacitate the
offended party for labor for ten days or more, or shall require medical attendance for the same
period x x x.
Article 266. Slight physical injuries and maltreatment. The crime of slight physical
injuries shall be punished:
1. By arresto menor when the offender has inflicted physical injuries 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.58

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.

Case: Mark Baranda is a chef in a 300-seater restaurant in the Manila Bay area. One day, a long
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.59 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.60
58
Act. No. 3815, The Revised Penal Code, as amended.
59
60
191
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 things,
shall take personal property of another without the latter’s consent.
Artcile 310. Qualified theft. – The crime of theft shall be punished by the penalties next
higher by two degrees x x x if committed x x x with grave abuse of confidence.
Article 311. – Theft of the property of the National Library and National Museum.
If the property stolen be any property of the National Library or the National Museum, the
penalty shall be arresto mayor or a fine x x x, 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.61

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.

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 53.5 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.62
61
Act. No. 3815, The Revised Penal Code, as amended.
62
People of the Philippines vs. Locson, 57 Phil. 325, 334 (1932); People of the Philippines vs. Ruben Sison, G.R. No. 123183, January 19, 2000.
192
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?
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?
Debate on Lowering Liquor Ban Age
At present minors (aged below 18) cannot be sold alcoholic
products by retail outlets, restaurants or bars. Statistics,
however, reveal that teenagers as young as 13 have already tried
drinking beer or any other alcoholic drink. Do you agree to the
proposition of lowering the liquor ban age from “below 18” to
“below 15”? Divide the class into two groups and organize a
15-minute debate in class.
193
Signs of the Times
Between 2000 and 2007, so many new issues have been
the subject of the press and media. Choose one topic and
write, at least, a 150-word essay for submission.
• Use of cheap but possibly contaminated food supply
in restaurants coming from abroad
• Optional inclusion of service charge in customer’s
bill in restaurants
• Safety standards in amusement parks
• Licensing of fitness trainers, massage attendants and therapists
• Redtape in the securing of mayor’s permit to operate a restaurant, bar or spa
Class Immersion
Divide the class into four groups. One group goes to
a restaurant. One group goes to a cinema or theater. Another
group goes to a museum or gallery. The last group goes to a
health and fitness club. Students must experience the services of
these establishments under the supervision of a teacher. Focus
on potential areas where problem with the law may happen.
Report to the class your findings.
RESEARCH PROJECT
Pasay City Mayor Wenceslao Trinidad has been doing a crackdown
on establishments with lewd shows in his vow to clean up the city of
criminal elements. Surf the Internet and check out if there are other
mayors and governors doing the same drive. Discuss in class the impact
of such move by local government officials.
194
Professional Congress Organizers
Conferences, exhibitions, trade shows, and other events take place in major cities of the country with
sometimes foreign delegates. It is the job of professional congress or event organizers to plan carefully a
memorable, organized, and successful affair. (Mina Gabor, former Secretary of Tourism)
Case of the Missing Conference Participant

Bert Ampil is a professional conference organizer assigned to put
together the needs of the 900 foreign and local delegates to the 2007 World
Congress on Dermatology to be held in Manila. The event was programmed
at five days with the last two days devoted to shopping, sightseeing,
networking and visiting friends. The conference was a resounding success
gauging from the attendance of medical experts, financial results, and other
objectives attained. One of the foreign participants was Dr. Yuri Petrovski
who was coming to the Philippines for the first time. Dr. Petrovski booked
for a trip to Tagaytay to see the famous Taal Volcano. Dr. Petrovski did
not come back to his hotel until after two days and has obviously missed
his flight back to Moscow. The other Russian delegates became so worried
that they called the attention of Mr. Ampil. Mr. Ampil found out that Dr.
Petrovski did not avail of the authorized official tour operators commissioned
by the conference organizers for sightseeing. Is Mr. Ampil’s company at
fault in this situation? What are the responsibilities of conference organizers
especially when there are foreign delegates in an event? Can Dr. Petrovski
demand payment from the conference organizers of the new airline booking
he had to make because of the incident?
Learning Objectives
• Enumerate the responsibilities of professional congress organizers
• Identify the laws that govern the business of congress, conference or event organizers
• Provide examples of safeguards that may be observed by professional congress organizers to prevent
violation of any law
Meetings, incentives, conventions and events are part of business tourism sector, a major
though often undervalued sector of the wider tourism industry. This chapter deals with the
laws regulating professional congress organizers which also encompass other names applied
to the profession, e.g., event planners and convention organizers. This will also discuss the
accreditation requirements by the Department of Tourism.
Nature and Description of Business
The Law
Convention. Any gathering for the purpose of exchanging or disseminating views,
technical expertise, experiences, knowledge, skills, information, policies or any other related
activity. It does not include corporate meetings or events where participation is limited to
company personnel only. The term shall include any of the following:
195
Conference. Usually general sessions and face-to-face groups with high participation to plan,
get facts, solve organization and member problems.
Congress. More commonly used European designation for convention and mainly
international in scope.
Seminar. Usually one face-to-face group sharing experiences in a particular field under the
guidance of an expert discussion leader. Attendance is 30 persons or less.
Lecture. A formal presentation by an expert sometimes followed by question-and-answer
period.
Symposium. A panel discussion by experts in a given field before a large audience with some
audience participation but appreciably less than a forum.
Forum. A panel discussion taking opposite sides of an issue by experts in a given field with
liberal opportunity for audience participation.
Workshop. Usually a general session and face-to-face groups of participants training each
other to gain new knowledge, skills or insights into problems; attendance generally no
more than 30-35 participants.
Colloquium. A program in which the participants determine the matter to be discussed. The
leaders would then construct the program around the most frequent problems; usually
attended by 35 persons or less with equal emphasis on instruction and discussion.
Professional Congress Organizer (PCO). Any person, natural or juridical, who manages
conventions, either as an official of an organization, consultant, volunteer or as a
retained professional.1

Trade shows and events may be organized by a professional congress organizer, for
purposes of accreditation by the Department of Tourism. Think of the professional congress
organizer (PCO) or event planner as a well-connected meeting-planner-for-hire. This type of
specialist is common outside the U.S., especially in European cities. A PCO or event planner can
take over the site-selection process for you, negotiate with hotels and other suppliers, handle
accounting matters and on-site logistics, advise on tax matters, and shepherd paperwork. In
short, it will take charge of the program. The business of professional congress organizers is a
type of “agency” therefore, the laws discussed in Chapter 5 may apply.
The following may apply for accreditation as PCO under the Department of Tourism:
b. Partnerships organized under the laws of the Philippines, at least 60% of the capital of
which is owned by Filipino citizens; and
c. Corporations organized under the laws of the Philippines, at least 60% of its subscribed
common or voting shares of stocks being owned by Filipino citizens and the composition
of its Board of Directors being at least 60% Filipino.2
Accreditation of Professional Congress Organizers

The following are the requirements for the issuance of accreditation by the Department
of Tourism:
1
Chapter I, Section 1 (r), Rules and Regulations to Govern the Accreditation of Travel and Tour Services.
2
196
a. In case of a single proprietorship, a business name certificate and all amendments
thereto; in the case of partnership or corporations, a certified true copy of the articles
of partnership/incorporation and its by-laws and amendments thereto, duly registered
with the Securities and Exchange Commission;
b. Complete list of its executive officers and employees, indicating therein their nationality,
home address and their positions;
c. Contract of lease or contract to lease the office space intended for the use of the PCO.
d. Mayor’s permit/municipal license;
e. Latest Income Tax Return and Audited Financial Statements reflecting a minimum
working capital of One Hundred Thousand Pesos (5100,000.00); and
f. Such other documents that the Department may require from time to time. 3
The PCO must also be located in a business district and must be easily identifiable.4
The certificate of accreditation shall be valid for a period of one (1) year from the date of
its issuance by the Department of Tourism. 5

Case: Roberto Zozobrado has an event planning outfit called Ideaz. He recently won a bid to
handle the international convention of surgeons in Manila in 2009. He was obviously delighted
because aside from the business motivation, Mr. Zozobrado is very keen on supporting
Philippine tourism. Discuss the key responsibilities of his company in the upcoming
international convention. What areas must he be careful in order to prevent problems?
Legal Opinion: Mr. Zozobrado is bound by his acceptance to carry out in handling the
international convention and shall be liable for damages which, through his non-performance,
the client who hired Mr. Zozobrado may suffer. In the execution of handling the international
convention, Mr. Zozobrado must act in accordance with the instructions and approval of the
client. All things being considered, Mr. Zozobrado must perform all that a good father of a
family would do, as required by the nature of his business.6
As an event organizer has various ‘safety’ duties known collectively as duties of
reasonable care, planning any activity or special event is important since there is an element
of risk present. These are:
• To investigate all aspects of the event (including safety and security) and act
accordingly
• To inform and warn participants of known risks
• To plan for the safety and well-being of every participant
• To ensure participants are not subjected to unreasonable risks or harm
Delegate safety and security should always be considered when selecting a venue. In
addition, ease of access, both by participants and by the organizer and suppliers, as well as
the importation of goods, should be taken into account. Medical congresses cost significant
sums of money. Proper fund management is important as any commercial operation to ensure
the security of these funds and for the regular audited tracking of allocated expenditure.
Confidentiality is a major issue and can affect many different areas within the boundaries of
3
4
5
6
See Articles 1884 and 1887, Civil Code of the Philippines.
197
the meetings industry. Special attention should be paid to obtaining permission from speakers
and/or companies for the publication and/or disclosure of material to be presented at the
event. Mr. Zozobrado must make sure that the caterer for the meals shall provide the highest
standards of cleanliness associated with the food and beverage service.7
1. What is a professional congress organizer or event planner?

2. What are the responsibilities of a professional congress organizer or event planner?
3. What are the accreditation requirements by DOT for a professional congress organizer
or event planner?
4. Why are professional congress organizers or event planners important to the tourism
industry?
5. What is a conference?
6. What is a convention?
7. What is a congress?
8. What is a seminar?
9. What is a symposium?
10. What is a lecture?
11. What is an event? Give examples of events.
12. What is a colloquium?
13. What is a trade exhibition or trade show?
14. What is a forum?
15. What is a workshop?
Trade Exhibit
Visit a trade exhibit and observe the conduct of
the event focusing on areas which could have been
improved by the organizers and which could prevent
any potential problems with the law. Submit a three-
page dossier with entrance tickets and photos taken
from the trade exhibit attached on the 3rd page and
your findings on the first two pages.
7
www.ipcaa.org
198
Coffee Break with an Event Organizer
Invite an event organizer in class for a 30-minute coffee
break. Engage the event organizer in an impromptu conversation
about his work, the risks involved in his work, handling difficult
clients and situations and how he solves problems. You may
bring assorted beverages (e.g., tea, iced tea, soft drinks, juices,
etc.) to suit non-coffee drinkers. You may want to bring also
sandwiches, cookies and biscuits.
Drafting Agreements
Divide the class into three groups. Each group will brainstorm
on how to write a simple sample agreement between a conference
organizer and an engager client (a civic club for group 1, a religious
group for group 2, and a businessmen’s club for group 3). Present
the output in class. The teacher will critique the outputs.
RESEARCH PROJECT
The ASEAN Summit originally slated on December 10, 2006
was postponed on orders of President Gloria Macapagal Arroyo. Surf
the Internet and find out the circumstances that led to the moving of
the date of the conference to January 2007. The newly constructed
Cebu International Convention Center in Mandaue City was the
venue and Cebu Governor Gwendolyn Garcia and her team were all
set to host this high profile event and make a big impression on the
heads of state of the different ASEAN countries. Discuss in class the obligations of congress organizers
should there be a cancellation of the event.
199
Chapter 12 Laws Related to Tourism
Investments and Finance
“Teach man how to start a business and you feed him many lifetimes.” (Jose Ma. Concepcion III,
founder, Go Negosyo Summit)
Case of the Delayed Retirement Village

Rafael Valdez is a seasoned restaurateur who made his fortune via his
two fine dining restaurants which he solely owns in the financial district
of Makati. But Mr. Valdez is still dreaming of bigger things. He would like
to build a deluxe hotel, a retirement village and spa complex and many
more. On the retirement village, he was able to convince some friends and
suppliers to invest over 5 100 million and a bank loan was secured for 5 200
milllion. The idea was to build 50 upscale retirement homes adjacent to his
hotel north of Manila for the Japanese, Filipino-American and European
markets. Each unit would sell for 5 5.2 million and even before they could
get the necessary permits, Mr. Valdez was able to sell 8 units already. He
was warned by the Housing and Land Use Regulatory Board (HLURB) on
the consequences of pre-selling without a permit. He promised the buyers
to have all the units constructed by 2010. One year has passed and no work
has been done on the land development aspect of the project. Meanwhile,
money invested by partners and money received as sales were already spent
on the new additional restaurants being built. Dr. Pacifico Morales, one of
the Filipino-American retirees has been inquiring about his unit and no one could give a definite answer.
What are your impressions of this business venture? What violations did Mr. Valdez commit? What are
his liabilities to the investors and buyers?
Learning Objectives
• Enumerate the procedure in setting up a tourism-oriented business
• Explain the laws governing tourism investments and financing tourism-oriented projects
• Discuss the business models applicable to tourism projects
• Enumerate the various taxes application to tourism-related establishments
• Discuss the limitation of foreigners in tourism investments
It has been the policy of the State to recognize the indispensable role of the private sector
like the tourism industry and provide incentives for its needed investments.1 This chapter
deals with laws related to promotion, monitoring and regulation of tourism investments and
finance in the country. Basically, this will tackle the participation of foreign investors as well as
incentives given to Filipinos in case they will invest in the tourism industry. Special laws are
even created to address needs of certain sectors like the informal sector, Filipino balikbayans,
retirees and senior citizens.
1
Section 20, Article II, 1987 Philippine Constitution.
200
Foreign Investments Act of 1991
The Law
The term “Philippine national” shall mean a citizen of the Philippines, or a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines;
or a corporation organized abroad and registered as doing business in the Philippines under
the Corporation Code of which one hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine national and at
least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided,
That where a corporation and its non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least sixty percent of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens
of the Philippines, in order that the corporation shall be considered a Philippine national.2
Small and medium-sized domestic market enterprises with paid-in equity capital
less than the equivalent of Two hundred thousand US dollars (US$200,000.00), are
reserved to Philippine nationals: Provided, That if (1) they involve advance technology as
determined by the Department of Science and Technology, or (2) they employ at least fifty
(50) direct employees, then a minimum paid-in capital of One hundred thousand US dollars
(US$100,000.00) shall be allowed to non-Philippine nationals.3
The phrase “doing business” shall include soliciting orders, service contracts,
opening offices, whether called “liaison” offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country
for a period or periods totaling one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business, firm, entity or corporation in
the Philippines; and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization: Provided, however, That the
phrase “doing business: shall not be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do business, and/or the exercise of
rights as such investor; nor having a nominee director or officer to represent its interests in
such corporation; nor appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account.4

Republic Act 7042, as amended by Republic Act 8179 (March 25, 1996), also known as the
Foreign Investments Act of 1991, provides for the policy that foreigners can now invest in all
activities and enterprises in the Philippines, except those covered in the negative list.
When a foreign investment in the Philippines is not covered or does not seek incentives
under the Omnibus Investment Code, the foreign national or entity can ascertain the extent of
allowable foreign equity in the enterprise sought to be entered into by simply referring to the Negative
Lists, and filing the necessary requirements with the Securities and Exchange Commission.
2
3
4
Section 3 (d), R.A. 7042.
201
Under the Foreign Investment Act of 1991 (FIA 1991), a foreign national or equity must
determine the kind of enterprise sought to be entered into, whether the enterprise is a Domestic
Market Enterprise or an Export Enterprise.
Domestic market enterprise shall mean an enterprise which produces goods for sale, or
renders service to the domestic market entirely or, if exporting a portion of its output, continually
fails to export at least 60% thereof.5
In domestic market enterprises, foreigners can invest as much as 100% equity, except:
a) in areas included in the Negative List;6 or b) in case the paid-in equity capital is less than
the equivalent of Two hundred thousand US dollars (US$200,000.00), such domestic market
enterprises is reserved to Philippine nationals, provided, that if (1) they involve advance
technology as determined by the Department of Science and Technology, or (2) they employ at
least fifty (50) direct employees, then a minimum paid-in capital of One hundred thousand US
dollars (US$100,000.00) shall be allowed to non-Philippine nationals.7
If the activity is in the Negative List, foreign ownership in the enterprise is generally
limited to a maximum of 40% unless the Constitution or other laws provide lower limit.
Export Enterprise shall mean an enterprise wherein a manufacturer, processor, or service
(including tourism) enterprise exports sixty percent (60%) or more of its output, or wherein
a trader purchases products domestically and exports sixty percent (60%) or more of such
purchases.8 There are no restrictions on the extent of foreign ownership (up to 100%) in export
enterprises, unless the products and services fall within the Negative Lists A and B or utilize
raw materials from depleting natural resources.
Procedure for Registration

A foreign national or entity not seeking to avail of incentives under the Omnibus
Investment Code shall file an application of registration as follows:
(a) Corporation and Partnership – with the Securities and Exchange Commission (SEC).
The existing requirements for foreign corporations are: (1) Name Verification Slip;
(2) Certified Copy of Board Resolution authorizing the establishment of a Philippine
office, designating the resident agent, and a stipulation that in the absence of such
agent or upon cessation of its business in the Philippines, the SEC shall receive
summons and legal processes; (3) Financial statements as certified by an independent
Certified Public Accountant of the home country for the immediately preceding
year at the time of the filing of the application; (4) Certified copies of the Articles
of Incorporation/Partnership with English translation; (5) Foreign Company
Information Sheet; (6) Proof of inward remittances such as a bank certificate or
inward remittance or credit advices; 9
The existing requirements in case of new domestic corporation or a partnership
are: (1) Articles of Incorporation/Partnership; (2) Name Verification Slip; (3) Bank
Certificate of Deposit; (4) Special Investor’s Resident Visa (SIRV) Visa # 13 of the
alien subscribers10; (5) Proof of Inward Remittance (for non-resident aliens).11
5
Section 1(k), Implementing Rules and Regulations of R.A. 7042 (October 23, 1991) as amended by R.A. 8179.
6
7
8
Section 1 (g), Implementing Rules and Regulations of R.A. 7042 (October 23, 1991) as amended by R.A. 8179.
9
Implementing Rules and Procedure of the Foreign Investments Act of 1991, October 23, 1991.
10
The Special Investor’s Resident Visa (SIRV), issued pursuant to the provisions of the Omnibus Investments Code of 1987, as amended shall
entitle the holder to reside in the Philippines for an indefinite period as long as the required qualifications and investments are maintained as
provided for in Article 74 of the Code.
11
Implementing Rules and Procedure of the Foreign Investments Act of 1991, October 23, 1991.
202
(b) Single or Sole Proprietorships – with the Bureau of Trade Regulation and Consumer
Protection (BTRCP) of the Department of Trade and Industry.
Aside from the registration requirements as mandated above, Section 125 of the
Corporation Code requires foreign corporations wishing to do business in the
Philippines to secure a license from the SEC allowing foreign corporation to do
business in the Philippines.
Effects of Failure to Comply with the Registration Requirements and Failure to Secure
the Necessary SEC License:
1) Administrative sanctions (such as imposition of fines and forfeiture of benefits, Section
14, Foreign Investments Act)
2) For foreign corporations:
(a) Criminal liability fine or imprisonment (Art. 144, Corporation Code)
(b) Foreign corporations cannot sue in Philippine courts (Sec. 133, Corporation Code of
the Philippines)
(c) Foreign corporation can be sued in Philippine courts (Sec. 133, Corporation Code)
Limitation of Foreign Ownership

Under Executive Order No. 139 dated October 27, 2002, pursuant to Republic Act 8179,
promulgating the Fifth Regular Foreign Investment Negative List and other special laws, the
following investments have the corresponding limitation of foreign ownership:
List A: Foreign Ownership Is Limited By Mandate of the Constitution and Specific Laws
No Foreign Equity:
1. Mass Media except recording (Article XVI, Section 11 of the Constitution; Presidential
Memorandum dated 04 May 1994)
2. Services involving the practice of licensed professions save in cases prescribed by law
a) Engineering
b) Medicine and Allied Professions
c) Accountancy
d) Architecture
e) Criminology
f) Chemistry
g) Custom Brokerage
h) Environmental Planning
i) Forestry
j) Geology
k) Interior Design
l) Landscape Architecture
m) Law
n) Librarianship
o) Marine Deck Officers
203
p) Marine Engine Officers
q) Master Plumbing
r) Sugar Technology
s) Social Work
t) Teaching
(Article XIV, Section 14 of the Constitution; Section 1 of RA No. 5181)
3. Retail Trade (Section 1 of RA No. 1180)
4. Cooperatives (Chapter III, Article 26 of RA No. 6938)
5. Private Security Agencies (Section 4 of RA No. 5487)
6. Small-scale Mining (Section 3 of RA No. 7076)
7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive
economic zone (Article XII, Section 2 of the Constitution)
8. Ownership, operation and management of cockpits (Section 5 of Presidential Decree No.
449)
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Article II,
Section 8 of the Constitution)
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and
radiological weapons (Various treaties to which the Philippines is a signatory and
conventions supported by the Philippines)
11. Manufacture of firecrackers and other pyrotechnic devices.
Up to Twenty-five Percent (25%) Foreign Equity:

12. Private recruitment, whether for local or overseas employment (Article 27 of Presidential
Decree No. 442)
13. Contracts for the construction and repair of locally-funded public works except:
a) infrastructure/development projects covered in RA No. 7718; and
b) projects which are foreign funded or assisted and required to undergo international
competitive bidding (Commonwealth Act No. 541; Presidential Decree 1594; Letter
of Instruction 630; Section 2a of RA No. 7718)
Up to Thirty Percent (30%) Foreign Equity:

14. Advertising (Article XVI, Section 11 of the Constitution)
Up to Forty Percent (40%) Foreign Equity:

15. Exploration, development and utilization of natural resources, unless full foreign
participation through financial or technical assistance agreement with the President of
the Philippines; (Article XII, Section 2 of the Constitution)
16. Ownership of private lands (a corporation 40% foreign-owned and 60% owned by
Filipinos may own private lands); (Article XII, Section 7 of the Constitution; Chapter 5,
Section 22 of Commonwealth Act No. 141)
17. Operation and management of public utilities (Article XII, Section 11 of the Constitution;
Section 16 of Commonwealth Act No. 146)
18. Ownership/establishment and administration of educational institutions (Article XIV,
Section 2 of the Constitution)
204
19. Engaging in the rice and corn industry (Presidential Decree No. 194)
20. Financing companies regulated by the Securities and Exchange Commission (SEC, Section
6 of RA No. 5980)
21. Contracts for the supply of materials, goods and commodities to government-owned or
controlled corporation, company, agency or municipal corporation (Section 1 of RA No.
5183)
22. Contracts for the construction of defense-related structures (e.g., land, air, sea and
coastal defenses, arsenals, barracks, depots, hangars, landing fields, quarters and hospitals)
(Commonwealth Act No. 541)
23. Project proponent and facility operator of a BOT project requiring a public utilities
franchise (Article XII, Section 11 of the Constitution; Section 2a of RA No. 7718)
24. Private domestic construction contracts (Republic Act 4566; Article XIV, Section 14 of the
Constitution)
25. Operation of deep sea commercial fishing vessels
26. Adjustment companies
27. Ownership of condominiums (Sec. 5, R.A. 4726)
Up to 60% Foreign Equity Allowed:

28. Investment companies regulated by the Securities and Exchange Commission (subject to
reciprocity rights)
29. Financing companies regulated by the Securities and Exchange Commission
List B: Foreign Ownership Is Limited for Reasons of Security, Defense, Risk to Health
and Morals and Protection of Small and Medium Scale Enterprises
Up to Forty Percent (40 %) Foreign Equity:
1. Manufacture, repair, storage, and/or distribution used in the manufacture thereof
requiring Philippine National Police (PNP) clearance:
a) Firearms (handguns to shotguns), parts of firearms and ammunition therefor,
instruments or implements used or intended to be used in the manufacture of
firearms
b) Gunpowder
c) Dynamite
d) Blasting supplies
e) Ingredients used in making explosives
f) Telescopic sights, sniperscope and other similar devices (RA No. 7042 as amended
by RA No. 8179)
2. Manufacture, repair, storage and/or distribution of products requiring Department of
National Defense (DND) clearance:
a. Guns and Ammunition for Warfare
b. Military Ordinance and Parts Thereof (e.g., Torpedoes, Mines, Depthcharges,
Bombs, Grenades, Missiles)
c. Gunnery, Bombing and Fire Control Systems and Components
d. Guided Missiles/Missile Systems and Components
e. Tactical Aircraft (Fixed and Rotary-Winged), Parts and Components Thereof
205
f. Space Vehicles And Component Systems
g. Combat Vessels (Air, Land and Naval) and Auxiliaries
h. Weapons Repair and Maintenance Equipment
i. Military Communications Equipment
j. Night Vision Equipment
k. Stimulated Coherent Radiation Devices, Components and Accessories
l. Armament Training Devices
(RA No. 7042 as Amended by RA No. 8179)
3. Manufacture and distribution of dangerous drugs (RA No. 7042 as amended by RA No.
8179)
4. Sauna and steam bathhouses, massage clinics, nightclubs, bars, beer houses, dance halls
and other like activities regulated by law because of risks they may impose public health
and morals
5. Other forms of gambling, e.g., race track operation, racehorse ownership/importation
6. Domestic market enterprises with paid-in equity capital of less than US$200,000
7. Domestic market enterprises involving advanced technology or employing at least 50
direct employees with paid-in-equity capital of less than US$100,000
Addendum: Up to 49% Foreign Equity Allowed:
Lending companies regulated by the Securities and Exchange Commission (subject to
reciprocity rights)12

Case: Tan O. Cheng, a Chinese resident and citizen, wants to try the air transportation business
in the Philippines. If you are the lawyer appointed by Tan O. Cheng to put up this kind of
business, what advice will you give?
Legal Opinion: As the lawyer of Tan O. Cheng, I will advise him that he cannot engage in the
air transportation as a sole proprietor because of the constitutional limitation that the operation
of a public utility (like the air transportation business) shall be granted only to citizens of
the Philippines) unless he wants to be a naturalized citizen under Philippine laws. Under the
current situation, I may advise him to look for partners or incorporators to form a partnership
or a corporation under Philippine Laws. However, the formation must be based on the limited
40% foreign equity by reason of the constitutional limitation.
Investment in Transportation Business and Public Utilities
The Law
Article XII. (National Economy and Patrimony) 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
12
Under Sec. 6, Republic Act 9474, Lending Company Regulation Act of 2007, May 22, 2007, at least a majority of the voting capital stock shall be
owned by Filipino citizens.
206
the condition that it shall be subject to amendment, alteration or repeal by the Congress
when the common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body
of any public 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 be citizens
of the Philippines.13

For common carriers, such as the airline, land and water transportation business,
the operation of such involve public service which shall be granted only 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. In other words, foreign
participation is limited to only 40 percent. In addition, the executive and managing officers of
the corporation or association operating a transportation business shall be exclusive to citizens
of the Philippines.

Case: Virginia Perez, a Filipino citizen and businesswoman, wants to engage in a limousine
and car service business. She wants to start a fleet of ten (10) cars. If you were the lawyer
appointed by Ms. Perez to set up this kind of business, what advice would you give?
Legal Opinion: As the lawyer of Virginia Perez, I would advise her that she may (a) engage in
the transportation business as a sole proprietor; or (b) look for partners to form a partnership
or incorporators to form a corporation in accordance with Philippine laws. If she chooses to
form a partnership or corporation, she must observe the limitation for foreign ownership, i.e.,
a maximum of 40% of total equity.
Investment in Travel Agencies and Tour Operators
The Law
The following may apply for accreditation as tour operator:
b. A partnership organized under the laws of the Philippines, at least 60% of its capital
c. Corporations organized under the laws of the Philippines, at least 60% of the subscribed
common or voting shares of stocks of which is owned by Filipino citizens and the
composition of its Board of Directors being at least 60% Filipinos. 14

The above provides the limitation of foreign participation to 40 percent for purposes of
accreditation and operation of a travel agency and/or tour operator by the Department of
Tourism.
In addition, Memorandum Order No. 211 approving the 2006 Investment Priorities Plan
(April 4, 2006), tourism (which covers travel agencies or tour operators) has been classified as
preferred activities pursuant to Article 29 of the Omnibus Investment Code of 1987. Thus, in
13
1987 Philippine Constitution.
14
207
order for a travel agency or tour operator to be entitled for registration under the Investment
Priorities Plan, an applicant must satisfy the Board of Investments that:
a) He is a citizen of the Philippines, in case the applicant is a natural person, or in case of a
partnership or any other association, it is organized under Philippine laws and that at least
sixty percent (60%) of its capital is owned and controlled by citizens of the Philippines; or
in case of a corporation or a cooperative, it is organized under Philippine laws and that at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by Philippine nationals as defined under Article 15 of Omnibus Investment Code,
and at least sixty percent (60%) of the members of the Board of Directors are citizens of
the Philippines.
(b) The applicant is proposing to engage in a preferred project listed or authorized in the
current Investment Priorities Plan within a reasonable time to be fixed by the Board.
(c) The applicant is capable of operating on a sound and efficient basis of contributing to the
national development of the preferred area in particular and of the national economy in
general; 15

Case: Mr. Francois Renault, a French resident and citizen is interested in putting up a travel
agency in the Philippines, specializing in European outbound tour packages. If you are the
lawyer appointed by Mr. Renault to assist him in putting up this kind of business, what advice
will you give him?
Legal Opinion: Mr. Francois Renault cannot just put up a business on his own as a sole
proprietor in the Philippines as the formation of a travel agency is reserved only to citizens
of the Philippines under the Omnibus Investment Code. I may, however, legally assist Mr.
Renault in looking for partners or incorporators for purposes of forming a partnership or a
corporation under Philippine Laws. However, the formation must be based on the limited 40%
foreign equity by reason of the limitation under the Omnibus Investment Code.
Investment in Hotels, Resorts and other Accommodation Establishments
The Law
By reason of the enactment of Memorandum Order No. 211 approving the 2006 Investment
Priorities Plan (April 4, 2006), tourism has been classified as preferred activities pursuant to
Article 29 of the Omnibus Investment Code of 1987. Tourism covers the development of tourism
economic zones, tourist estates, eco-agri tourism facilities, and the establishment of tourist
accommodation facilities (i.e., hotels, resorts and other tourism accommodation facilities such
as apartel, pension houses, tourist inns and similar establishments).

Thus, in order for tourist accommodation facilities to be entitled for registration under
the Investment Priorities Plan, an applicant must satisfy the Board of Investments that:
a) He is a citizen of the Philippines, in case the applicant is a natural person, or in case of a
partnership or any other association, it is organized under Philippine laws and that at least
sixty percent (60%) of its capital is owned and controlled by citizens of the Philippines; or
in case of a corporation or a cooperative, it is organized under Philippine laws and that at
15
Section 32, Executive Order No. 226, July 16, 1987.
208
least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by Philippine nationals as defined under Article 15 of Omnibus Investment Code,
and at least sixty percent (60%) of the members of the Board of Directors are citizens of
the Philippines.
(b) The applicant is proposing to engage in a preferred project listed or authorized in the
current Investment Priorities Plan within a reasonable time to be fixed by the Board.
(c) The applicant is capable of operating on a sound and efficient basis of contributing to the
national development of the preferred area in particular and of the national economy in
general.16

Case: Martha Soriano, Baguio City-based retailer and caterer, noted the severe shortage of
hotel accommodations in the city especially during the annual Panagbenga Flower Festival.
She invited some foreign friends, Arthur Hewitt, an American retiree, and Rose Ann Grundt, a
German hotelier, to join and invest in her new business venture – the Mayflower Hotel. Based
on the business plan prepared, the total capitalization needed for the 50-room standard hotel is
520 million. Martha is only capable of raising half of the total investment needed. What advice
would you give Ms. Soriano as she forms a partnership with two foreign partners?
Legal Opinion: For hotel investments, 60% of the capitalization should be owned by Filipinos.
Thus, 512 million must be Filipino-owned. If Martha Soriano can only raise 510 million of
the required total investment for Mayflower Hotel, she can do one of two things: (a) borrow
52 million from the bank or any other source, or (b) invite another Filipino investor/partner
to invest, at least 52 million. Either way, the required of 60% Filipino ownership will be
satisfied.
Application of the Retail Trade Law for Restaurants and Shops
The Law
Restaurants and other tourism-related establishments such as department stores and
shops are governed by the laws on retail trade by reason of the nature of their business. In the
past, operation and ownership of these establishments are confined only to Filipino citizens or
to corporations and associations fully owned by Filipino citizens. By reason of the enactment
of the Retail Trade Liberalization Act 2000, foreign investors may now engage in retail trade
subject to capital requirements (refer to Chapter X, Laws Regulating Restaurants and Other
Tourism-Related Establishments).

The following sales transactions are exempted under the coverage of the Retail Trade
Liberalization Act of 2000 and are therefore allowed 100% foreign ownership participation:
(a) By a manufacturer, processor, laborer or worker, to the general public the products
manufactured, processed or produced by him if his capital does not exceed 5100,000.00;
(b) By a manufacturer of his products in a single outlet, irrespective of capitalization;
(c) In restaurants incidental to the hotel business.17
16
Section 32, Executive Order No. 226, July 16, 1987.
17
Section 3 (1), R.A. 8762.
209
Case: Mr. Chek O. Teng, a Chinese resident and citizen, wants to put up a fine dining restaurant
West Avenue, Quezon City specialized in Macanese cuisine. If you are the lawyer appointed by
Mr. Teng to put up his business, what advice will you give?
Legal Opinion: As the lawyer of Mr. Teng, I will advise him that he has these choices:
1) He may register as a single proprietor at the Department of Trade and Industry subject to
the investment qualifications as prescribed under the Retail Trade Liberalization Act of 2000;
2) He may look for partners or incorporators and form a partnership or corporation under
Philippine Laws. However, the formation must be based on the limited 40% foreign
equity as prescribed under the Retail Trade Liberalization Act of 2000;
3) He may put up a restaurant incident to a hotel business in West Avenue, Quezon City so that
he will be exempted under the Retail Trade Liberalization Act of 2000. In this case, he may put
up a joint venture with an owner of a hotel business to pursue his restaurant business.
Tourism Projects under the Build-Operate-and-Transfer

(BOT) Program
The Law
Republic Act No. 6987 as amended by Republic Act 7718, referred to as the “BOT Law”
implements the declared policy of the state to recognize the indispensable role of the private
sector as the main engine for national growth and development and provide the most appropriate
favorable incentives to mobilize the private resources for the purpose. The coverage of the B-O-
T Law extended not merely to “government infrastructure projects” but also to “government
development projects.” The following are the schemes recognized under the law.
Build-and-transfer (BT). A contractual arrangement whereby the Project Proponent
undertakes the financing and Construction of a given infrastructure or development facility
and after its completion turns it over to the Agency or LGU concerned, which shall pay the
Project Proponent on an agreed schedule its total investment expended on the project, plus
a Reasonable Rate of Return thereon. This arrangement may be employed in the Construction
of any Infrastructure or Development Projects, including critical facilities which, for security or
strategic reasons, must be operated directly by the Government.
Build-lease-and-transfer (BLT). A contractual arrangement whereby a Project
Proponent is authorized to finance and construct an infrastructure or development facility
and upon its completion turns it over to the Agency/LGU concerned on a lease arrangement
for a fixed period, after which ownership of the facility is automatically transferred to the
Agency/LGU concerned.
Build-own-and-operate (BOO). A contractual arrangement whereby a Project
Proponent is authorized to finance, construct, own, operate and maintain an infrastructure
or development facility from which the Project Proponent is allowed to recover its total
investment, operating and maintenance costs plus a reasonable return thereon by collecting
tolls, fees, rentals or other charges from facility users; Provided, That all such projects upon
recommendation of the Investment Coordination Committee (ICC) of the National Economic
and Development Authority (NEDA), shall be approved by the President of the Philippines.
Under this project, the proponent who owns the assets of the facility may assign its operation
and maintenance to a Facility Operator.
Build-operate-and-transfer (BOT). It is a contractual arrangement whereby
the Project Proponent undertakes the Construction, including financing, of a given
infrastructure facility, and the operation and maintenance thereof. The Project Proponent
operates the facility over a fixed term during which it is allowed to charge facility users
appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as
210
negotiated and incorporated in the contract to enable the Project Proponent to recover its
investment, and operating and maintenance expenses in the project. The Project Proponent
transfers the facility to the Agency/LGU concerned at the end of the fixed term that shall
not exceed fifty (50) years. This build-operate-and-transfer contractual arrangement shall include
a supply-and-operate scheme which is a contractual arrangement whereby the supplier of equipment
and machinery for a given infrastructure facility, if the interest of the Government so requires, operates
the facility providing in the process technology transfer and training to Filipino nationals.
Build-transfer-and-operate (BTO). A contractual arrangement whereby the
Agency/LGU contracts out the Construction of an infrastructure facility to a private entity
such that the Contractor builds the facility on a turnkey basis, assuming cost overruns,
delays, and specified performance risks. Once the facility is commissioned satisfactorily, title
is transferred to the implementing Agency/LGU. The private entity however operates the
facility on behalf of the implementing Agency/LGU under an agreement.
Contract-add-and-operate (CAO). A contractual arrangement whereby the Project
Proponent adds to an existing infrastructure facility which it is renting from the Government
and operates the expanded project over an agreed Franchise period. There may or may not be
a transfer arrangement with regard to the added facility provided by the Project Proponent.
Develop-operate-and-transfer (DOT). A contractual arrangement whereby
favorable conditions external to a new infrastructure project which is to be built by a Project
Proponent are integrated into the arrangement by giving that entity the right to develop
adjoining property, and thus, enjoy some of the benefits the investment creates such as
higher property or rent values.
Rehabilitate-operate-and-transfer (ROT). A contractual arrangement whereby an
existing facility is turned over to the Project Proponent to refurbish, operate and maintain
for a Franchise period, at the expiry of which the legal title to the facility is turned over to
the Government. The term is also used to describe the purchase of an existing facility from
abroad, importing, refurbishing, erecting and consuming it within the host country.
Rehabilitate-own-and-operate (ROO). A contractual arrangement whereby an
existing facility is turned over to the Project Proponent to refurbish and operate with no time
limitation imposed on ownership. As long as the operator is not in violation of its Franchise,
it can continue to operate the facility in perpetuity.18

Any individual, partnership, corporation or firm, whether local or foreign, including
joint venture or consortia of local, foreign or local and foreign firms, subject to the limits herein
set, may participate or apply for pre-qualification projects covered under the provisions of the
Act.19
The limitation for the qualification requirements for an entity to engage in any of the
schemes under the BOT Law are as follows:
a. For projects to be implemented under the BOT scheme whose operations require a public
utility Franchise, the prospective Project Proponent and the Facility Operator must be
Filipinos or, in case of corporations, must be duly registered with the Securities and
Exchange Commission (SEC) and owned up to at least sixty percent (60%) by Filipinos.
For projects other than these, the prospective Project Proponent shall comply with the
nationality and ownership requirements under the Constitution and other applicable laws.
18
Rule 1, Section 1.3 (e). Revised Implementing Rules and Regulations of R.A. No. 6957, “An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes,” as Amended by R.A. No. 7718.
19
Rule 5.1, Revised Implementing Rules and Regulations of R.A. No. 6957, “An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes,” as Amended by R.A. No. 7718.
211
For projects to be implemented through a scheme other than the BOT and requiring a
public utility Franchise, the Facility Operator must be a Filipino or, in case of corporations,
must be duly registered with the Securities and Exchange Commission (SEC) and owned
up to at least sixty percent (60%) by Filipinos. Consistent with existing laws, the Project
Proponent may be the operator but it may be allowed to enter into a management contract
with another entity, who may be 100% foreign-owned, for the day-to-day operation of the
facility, provided that the Project Proponent will assume all attendant liabilities of the
operator.
In case the prospective Project Proponent is a joint venture or consortium, the
members or participants thereof shall already be disclosed during the pre-qualification
stage and shall undergo pre-qualification. Further, the members or participants thereof
shall execute an undertaking in favor of the Agency/LGU that if awarded the contract,
they shall bind themselves to be jointly and severally liable for the obligations of the Project
Proponent under the contract. However, if members of the joint venture or consortium
organize themselves as a corporation registered under Philippine laws, such corporation
shall execute such an undertaking binding itself to be liable for the obligations of the Project
Proponent under the contract, which shall substitute or be in lieu of the undertaking submitted
by the members or participants of the joint venture or consortium.
For projects to be operated by the Project Proponent itself or owned by the Project
Proponent but operated through a Facility Operator where operation of the facility does
not require a public utility Franchise, the Project Proponent or the Facility Operator may
be Filipino or foreign-owned.
For purposes of pre-qualification, the Contractor proposed to be engaged by the
Project Proponent to undertake the Construction of the project must be duly licensed and
accredited by Philippine Contractors’ Accreditation Board (PCAB), in the case of a Filipino
Contractor, or by an equivalent accreditation institution in the Contractor’s country of
origin, in the case of a foreign Contractor. Once the Project Proponent is awarded the
project, such foreign Contractor must secure a license and accreditation from the PCAB.
b. Experience or Track Record. The prospective Project Proponent must possess adequate
experience in terms of firm experience and key personnel experience.
c. Financial capability. The prospective Project Proponent must have adequate capability
to sustain the financing requirements for the detailed engineering design, construction
and/or operation and maintenance phases of the project, as the case may be.20
Period Covered
The contractor transfers the facility to the government unit concerned at the end of the
fixed term which shall not exceed fifty (50) years.
Financing Allowed
For the construction stage, contractor may obtain financing from foreign and/or domestic
sources and/or engage the services of a foreign and/or Filipino contractor. The financing of
foreign or foreign-controlled contractor from Philippine government financing institutions
shall not exceed 20% of the total cost of infrastructure facility or project. The financing from
foreign sources shall not require a guarantee by the government or by government owned and
controlled corporations.
20
Rule 5.4, Revised Implementing Rules and Regulations of R.A. No. 6957, “An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes,” as Amended by R.A. No. 7718.
212
Employment of Filipino Workers
In the case of foreign contractors, Filipino labor shall be employed or hired in the different
phases of the construction where Filipino skills are available.
Priority Projects
All concerned infrastructure agencies, including government owned and controlled
corporations and local government units, shall include in their infrastructure programs those
priority projects that may be financed, constructed, operated, and maintained by the private
sector. Under Joint Resolution No. 03 passed by Congress, the following have been classified
as national priority infrastructure projects related to tourism:
(a) Highways, including expressways, roads, bridges, interchanges, tunnels and related facilities;
(b) Rail-based projects packaged with commercial development opportunities, e.g., use of
government facilities;
(c) Non-rail based mass transit facilities, navigable inland waterways and related facilities;
(d) Port infrastructure like piers, wharves, quays, storage, handling ferry services and related
facilities;
(e) Airports, air navigation and related facilities;
(f) Tourism, educational and health infrastructure;
(g) Land reclamation, dredging and other related developments facilities;
(h) Industrial estates, regional industrial centers, and export processing zones; and
(i) Development of new townsites and communities and related facilities.
Approval of the projects or the confirmation authority lies with the National Economic
and Development Authority and the local development councils of the local government units
concerned depending on the cost of the project.
Preference to Filipino Contractors

In order to be accorded preference, a Filipino contractor is required to submit an equally
advantageous bid with the same price and technical specifications as that of the foreign
contractor. A Filipino contractor will not be accorded preference unless his bid is at par, on
both price and technical aspects, with that of the foreign contractor.
Registration with the Board of Investments

Republic Act 7718 provides that projects costing in excess of P1.0 billion shall be registered
with the Board of Investments (BOI) and entitled to the incentives provided under the Omnibus
Investment Code. For projects undertaken as authorized under the Revised Internal Rules
costing 51.0 billion or less may, upon registration with the BOI, avail of incentives provided
under the Omnibus Investment Code, subject to the inclusion of the project activity in the
current Investment Priorities Plan of the BOI.
Investment Incentives and Government Undertakings under the BOT Law

Subject to existing laws, policies, rules and regulations, the Government may provide any
form of direct or indirect support or contribution, such as, but not limited, to the following:
a. Cost Sharing. This shall refer to the Agency/LGU concerned bearing a portion of capital
expenses associated with the establishment of an infrastructure development facility, such
as, the provision of access infrastructure, right-of-way, transfer of ownership over, or usufruct,
213
or possession of land, building or any other real or personal property for direct use in
the project and/or any partial financing of the project, or components thereof, provided,
that such shall not exceed fifty percent (50%) of the Project Cost, and the balance to be
provided by the Project Proponent. Such government share may be financed from direct
government appropriations and/or from Official Development Assistance (ODA) of
foreign government or institutions.
b. Credit Enhancements. This shall refer to direct and indirect support to a development
facility by the Project Proponent and/or Agency/LGU concerned, the provision of which
is contingent upon the occurrence of certain events and/or risks, as stipulated in the
contract. Credit enhancements are allocated to the party that is best able to manage
and assume the consequences of the risk involved. Credit enhancements may include,
but are not limited to, government guarantees on the performance, or the obligation
of the Agency/LGU under its contract with the Project Proponent, subject to existing
laws on indirect guarantees. Indirect Guarantees shall refer to an agreement whereby
the Government or any of its Agencies/LGUs assume full or partial responsibility
for or assists in maintaining the financial standing of the Project Proponent or project
company in order that the Project Proponent/company avoids defaulting on the Project
Loans, subject to fulfillment of the Project Proponent/company of its undertakings and
obligations under the project agreement.
c. Direct Government Subsidy. This shall refer to an agreement whereby the Government,
or any of its Agencies/LGUs will: (a) defray, pay for or shoulder a portion of the Project
Cost or the expenses and costs in operating or maintaining the project; (b) condone or
postpone any payments due from the Project Proponent; (c) contribute any property or
assets to the project; (d) in the case of LGUs, waive or grant special rates on real property
taxes on the project during the term of the contractual arrangement; and/or (e) waive
charges or fees relative to business permits or licenses that are to be obtained for the
Construction of the project, all without receiving payment or value from the Project
Proponent and/or Facility operator for such payment, contribution or support.
d. Direct Government Equity. This shall refer to the subscription by the Government or any
of its agencies or Local Government Units of shares of stock or other securities convertible
to shares of stock of the project company, whether such subscription will be paid by the
money or assets.
e. Performance Undertaking. This shall refer to an undertaking of a department, bureau,
office, commission, authority, agency, GOCC, or LGU in assuming responsibility for the
performance of the Agency’s/LGU’s obligations under the contractual arrangement
including the payment of monetary obligations, in case of default.
f. Legal Assistance. This shall refer to the extension of representation by government lawyers
to a Project Proponent but only in cases, hearings, or inquiries where the Agency/LGU
and Project Proponent are party-defendants/respondents therein including the adoption
by such government lawyers of positions and strategies consistent with upholding the
validity of the approved contractual arrangement.
g. Security Assistance. This shall refer to the deployment of government security forces,
either from the Philippine National Police (PNP) or the Armed Forces of the Philippines
(AFP) in the vicinity of the project site to provide security during the implementation of
the project up to completion.
LGUs may provide additional tax incentives, exemptions, or reliefs, subject to the
provisions of the Local Government Code (LGC) of 1991 and other pertinent laws.
214
Case: On August 8, 1997, the Philippine government, through the Department of Transportation
and Communications (DOTC) entered into a Build, Lease and Transfer (BLT) Agreement with
Metro Rail Transit Corporation, Limited (MRTC). In the BLT Agreement, MRTC undertook to
build MRT 3 which it shall own for 25 years, after which, ownership shall be transferred to the
Philippine government in accordance with Republic Act No. 6957 or the Build, Operate and
Transfer Law. The agreement 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. According to the agreement, the DOTC awards to MRTC the rights to (a) develop
commercial premises in the Depot and the air space above the Stations, which shall be allowed
to such height as is legally and technically feasible, (b) lease or sub-lease interests or assign
such interests in the Depot and such air space and (c) obtain any advertising income from the
Depot and such air space. On October 27, 1998, MRTC entered into a Contract for Advertising
Services with Trackworks Rail Transit Advertising, Vending and Promotions, Inc. (Trackworks)
giving the latter the exclusive right to undertake advertising and promotional activities within
and along the exterior and interior of the MRT 3 structure. Thereafter, Trackworks proceeded
to install commercial billboards, banners, signage and other forms of advertisement in the
different parts of MRT 3 structure.
On January 29, 2001, the Metro Manila Development Authority (MMDA) requested
Trackworks to dismantle the billboards purportedly in conformity with MMDA Regulation
No. 96-009, prohibiting the posting, installation and display of any kind or form of billboards,
signs, posts, streamers, in any part of the road, sidewalk, center island, posts, trees, parks and
open space. Trackworks refused to comply and invoked its advertising contract with MRTC.
Consequently, MMDA started dismantling the billboards and streamers of Trackworks.
Does the MMDA have the right to dismantle the billboards and streamers of
Trackworks?
Legal Opinion: No, the MMDA has no authority to dismantle the billboards and
streamers of Trackworks. The contract with the MRTC vested it the exclusive right to undertake
advertising and promotional activities at the MRT 3 structure. What is involved here is not an
indiscriminate posting and installation of commercial advertisements but one sanctioned by a
contract under the B-O-T Law.21
Applicable Negotiable Instruments

and Documents of the Title
The Law
By way of introduction, the laws applicable for purposes of discussion of the different
negotiable instruments and documents of title in Tourism Investment are as follows:
1) Act 2031, also known as the Negotiable Instruments Law
2) Presidential Decree No. 115, Providing for the Regulation of Trust Receipts Transactions
3) Warehouse Receipt Law (Act 2137)

The following are some negotiable instruments and documents of title which can be
useful in tourism financing and investment:
21
Metropolitan Manila Development Authority vs. Trackworks Rail Transit Advertising, Vending and Promotions, Inc., G.R. No. 167514,October
25, 2005.
215
Promissory Note. It is a written promise committing the maker to pay the payee a
specified sum of money either on demand or at a fixed or determinable future date, with or
without interest.22
Special types of promissory notes:
(1) Certificate of Deposit. It is a written acknowledgment by a bank of the receipt of
money on deposit which the bank promises to pay to the depositor, bearer or some
other person, to the order of the depositor, or to him or his order.
(2) Mortgage Note. A debt instrument by which the borrower (mortgagor) gives the
lender (mortgagee) a lien on the property as security for the repayment of a loan.
The borrower has use of the property, and the lien is removed when the obligation
is fully paid. A mortgage normally involves real estate which is called Real Estate
Mortgage. For personal property, such as machines, equipment, or tools, the lien is
called a chattel mortgage.23
Bill of Exchange. It is an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed determinable future time a sum certain in money to order or bearer.24
Types of bills of exchange:
(a) Draft. This is the common term of a bill of exchange. It is a bill of exchange drawn
by a bank, issued at the solicitation of a stranger who purchases and pays thereof. It
is also defined as an “order of payment of money.” In such a case, the drawee bank
acting as the “payor” bank is liable for the acts not done in accordance with the
instructions of the purchaser.25
(b) Trade Acceptance. A draft or bill of exchange drawn by the seller on the buyer of
goods sold and accepted by such purchaser of goods. It is payable to order and with
certain maturity.
(c) Banker’s Acceptance. A draft or bill of exchange of which the acceptor is a bank or
banker engaged generally in the business of granting bankers’ acceptance credit.
This is chiefly used for international trade financing.
Check. A check is a bill of exchange drawn on a bank payable on demand.26
Special types of checks:
(1) Manager’s Check. It is one drawn by the bank’s manager upon the bank itself and
deemed accepted by the act of issuance. It is similar to the cashier’s check both as to
effect and use. It is really the bank’s own check and may be treated as a promissory
note with the bank as the maker. It is an accepted practice that that manager’s check
is deemed as cash.
(2) Traveler’s Check. It is one upon which the holder’s signature must appear twice,
one to be affixed by him at the time it is issued (usually in the presence of the bank
issuing the checks) and the second or counter-signature, to be affixed by him in the
presence of the payee before it is paid, otherwise, it is incomplete. Its purpose is to
provide the traveler safe and convenient method by which to supply himself with
funds in almost all parts of the civilized world without the hazard of carrying the
money on his persons. The bank or company issuing the instruments has the right
to refuse to pay it when it does not bear the countersign agreed upon and the owner
of the check also has the right to insist it shall not be paid when not countersigned.
22
23
24
Section 126, Negotiable Instruments Law.
25
Citytrust Banking Corporation vs. Court of Appeals, 196 SCRA 553 [1991].
26
216
(3) Certified Check. It is one which bears upon its face an agreement by the drawee
bank that the check will be paid on presentation. The usual practice is by stamping
or writing the word “certified” upon the check. Where a check is certified by the
bank on which it is drawn, the certification is equivalent to an acceptance.27 Before
acceptance or certification, the bank is not liable, and the holder has no right to sue
the drawee bank on the check.28
(4) Crossed Check. Under accepted banking practice, crossing a check is done by writing
two parallel lines diagonally on the left top portion of the checks. The crossing is
special where the name of a bank or a business institution is written between the two
parallel lines, which means that the drawee should pay only with the intervention
of that company.29 The effects of crossing a check are: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once – to
one who has an account with a bank; and (c) the act of crossing the check serves as
warning to the holder that the check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant to that purpose, otherwise, he
is not a holder in due course.

Case: Sometime in March, April, May and August 1983, Equitable Banking Corporation
(EBC) through its Visa Card Department, drew six crossed Manager’s checks (Exhibits ‘A’ to
‘F’, and herein referred to as checks) having an aggregate amount of Forty-Five Thousand
Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member
establishments of Visa Card. Subsequently, the checks were deposited with the Banco de Oro
Savings and Mortgage (BDO) to the credit of its depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the checks the usual
endorsements: ‘All prior and/or lack of endorsement guaranteed’ the BDO sent the checks for
clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, EBC paid
the checks; its clearing account was debited for the value of the checks and BDO’s clearing
account was credited for the same amount.
Thereafter, EBC discovered that the endorsements appearing at the back of the checks
and purporting to be that of the payees were forged and/or unauthorized or otherwise belong
to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, EBC presented the checks directly
to BCO for the purpose of claiming reimbursement from the latter. However, BDO refused to
accept such direct presentation and to reimburse EBC for the value of the checks.
What law should govern in resolving controversies of this nature? Who should be
responsible for any undue payment, EBC or BDO?
Legal Opinion: The law that should govern in this case is Section 185 of the Negotiable
Instruments Law which states:
“Sec. 185. Check defined. A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this act applicable to a bill of
exchange payable on demand apply to a check.”
27
28
Please see PNB vs. National City Bank of New York, 63 Phil. 711.
29
State Investment House vs. IAC, 175 SCRA 310 [1991]; Associated Bank vs. CA, 208 SCRA 465 [1992].
217
Checks are used between banks and bankers and their customers, and are designed to
facilitate banking operations. It is of the essence to be payable on demand, because the contract
between the banker and the customer is that the money is needed on demand. Consequently,
it appears that the use of the term ‘check’ is to be perceived as not limited to negotiable checks
only, but to checks as is generally known in use in commercial or business transactions. There
should be no distinction in the application of a statute where none is indicated because the
courts are not authorized to distinguish where the law makes no distinction.
The participation of the two banks, EBC and BDO, in the clearing operations under the
rules and regulations of the Philippine Clearing House Corporation is a manifestation of their
submission to its jurisdiction.
In the above case, BDO should be held responsible and must reimburse EBC for any
undue payment. In presenting the checks for clearing and for payment, BDO made an
express guarantee on the validity of ‘all prior endorsements’. Thus, stamped at the back of
the checks are BDO’s clear warranty: ‘All Prior Endorsements And/Or Lack of Endorsements
Guaranteed.’ Without such warranty, EBC would not have paid the checks. As the warranty
has proven to be false and inaccurate, BDO is liable for any damage arising out of the falsity
of its representation. The principle of estoppel effectively prevents BDO from denying liability
for any damage sustained by EBC. The same principle of estoppel effectively prevents BDO from
denying the existence of the checks. In this regard, BDO, by its own acts and representation cannot
now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at the
back of the checks.
In the matter of forgery in endorsements, it has been emphasized that the collecting bank
(BDO in this case) or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check
for payment to the drawee is an assertion that the party making the presentment has done
its duty to ascertain the genuineness of the endorsements. This is laid down in the case of
PNB vs. National City Bank [63 Phil. 711]. In another case, it was held that if the drawee-bank
discovers that the signature of the payee was forged after it has paid the amount of the check
to the holder thereof, it can recover the amount paid from the collecting bank. [Republic Bank
vs. Ebrada, 65 SCRA 680]
In addition, BDO should be held liable as an indorser under Section 66 of the Negotiable
Instruments which states that:
“Every indorser who indorses without qualification, warrants to all subsequent holders
in due course” (a) that the instrument is genuine and in all respects what it purports to be; (b)
that he has good title to it; (c) that all prior parties have capacity to contract; and (d) that the
instrument is at the time of his indorsement valid and subsisting.”30

Case: On November 8, 1982, Casa Montessori International (Casa), a school catering to foreign
students, opened Current Account No. 0291-0081-01 with the Bank of the Philippine Islands
(BPI) with Casa’s President Ms. Ma. Carina C. Lebron as one of its authorized signatories. In
1991, after conducting an investigation, Casa discovered that nine (9) of its checks had been
encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,600.00, on the
following dates and amounts:
30
Banco De Oro Savings and Mortgage Bank vs. Equitable Banking Corporation et al., G.R. No. 74917, January 20, 1988.
218
Check No. Date Amount
1. 839700 April 24, 1990 543,400
2. 839459 Nov. 2, 1990 110,500
3. 839609 Oct. 17, 1990 47,723
4. 839549 April 7, 1990 90,700
5. 839569 Sept. 23, 1990 52,277
6. 729149 Mar. 22, 1990 148,000
7. 729129 Mar. 16, 1990 51,015
8. 839684 Dec. 1, 1990 140,000
9. 729034 Mar. 2, 1990 98,985
Total 5782,600
It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt Branch was a fictitious
name used by third party defendant Leonardo T. Yabut who worked as external auditor of
Casa. Mr. Leonardo T. Yabut voluntarily admitted that he forged the signature of Ms. Lebron
and encashed the checks. The PNP Crime Laboratory conducted an examination of the nine
(9) checks and concluded that the handwritings thereon compared to the standard signature of Ms.
Lebron were not written by the latter. Should BPI be held accountable for the forged checks?
Legal Opinion: Having established the forgery of the drawer’s signature, BPI, the drawee,
erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and
Casa, the drawer whose authorized signatures do not appear on the negotiable instruments, cannot
be held liable thereon. Neither is the latter precluded from setting up forgery as a real defense.
By the nature of its functions, a bank is required to take meticulous care of the deposits of its
clients, who have the right to expect high standards of integrity and performance from it. Among
its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not
estopped from questioning wrongful withdrawals, even if they have failed to question those errors
in the statements sent by the bank to them for verification.31
Other Commercial Documents

The following commercial documents are also useful in merchandising, importation and
exportation of goods which may also be utilized in the tourism industry.
Invoice
In commercial transactions, it is a written account of the particulars of merchandise
shipped or sent to a purchaser, consignee and actor with the value of the prices and charges. It
is a list of goods sold and the prices charged for them, or the goods consigned and the value at
which the consignee is to receive them.32
Sales Invoice
It is a repository of the agreement resulting from negotiations for the sale of goods
between the parties. It is a list of goods sold and the prices charged for them.33
31
Bank of the Philippine Islands vs. CASA Montessori Internationale et al., G.R. No. 149454, May 28, 2004.
32
Philippine Law Dictionary by Federico B. Moreno, 3rd Edition.
33
219
Purchase Order
A contract in itself, involving the undertaking agreed upon and the items mentioned
therein, between the party placing the order and signing the same and the party to whom it is
addressed and who accepts the order.34
It is a form used by the purchasing department to order goods or merchandise. The
original copy is sent to the supplier. This purchase order is an authorization to deliver the
merchandise and to submit a bill based on the prices listed. 35 Once accepted by the supplier,
the purchase order becomes a legally binding purchase contract.36
Bill of Lading
It is a written document issued by a carrier that specifies contractual conditions and terms (such
as time, place, person named for receipt) for delivery of goods. It also evidences receipt of goods.37
It is an instrument in writing, signed by a carrier or his agent, describing the freight so
as to identify it, stating the name of the consignor, the terms of the contract of carriage, and
agreeing or directing that the freight be delivered to the order or assigns of a specified person
at a specified place. Its character is two-fold: a) it is a receipt, specifying the quantity, character
and condition of the goods received; and b) it is also a contract, by which the carrier agrees
to transport the goods therein described to a place named, and deliver them to a designated
consignee upon the terms and conditions specified in the instrument.38
Warehouse Receipt
The Warehouse Receipt Law (Act 2137) seeks to encourage transactions on negotiable
warehouse receipts, which may only be issued by a warehouseman who is engaged in the
business of receiving commodities on deposit for storage. The negotiation of a warehouse
receipt carries with it the transfer of title over the commodity covered by the receipt. In the
event of loss of the commodity covered by the receipt, it will be the debtor who will bear the
loss as the true intent of the parties is not the negotiation of the warehouse receipt with its
consequent transfer of title but merely as security.39
Trust Receipt
It is a commercial document whereby the bank releases the goods in the possession of the
entrustee but retains ownership thereof while the entrustee shall sell the goods and apply the
proceeds for the full payment of his liability with the bank.
The Trust Receipt Law (Presidential Decree 115) does not seek payment of the loan but
punishes the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner.40
A trust receipt is a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase
or merchandise, and who may not be able to acquire credit except through utilization, as
collaterals, of the merchandise imported or purchased.41
34
35
Barron’s Business Guides, Dictionary of Accounting Terms.
36
Barron’s Business Guides, Dictionary of Finance and Investment Terms.
37
Barron’s Financial Guides, Dictionary of Accounting Terms.
38
39
Martinez vs. PNB, 93 Phil. 765 [1953].
40
Colinares vs. Court of Appeals, 339 SCRA 609, 623 [2000].
41
Nacu vs. Court of Appeals, 231 SCRA 237 [1994].
220
Under Presidential Decree 115, the failure of the entrustee to return the goods covered
by the trust receipt or of the proceeds from the sale thereof shall constitute the crime of estafa
under the Revised Penal Code.
Letter of Credit
Modern letters of credit are strictly bank-to-bank transactions. A letter of credit is an instrument
issued by a bank on behalf of one of its customers, authorizing an individual or a firm to draw drafts
on the bank or one of the correspondents for its account under certain conditions of the credit.
A letter of credit is a financial device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a
seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have
control of the goods before paying. In this case, the buyer may be required to contract with a
bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the
issuing bank can authorize the seller to authorize draft and engage to pay them upon their
presentment simultaneously with the tender of documents required by the letter of credit,
which basically are the shipping documents of the goods purchased (i.e., packing list).42
A letter of credit-trust receipt arrangement is endowed with its own distinctive features
and characteristics. Under the set-up, a bank extends a loan by the letter of credit, with the
trust receipt as a security for the loan. In other words, the transaction involves a loan feature
represented by the letter of credit, and a security feature which is in the covering trust receipt. If
under the trust receipt, the bank is made to appear the owner, it was but an artificial expedient,
more of a legal fiction than fact. The trust receipt arrangement does not convert the bank into
an investor, it remains a lender and creditor because of the loan it extended which the letter
of credit represents to the importer. By that loan, the importer should be the real owner of the
goods.43

Case: Mr. Harold Tan (buyer in Manila) agrees to buy 500 cases of Black Label Whiskey from
Mr. Carl Sanders (seller in New York City, USA) worth US$50,000.00 FOB New York. Since Mr.
Tan has no facilities within which to transmit dollars to the USA, he contacts a bank in Manila
(ABC Banking Corporation) and inquires whether Mr. Sanders has a correspondent Bank in
New York. Mr. Sanders will confirm Chemical Bank of New York as the correspondent bank.
Mr. Tan opens a letter of credit of US$50,000 with ABC Banking Corporation for the
importation of 500 cases of Black Label Whiskey for his restaurant business The Dawn. In this
regard, Mr. Tan will be required to deposit with ABC Banking Corporation a marginal deposit
of 90% of the amount of the transaction. The letter of credit is a bank-to-bank transaction
involving trust wherein ABC Banking Corporation can ask Chemical Bank to draw a draft to
pay Mr. Sanders US$50,000, upon showing that the latter has already delivered the goods to
Mr. Tan by means of presentation of shipping documents of the goods delivered to Mr. Tan.
Chemical Bank will now debit ABC Banking Corporation the sum of US$50,000.
Once the goods and the covering documents as specified in the bill of lading arrive, Mr.
Tan would like to take possession of the 500 cases of whiskey under a trust receipt. The ABC
Banking Corporation agrees to release the goods to him under the trust receipt, a document
which is issued to Mr. Tan whereby the latter admits that the goods still belong to the former
and which authorizes the latter to sell the goods and apply the proceeds thereof to the payment
of his debt to ABC Banking Corporation.
42
Bank of America vs. Court of Appeals, 228 SCRA 357 [1993].
43
See Abad vs. Court of Appeals, G.R. 42737, January 22, 1990.
221
Mr. Tan sells the 500 cases of whiskey from various customers but failed to turn over
the proceeds within the period stipulated, despite repeated demands from ABC Banking
Corporation. ABC Banking Corporation files an estafa case against Mr. Tan before the City
Fiscal of Manila. Mr. Tan contends that the transaction emanates from a letter of credit which
is civil in nature and invokes his constitutional right that he should not be imprisoned for non-
payment of indebtedness. Determine if Mr. Tan may be held criminally liable. Who is the real
owner of the whiskey, the bank or Mr. Tan?
Legal Opinion: By express mandate of the Trust Receipt Law (Section 13 thereof), failure of
Mr. Tan to turn over the proceeds from the sale of such goods to ABC Banking Corporation
constitutes estafa by reason of the violation of trust reposed upon him. Under the set-up, a
bank extends a loan by the letter of credit, with the trust receipt as a security for the loan. In
other words, the transaction involves a loan feature represented by the letter of credit, and a
security feature which is in the covering trust receipt. If under the trust receipt, the bank is
made to appear the owner, it was but an artificial expedient, more of a legal fiction than fact.
The trust receipt arrangement does not convert the bank into an investor. It remains to be a
lender and creditor because of the loan it extended which the letter of credit represents to the
importer. By that loan, the importer should be the real owner of the goods.44
Foreign Exchange
Foreign Exchange are instruments employed in making payments between countries –
using paper currency, notes, checks, bills of exchange and electronic notifications of international
debits and credits.45
The Law
Article 1249. (Civil Code of the Philippines). The payment in money shall be made in
the currency stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been cashed,
or when through the fault of the creditor they have been impaired.

Legal tender means such currency which in a given jurisdiction can be used for payment
of debts, public or private, and which cannot be refused by the creditor. In the Philippines, the
following are legal tender:
(a) The Philippine peso;
(b) All notes and coins issued by the Bangko Sentral ng Pilipinas.
The foregoing article sanctions payment of debts in currency other than that which is the
legal tender in the Philippines, if there is stipulation to that effect.
Since obligations must be paid in money that is legal tender, the payment by check may be
validly refused by the creditor, even if such check may be good.46 A check, whether a manager’s
check or an ordinary check, is not legal tender, and an offer of the check in payment of a debt is
not a valid tender of payment.47 By reason of the second paragraph of Article 1249, Civil Code
of the Philippines, checks, bills of exchange and drafts may have the effect of payment only
when they have been encashed.
44
Abad vs. Court of Appeals, G.R. 42737, January 22, 1990.
45
46
Belisario vs. Natividad, 60 Phil. 156.
47
Court of First Instance vs. Court of Appeals, G.R. No. L-4191, April 30, 1952; PAL vs. Court of Appeals, 181 SCRA 557; Roman Catholic Bishop vs.
Intermediate Appellate Court, G.R. No. 72110, Nov. 16, 1990; New Pacific Time.
222
Foreign Exchange Regulations
Under Central Bank Circular No. 1353 (September 21, 1992), the Monetary Board further
liberalized the foreign exchange regulations on receipts and disbursements of residents arising
from non-trade and trade transactions. As a general rule, foreign exchange may be freely sold and
purchased outside the banking system. Foreign exchange receipts, acquisitions or earnings may
also be deposited in foreign currency accounts, whether in the Philippines or abroad, or brought
out of the Philippines.48
Tourists may purchase foreign exchange from AABs to the extent of the amount shown
to have been sold by them for pesos to AABs. Departing tourists may reconvert at airports or
other ports of exit unspent pesos of up to a maximum of US$200 or an equivalent amount in
any other foreign currency calculated at prevailing exchange rates, without need of showing
proof of previous sale by them of foreign exchange to AABs.49
In this regard, all categories of banks (except Offshore Banking Units) duly licensed by
the Central Bank, also called as Authorized Agent Banks (AABs) may sell foreign exchange
without need of prior CB approval for any payment on any foreign exchange transaction.50
All residents of tourism establishments falling under any of the following categories
of non-trade foreign exchange earners shall submit to the Central Bank, a monthly report of
their foreign exchange receipts and disbursements, if any, under a report form which shall be
prescribed by the Central Bank.
1. Hotels, restaurants, resorts, gifts shops and duty-free shops, tour operators, travel agents
organizing domestic tours and other establishments duly accredited by the Department
of Tourism as tourism-oriented establishments;
2. Airline owners and operators engaged in international flight operations;
3. Shipowners and operators engaged in overseas operations;
4. Those engaged in port operations, marine services, catering services, hauling services
and other similar services;
5. Local agents of foreign carriers;
6. Amusement and gaming establishments; and
7. Oil companies engaged in selling aviation gasoline, bunker oil and other oil products to
aircraft and vessels of foreign companies.51
In most deluxe hotels in Metro Manila, the basis of their foreign exchange rates is the
daily bulletin of the Bankers Association of the Philippines. They tend to use plus or minus
52.00 for their transactions as a cushion to prevent foreign exchange losses.
Financing
The Role of Banks

The General Banking Law of 2000 (Republic Act 8791) was enacted based on the following
State Policy:
“The State recognizes:
1. The vital role of banks in providing an environment conducive to the sustained
development of the national economy; and
48
Sec. 2, CBP Circular No. 1353 (s. of 1992).
49
50
51
Sec. 6(b), CBP Circular No. 1353 (s. of 1992).
223
2.The fiduciary nature of banks that requires high standards of integrity and
performance;
“In furtherance thereof, the State shall promote and maintain a stable and efficient
banking and financial system that is globally competitive, dynamic and responsive to the
demands of a developing economy.52”
The term “bank” generally is a corporation formed for the purposes of maintaining
savings account and checking accounts, issuing loans and credit, and dealing in negotiable
securities issued by governmental entities and corporations.53 Banks earn money by investing
their customers’ deposits. In order to protect the customers against loss, banks are strictly
regulated by the Bangko Sentral ng Pilipinas.54
Loan stipulations between entities and banks are regulated by the General Banking Law
of 2000. However, the parties are free to stipulate additional clauses, terms and provisions as
they may seem convenient, provided these stipulations are not contrary to law (i.e., General
Banking Law of 2000), morals, good customs, public order and public policy.55
The diligence required in banks before granting loans to prospective applicants has been
enunciated by the Supreme Court in the following cases:
a) Citibank N.A. vs. Spouses Cabamongan, et al., G.R. 146918, May 2, 2006. “x x x
since the banking business is impressed with public interest, of paramount importance
thereto is the trust and confidence of the public in general. Consequently, the highest
degree of diligence, [Bank of the Philippine Islands vs. Court of Appeals, 383 Phil. 538, 554
(2000); Philippine Bank of Commerce vs. Court of Appeals, 336 Phil. 667, 681 (1997)] is
expected, and high standards of integrity and performance are even required of it. [Sec. 2
of Republic Act 8791, otherwise known as “The General Banking Law of 2000”]. By the
nature of its functions, a bank is under obligation to treat the accounts of its depositors
with meticulous care, [Westmont Bank vs. Ong, G.R. No. 132560, January 30, 2002, 375
SCRA 212,221; Citytrust Banking Corp. vs. Intermediate Appellate Court, May 27, 1994,
232 SCRA 559, 564] always having in mind the fiduciary nature of their relationship. [Simex
International (Manila), Inc. Court of Appeals, March 19, 1990, 183 SCRA 360, 367]
b) Development Bank vs. Court of Appeals, 331 SCRA 267 (2000). “While an innocent
mortgagee is not expected to conduct an exhaustive investigation on the history of the
mortgagor’s title, in the case of a banking institution, it must exercise due diligence
before entering into said contract, and cannot rely upon what is or is not annotated on
the title. Judicial notice is taken of the standards practiced for banks, before approving
a loan, to send representatives to the premises of the land offered as collateral and to
investigate who are the real owners thereof.”
c) Ibaan Rural Bank vs. Court of Appeals, 321 SCRA 88 (2000). “Banks, being greatly
affected with public interest, are expected to exercise a degree of diligence in the
handling of its affairs higher than expected of an ordinary business firm.”
Before granting a loan or other credit accommodation, a bank must ascertain that the
debtor is capable of fulfilling his commitments to the bank.56
Generally, the loan accommodations given to entities are based on the latter’s needs in
business. In this regard, the needs will be based on the nature of the business as assessed by the
bank. In the usual banking practice, the following are the pre-qualifying documents which are
required by the bank before a loan will be extended:
52
Sec. 2, General Banking Law of 2000.
53
Barron’s Legal Dictionary, 5th Edition, p. 44.
54
Section 6, General Banking Law of 2000.
55
Principle of Autonomy of Contracts under Article 1306 of the New Civil Code of the Philippines.
56
224
1. Collateral. Accepted collaterals may be in the form of real property, chattels (machineries
or fixtures), placements and deposits of the bank.
a) Real property – this is the most secured interest which is regularly accepted by banks
as collateral. In case the loan will be approved on the basis of the real property as
collateral, the bank will usually grant loan which is equivalent to 60% of the value
of the property as assessed by an internal appraiser of the bank. In case the property
has improvements, such as building, the real property must be insured against
fire.
Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations against real estate shall not exceed 75% of the appraised value of
the respective real estate security, plus 60% of the appraised value of the insured
improvements, and such loans may be made to the owner of the real estate or to his
assignees.57
b) Chattels – this is also considered as an accepted secured interest. However,
corporations are discouraged to offer chattels as collaterals as these do not have
long-term value, unlike real property which increases in value every year. In case
the loan will be approved on the basis of the chattel as collateral, the bank will usually
grant loan which is equivalent to 50% of the value of the property as assessed by an
internal appraiser of the bank.
Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations on security of chattels and intangible properties such as, but not
limited to, patents, trademarks, trade names, and copyrights shall not exceed 75% of
the appraised value of the security, and such loans and other credit accommodations
may be made to the title-holder of the chattels and intangible properties or his
assignees.58
c) Deposits – this is the most convenient collateral which can be offered by the borrower
to the lender. In case the loan will be approved on the basis of the existing deposits
as collateral, the bank will grant the loan which is equivalent to 90%-100% of the
deposit.
2. Articles of the Incorporation, By-laws, SEC Certificate of Incorporation. This will inform
the bank of the borrower’s background, including the company history, nature of its
business, products being offered, and the company’s ownership/management.
3. Financial statements for the past two (2) to three (3) years. These documents determine
the financial standing of the entity. Cash flows will be reviewed to determine whether the
entity is able to cover short term and long term debts. This is based on Section 40 of the
General Banking Law of 2000 wherein the bank may demand from its credit applicants
a statement of their assets and liabilities and of their income and expenditures and such
information as may be prescribed by law or by rules and regulations of the Monetary
Board to enable the bank to properly evaluate the credit application which includes the
corresponding financial statements submitted for taxation purposes to the Bureau of
Internal Revenue. The bank will usually request the applicant to wait for six (6) months
to determine whether the applicant is qualified for the loan accommodation or not. The
six-month period will provide time for the bank to make an appraisal of the property being
offered as collateral and provide a credit investigation of the company through plant visits
and research.
57
58
225
It is customary in all banking institutions to execute a credit investigation report wherein
it will provide the bank with facts to determine whether the applicant is financially qualified
to be given a loan accommodation. The credit investigation report is considered an internal
confidential document which must not be furnished to the client.
Nevertheless, the loan accommodation will be based on the value of the collaterals as
appraised by the bank (lender).
The following are the commercial documents which are usually necessary and required
in the processing of loan availment in favor of the borrower (corporation):
1. Promissory Note
2. Credit Line Agreement
3. Real Estate Mortgage
4. Chattel Mortgage
5. Surety Agreement
6. Letter of Credit
7. Trust Receipt
As part of the regulation of the government, the bank (a person extending “credit” must
give the debtor (borrower) in writing, a recital of the following upon extending a loan:
1. Cash price;
2. Amount credited if on installment price;
3. Difference between cash and installment price; and
4. Recital of finance charges and what these charges bear to the amount to be financed
in percentage.
There are additional charges imposed for the application of loan such as notarial fees,
insurance fees, documentary stamp tax, and handling fees. Non-compliance would authorize
the debtor to recover any interest payment made.59
The following will highlight important stipulations of different commercial documents
mentioned. These stipulations will give the reader an overview on how financing institutions
(such as banks) shape our developing economy by providing loan accommodation to applicants
in need of financial assistance.
I. Promissory Note:
1. Principal amount of the loan. However, except as the Monetary Board may
otherwise prescribe for reasons of national interest, the total amount of loans, credit
accommodations and guarantees as may be defined by the Monetary Board that
may be extended by a bank to a corporation shall at no time exceed twenty percent
(20%) of the net worth of such bank.60
2. Amount of interest. The amount of the interest that will be charged will be based
on the transfer pool rate after considering the cost of money and interest expenses,
giving both the lender and the borrower a win-win situation. Based on the current
banking practice, the amount of interest would range from 9% to 13% depending
on the inflation rates, transfer pool rates and cost of money as determined by the
Treasury Department.
3. Authority given to the bank (lender) to set-off from the borrower’s account any
existing deposits which he may have in the bank (lender), in order to pay the
principal loan in case of default.
59
Truth in Lending Act.
60
Sec. 35. General Banking Law of 2000.
226
4. Amount of attorney’s fees and penalty charges in case the borrower defaults in
payment of the principal obligation. This stipulation is intended to protect the
interest of the bank (lender) against defaulting corporations.
II. Credit Line Agreement:

1. A voluntary undertaking that the borrower is desirous to obtain credit accommodation
from the lender, freely accepting the terms and conditions set forth in the agreement;
and that the lender is willing to extend such credit accommodation.
2. Principal amount of the credit line agreement;
3. The kind of credit line that would fit the needs of the borrower. Under the LC/TR Line
(Letter of Credit/Trust Receipt) Line, a bank extends to a borrower a loan covered
by the letter of credit, with the trust receipt as security of the loan. A trust receipt is
a “security transaction intended to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization,
as collateral, of the merchandise imported or purchased.”61 This is a requirement in
case the need of the borrower involves importation of goods. However, this credit
line may also be utilized in the export of goods. Of course, the bank gets minimal
commission for opening a credit line from the bank and additional commission on
the remittances (in case the credit line involves importation of goods). A trust receipt
is a requirement in the importation of goods. In the export of goods, the bank may
agree on a simple loan agreement with a letter of credit.
4. Collaterals, which may involve bank deposits, chattels or real property;
5. An authority given by the borrower/client to the bank to debit all notes unpaid at
maturity from the client’s current account with the bank;
6. The term of the credit line and the interest to be charged for opening a credit line;
7. An authority in favor of the bank to sell properties which were utilized as collaterals,
to apply the proceeds thereof to the due and demandable principal loan amount,
interest and charges;
8. List of subsidiaries and affiliates of the client which will benefit from the credit line,
with an additional stipulation that all the subsidiaries and affiliates will also be
solidarily liable with the client;
9. Effectivity of service of correspondences to the client/borrower;
10. A stipulation that the books of the bank concerning the principal amount and
computation of the interest shall be conclusive;
11. Attorney’s fees, penalty charges and costs of the suit, in case the bank is compelled
to hire the services of counsel to litigate the collection of the principal amount; and
12. Venue in case of litigation.
III. Real Estate Mortgage:

1. The parties in the real estate mortgage;
2. Principal amount of the credit accommodation;
3. Description and list of the real properties subject of the mortgage;
4. A stipulation that the mortgage will also bind the successors in interest of the
mortgagor/borrower;
61
RCBC vs. Alfa RTW Manufacturing Corporation, G.R. No. 133877, 14 November 2001.
227
5. A voluntary undertaking that the real property would stand as a security to pay the
principal amount of the loan;
6. Payment of expenses in connection with the mortgage, such as the documentary stamp
tax, cancellation of the mortgage, notarial fee and taxes assessed on the real property;
7. While the property is in the possession of the mortgagor, an undertaking that all
expenses in the repair of the improvements shall be borne by the mortgagor;
8. In case of insolvency by the mortgagor/borrower, an automatic appointment of the
bank as receiver to take charge of the property subject of the mortgage;
9. In case of breach of any of the conditions of the mortgage, an automatic appointment
of the bank as Attorney-in-Fact to do acts of administration and acts of strict
dominion over the mortgaged property;
10. An authority given by the borrower/client to the bank to debit all notes unpaid at
maturity from the client’s current account with the bank;
11. Penalty interests, attorney’s fees, and other expenses relative to the foreclosure of
the real property;
12. A prohibition that the mortgaged property will not be encumbered, leased and
mortgaged without the written consent of the mortgagor;
13. Possibility of changes in the interest rates and bank charges with advance notice to
the mortgagor/borrower;
14. A stipulation of the mortgagor’s waiver under Article 13 of Rule 39 of the Rules of
Court;
15. A stipulation that the mortgaged property is clean from all prior liens and
encumbrances;
16. Signature of the parties and their respective witnesses to the mortgaged contract;
17. The mortgage must be notarized and annotated in the Registry where the real
property is located.
III. Chattel Mortgage:

1. Same Stipulations as in the real estate mortgage
2. Affidavit of Good faith - It is an oath wherein the parties “severally swear that
the mortgage is made for the purpose of securing the obligations specified in the
conditions thereof and for no other purposes and that the same is just and valid
obligation and one not entered into for the purpose of fraud.”62
IV. Surety Agreement:

It is customary in the banking institution that at least 51% of the stockholders acquiring a
controlling interest in the corporation must sign the surety agreement. In the surety agreement,
the signatories will be solidarily liable with the corporation with respect to the credit line
granted in favor of the corporation. It is a common banking practice to require the JSS (“Joint
and Solidary Signature”) of a major stockholder or corporate officer, as an additional security
for loans granted to corporations. There are at least two reasons for this: (1) In case of default,
the creditor’s recourse, which is normally limited to the corporate properties under the veil
of separate corporate personality, would extend to the personal assets of the surety; (2) Such
surety would be compelled to ensure that the loan would be used for the purpose agreed upon,
and that it would be paid by the corporation.63
62
Section 5, Act 1508, Chattel Mortgage Law.
63
Security Bank vs. Cuenca, 341 SCRA 781 (2000).
228
Some banks will grant a continuing suretyship agreement with Corporations whom
the bank considers as a valued client. The criteria for the grant of the continuing suretyship
agreement will be based on the following:
1. Number of years in the business
2. Status in the industry
3. Satisfactory credit
The continuing surety agreement credit line program will allow corporations to avail of
the credit line even before the 6-month waiting period.
V. Trust Receipt:
1. The description of the merchandise with reference to the bill of lading
2. The term of the trust receipt
3. An undertaking of the entrustee that he merely holds the merchandise subject of the
trust receipt in trust from the entrustor (bank) and that the entrustee is authorized
to sell the goods and apply the proceeds for the full payment of his liability with the
bank.
VI. Letter of Receipt:
1. A notice that the bank has granted a credit line in favor of the corporation/
borrower.
2. Percentage commission for opening a credit line plus commission for the remittances,
if any. In the banking sector, this is called the compensating business with the
client.
Credit Cards
The Law
Sec. 3 [a]. Access Device means any card, plate, code, account number, personal
identification number, or other telecommunications service, equipment, or instrumental
identifier, or other means of account access that can be used to obtain money, goods, services,
or any other thing of value or to initiate a transfer of funds (other than a transfer originated
solely by paper instrument).
Sec. 3 [f]. A credit card is any card, plate coupon book or other credit device existing
for the purpose of obtaining money, goods, property, labor or services or any thing of value
on credit.
Sec. 3 [i]. Open-end-credit Plan means a consumer credit extended on an account
pursuant to a plan under which:
(a) The creditor may permit the person to make purchase or obtain loans, from time
to time, directly from the creditor or indirectly by use of credit card, or other
service;
(b) The person has the privilege of paying the balance; or
(c) A finance charge may be computed by the creditor from time to time on an unpaid
balance.64
64
Republic Act 8484, February 11, 1998.
229
A credit card is defined as a small card establishing the right of a holder to credit on certain
purchases such as meals, lodging, gasoline or merchandise.65 It is a wallet-size identification
card that enables its holder to buy products and obtain services on credit from one or a variety
of business firms.66
The Access Devices Regulation Act (R.A. 8484) seeks to protect the rights and define the
liabilities of parties who deal in credit cards and other access devices.
Under said law, any application to open a credit card account under and open-end credit
plan or solicitation to open such an account, either by mail, telephone or other means shall
disclose in writing or orally the following information: a) Annual percentage rate; b) Annual
and other fees (Section 4, RA 8484). In this regard the credit card issuer must provide, to the
extent practicable, a detailed explanation and a clear illustration of the manner by which all
charges and fees are computed. (Sec. 5, RA 8484)
However, disclosures required above may be omitted in any telephone solicitation or
application if the credit card issuer: a) Does not impose any annual, periodic, or membership
fee; b) Does not impose any fee in connection with telephone solicitation, unless consumer
signifies acceptance by using the card; c) Discloses clearly the required information in writing
within 30 days after consumer requests the card, but in no event later than the date of card
delivery; and d) Discloses clearly that consumer is not obligated to accept the card or account
and is not obligated to pay any fees or charges disclosed unless consumer accepts the card or
account by using the card. (Sec. 6, RA 8484)
Rules on Renewal
(a) Rules on Prior Disclosures
A card issuer that imposes any fee shall transmit to a consumer’s credit card account a
clear and conspicuous disclosure of:
(1) The date, the month or the billing period at the close of which, the account will
expire if not renewed;
(2) The required information which shall be transmitted to a consumer at least 30 days
prior to scheduled renewal date of consumer’s credit card account;
(3) The information regarding annual percentage rate which shall be transmitted to
consumer’s credit card account; and
(4) The method by which consumer may terminate continued credit availability.
Such prior disclosures are not required: (1) When card issuer imposes no fee; (2) In
telephone solicitations.
(b) Manner of Disclosures
Disclosures required in renewal must either:
(1) Be made prior to posting to the account an annual periodic fee; or
(2) With the periodic billing statement first disclosing that the fee has been posted to
account subject to the condition that:
• Consumer is given 30 days to avoid payment of fee or have fee recredited to
the account.
• In case consumer does not wish to continue availment of the credit. (Sec. 7, RA
8484)
65
The Lexicon Webster Dictionary.
66
The World Book Dictionary.
230
Access Device Fraud
The law specifically enumerated the transactions which constitute access device fraud as
follows:
a) Producing, using, trafficking in counterfeit access devices;
b) Trafficking in unauthorized or fraudulently-applied-for access devices;
c) Fraudulent use of unauthorized or fraudulently-applied-for access device;
d) Possessing counterfeit or fraudulently-applied-for access devices;
e) Producing, trafficking in, having control or custody of, or possessing device-making or
altering equipment without unlawfully being in such business or employment;
f) Inducing, enticing, permitting or allowing another, to produce, use traffic in counterfeit,
unauthorized or fraudulently-applied-for access devices;
g) Multiple imprinting on more than one transaction record, sales slip or similar document,
in order to collect from the issue of access device, such extra sales slip through an
affiliated merchant who connives therewith, or, under false pretenses of being an affiliated
merchant, present for collection such sales slips, and similar documents;
h) Disclosing information imprinted on access device, without authority or permission;
i) Obtaining money or anything of value through the use of an access device with intent to
defraud or to gain and fleeing thereafter;
j) Possession, without authority from the owner of the access device or the access device
company, an access device, or any material, such as slips, carbon paper, or any other
medium, on which the access device is written, printed, embossed, or otherwise
indicated;
k) Writing or causing to be written on sales slips, approval numbers from the issuer of the
access device of the fact of approval, where in fact no such approval was given, or where,
if given, what is written is deliberately different from approval actually given;
l) Alteration, without the access device holder’s authority, of any amount or other
information written on the sales slip;
m) Effecting transaction, with access devices issued to another, to receive payment or any
other thing of value;
n) Without authorization of issuer of the access device, soliciting a person for the purpose of
offering an access device or selling information regarding of an application to obtain and
access device; and
o) Without authorization of credit card system member or its agent, causing or arranging for
another person to present to the member or its agent, for payment, one or more evidence
on records of transaction made by credit card.
Fraud Commissions
The laws governing fraud commissions in tourism financing are as follows:
1) The Revised Penal Code (Act 3815 as amended) which covers the following crimes and
the corresponding examples:
a) Falsification of commercial documents by a private individual (Art. 172). Commercial
documents are instruments which are used by businessmen to promote or facilitate
trade, or credit transactions; they include letter of exchange, letters of credit, drafts,
checks, notes, bonds, quedans, and in general, any negotiable instrument.
Examples: Falsification of the signature of a drawer in checks, falsification of the
signature of the endorser or payee in checks.
231
b) Theft and Qualified Theft (Arts. 308 and 310). Theft is committed when one who
with intent of gain, but without violence against or intimidation of persons nor force
upon things, takes personal property of another without the latter’s consent. If theft is
committed with grave abuse of confidence, the crime committed is qualified theft.
Examples:
1. Unlawful taking of cargo freight consisting of packages containing dollar
(traveler’s) checks of different denominations amounting to $127,450.51, with
grave abuse of confidence being then employees of the Philippine Air Lines as
manifesting clerk and cargo checker having access to the Air Cargo Office at the
Philippine Air Lines, Manila International Airport constitutes qualified theft.67
2. Unlawful taking of the personal effects of a hotel guest by an employee of such
hotel constitutes qualified theft.
3. A chief steamer and roasting helper who had been bringing out from the
restaurant where they are working dried scallops wrapped in plastic, by
mixing them with leftovers thrown into the thrash can, and subsequently sold
at Ongpin, Binondo, Manila. Thereafter, they would then divide the proceeds
among them. This constitutes qualified theft.
c) Swindling (Estafa) (Art. 315). Takes place when one defrauded another by abuse of
confidence or by means of deceit and that damage or prejudice capable of pecuniary
estimation is caused to the offended party or third person.
Examples:
1. Postdating a check or issuing a check in payment of an obligation, knowing that
there are no sufficient funds in the bank to cover the amount of the check.
2. Obtaining food or refreshment in a hotel, restaurant or any accommodation
establishment without paying and with intent to defraud the proprietor or
manager thereof.
3. Obtaining credit at a hotel, restaurant or any accommodation establishment by
the use of false pretense or by abandoning or surreptitiously removing any part
of his baggage from the hotel, restaurant or any accommodation establishment
after obtaining credit, food or accommodation without paying.
4. A Chief Financial Officer who is instrumental in falsifying the documents
of the business establishment in order to reveal only ½ of the profits for the
company while he misappropriates the other ½ of the profits for his personal
use, constitutes estafa with abuse of confidence.

Case: Anna Marie de la Cruz, worked with Sheraton Hotel Manila as a room attendant from
June 22, 1980 until July 22, 1989 when her services were terminated. She was caught in the
act of stealing 40,0000 Japanese Yen and US$210.00 inside a Japanese guest room through a
surveillance camera. What is the liability of Ms. Anna Marie de la Cruz?
Legal Opinion: Ms. Anna Marie de la Cruz can be held criminally liable for qualified theft
committed with grave abuse of confidence.68 In addition, Ms. Anna Marie De la Cruz is also
civilly liable for the crime under Article 100 of the Revised Penal Code.
2) Civil Code of the Philippines (R.A. 386). These are civil liabilities arising from a criminal
act. The civil liability established in Articles 100, 101, 102 and 103 of the Revised Penal
Code includes:
67
People of the Philippines vs. Abraham Seranilla y Papa et al. G.R. No. L-54090, May 9, 1988.
68
232
a) Restitution;
b) Reparation of the damage caused; and
c) Indemnification.
In default of the persons criminally liable, innkeepers, tavern keepers and other persons
engaged in any kind of industry shall be subsidiarily liable for crimes committed by their
employees in their establishments while in the discharge of duties, in case the employees is
insolvent and has not satisfied their civil liabilities.69
3) Other related special laws:
a) Access device fraud under Republic Act 8484 also known as the Access Devices
Regulation Act of 1998
b) Bouncing Check Law under B.P 22 which penalizes the mere issuance of worthless
checks in payment of a preexisting obligation
c) Trust Receipts Law under P.D. 115 which penalizes the failure of an entrustee to turn
over the proceeds of the sale of the goods, documents or instruments covered by a
trust receipt. Such violation constitutes estafa under Article 315 of the Revised Penal
Code
d) Electronic Commerce Law under Republic Act 8792 which penalizes hacking or
cracking through unauthorized access or interference in a computer system/server
and communication system involving e-banking transactions

Case: Mr. Harry Ford, a computer wizard, was able to hack into the computer system of E-bank
of the Philippines. As a result, Mr. Harry Ford was able to transfer all of the money deposits of
Mandarin Hotel at E-bank of the Philippines in his name. Discuss the liability of Mr. Ford.
Legal Opinion: Mr. Harry Ford will be liable for the separate crimes of theft under the Revised
Penal Code and hacking under Republic Act 8792, also known as the Electronic Commerce
Law.
Investment Priorities Plan

On April 4, 2006, the Office of the President has approved the 2006 Investment Priorities
Plan pursuant to Article 29 of the Omnibus Investment Code of 1987. Under Book I of the
Omnibus Investments Code, an investor may enjoy certain benefits and incentives, provided
he invests in preferred areas of investments found in the current Investment Priorities Plan
(IPP).
The IPP, issued annually by the Board of Investments (BOI), is a list of promoted areas
of investments eligible for government incentives in consultation with related government
agencies and private sector. Consequently, the following activities related to tourism have been
classified as Priority Investment Areas:
a. Agribusiness. This covers the commercial production and commercial processing of
agricultural and fishery products including their by-products and wastes.
b. Healthcare and Wellness Products and Services. This covers hospital services, medical
and dental services, other human health and wellness products/services, retirement
villages, medical zones and related services. This also covers the manufacture of drugs
and medicines in accordance with the Philippine Drug Formulary of the Department of
69
233
Health (DOH), supplements limited to Vitamin A, iron and iodine for use in the Food
Fortification Law, and herbal medicines.
c. Information and Communications Technology. This covers IT AND IT-enabled services
and ICT support services.
d. Motor Vehicle Products. This covers the production and/or manufacture of motor
vehicle parts and components, and manufacture or assembly of motor vehicles provided
that the activity includes a program for the development of motor vehicle parts and
components.
e. Infrastructure. This covers the development of infrastructures, telecommunications,
logistics, transport systems and mass housing. This also covers infrastructure projects
under the BOT Law.
f. Tourism. This covers the development of tourism economic zones, tourist estates, eco-
agri-tourism facilities, and the establishment of tourist accommodation facilities. This
also covers historic-cultural heritage projects and services provided by tourist operators
as endorsed by the Department of Tourism (DOT).
g. Shipbuilding/Shipping. This covers shipbuilding, ship repair, shipyard operations
(excluding shipbreaking), and overseas, domestic and RORO shipping and terminal
operations.
h. Jewelry. This covers the manufacture of fine jewelry and costume jewelry.
i. Fashion Garments. This covers the production of fashion garments as endorsed by the
Department of Trade and Industry (DTI). Fashion garments essentially refer to wearing
apparel for a specific season with a distinct style and color based on international
trends.
Autonomous Region in Muslim Mindanao (ARMM) List

The ARMM List covers priority activities, which have been independently identified by
the Regional Board of Investments of the Autonomous Region in Muslim Mindanao (RBOI-
ARMM) in accordance with E.O. 458. The RBOI-ARMM can grant registration and administer
incentives to activities in the IPP, provided these are located in ARMM and subject to the General
Policies and Specific Guidelines. The following have been classified as priority activities related
to tourism under the ARMM List:
A. Export Activities
1. Export Trader and Service Exporters
2. Support Activities for Exporters
B. Infrastructure and Services
1. Public utilities (with developmental route of the five provinces and one city of the
ARMM and other adjacent cities and provinces (i.e., common carriers such as land,
air and water transport facilities)
2. Telecommunication with International Gateways
3. Tourism
a. Tourism Estate (subject to guidelines developed jointly by the Board of
Investments-ARMM and Department of Tourism (DOT))
b. Tourist Accommodation Facilities (hotels, resorts, and other tourist
accommodation facilities such as apartel, pension houses, tourist inns, and
others)
c. Tourist Transport Facilities (air, water, tourist buses and taxi/van)
234
C. Development of Retirement Villages. This shall include Health and Medical facilities
including amenities required by the Philippine Retirement Authority (PRA), subject to the
guidelines to be approved by BOI-ARMM in consultation with the PRA, the Department
of Health (DOH), the Regional Planning and Development Office and other concerned
agencies.
D. ARMM Priority and Tourism Areas
Listed below are potential tourist destinations which need further exploration and
evaluation for intensified promotions, development and marketing:
a) Area I - Sulu Jolo, Sulu Province
b) Area II - Tawi-Tawi Bongao, Tawi-Tawi Province
c) Area III - Lanao del Sur, Marawi City, Lanao del Sur Province
d) Area IV - Maguindanao, Cotabato City, Maguindanao Province
e) Area V - Basilan Isabela, Basilan Province
Incentives
Under Book I of the Omnibus Investments Code, an investor may enjoy certain benefits
and incentives, provided he invests in preferred areas of investments found in the current
Investment Priorities Plan (IPP).
Fiscal incentives include the following:
a) Income Tax Holiday
b) Exemption from Taxes and Duties on Imported Spare Parts
c) Exemption from Wharfage Dues and Export Tax, Duty, Impost and Fees
d) Tax Exemption on Breeding Stocks and Genetic Materials
e) Tax Credits
f) Additional Deductions from Taxable Income
Income Tax Holiday (ITH)

1. BOI-registered enterprise shall be exempt from the payment of income taxes reckoned
from the scheduled start of commercial operations, as follows:
a. New projects with a pioneer status for six (6) years;
b. New projects with a non-pioneer status for four (4) years;
c. Expansion projects for three (3) years. As a general rule, exemption is limited to
incremental sales revenue/volume;
d. New or expansion projects in less developed areas (LDAs) for six (6) years regardless
of status; and
e. Modernization projects for three (3) years. As a general rule, exemption is limited to
incremental sales revenue/volume.
2. The ITH is limited in the following cases:
Export traders may be entitled to the ITH only on their income derived from the following:
a. Export of new products, i.e., those which have not been exported in excess
of US$100,000 in any of the two (2) years preceding the filing of application for
registration; or
b. Export to new markets, i.e., to a country where there has been no recorded import
of a specific export product in any of the two (2) years preceding the filing of the
application for registration.
235
3. New registered pioneer and non-pioneer enterprises and those located in LDAs may
avail themselves of a bonus year in each of the following cases:
a. the indigenous raw materials used in the manufacture of the registered product
must at least be fifty percent (50%) of the total cost of raw materials for the preceding
years prior to the extension unless the Board prescribes a higher percentage;
b. the ratio of total imported and domestic capital equipment to the number of workers
for the project does not exceed US$10,000 to one (1) worker; and
c. the net foreign exchange savings or earnings amount to at least US$500,000 annually
during the first three (3) years of operation.
In no case shall the registered pioneer firm avail of the ITH for a period exceeding
eight (8) years.
Exemption from Taxes and Duties on Imported Spare Parts
A registered enterprise with a bonded manufacturing warehouse shall be exempt from
customs duties and national internal revenue taxes on its importation of required supplies/
spare parts for consigned equipment or those imported with incentives.
Exemption from Wharfage Dues and Export Tax, Duty, Impost and Fees
All enterprises registered under the IPP will be given a ten-year period from the date of
registration to avail of the exemption from wharfage dues and any export tax, impost and fees
on its non-traditional export products.
Tax Exemption on Breeding Stocks and Genetic Materials

Agricultural producers will be exempted from the payment of all taxes and duties on
their importation of breeding stocks and genetic materials within ten years from the date of
registration or commercial operation.
Tax Credits
1. Tax credit on tax and duty portion of domestic breeding stocks and genetic materials.
A tax credit equivalent to one hundred percent (100%) of the value of national internal
revenue taxes and customs duties on local breeding stocks within ten (10) years from date
of registration or commercial operation for agricultural producers.
2. Tax credit on raw materials and supplies. A tax credit equivalent to the national internal
revenue taxes and duties paid on raw materials, supplies and semi-manufacture of export
products and forming part thereof shall be granted to a registered enterprise.
Additional Deductions from Taxable Income

1. Additional deduction for labor expense (ADLE). For the first five (5) years from
registration, a registered enterprise shall be allowed an additional deduction from taxable
income equivalent to fifty percent (50%) of the wages of additional skilled and unskilled
workers in the direct labor force. The incentive shall be granted only if the enterprise
meets a prescribed capital to labor ratio and shall not be availed simultaneously with
ITH. This additional deduction shall be doubled if the activity is located in an LDA.
2. Additional deduction for necessary and major infrastructure works. Registered enterprises
locating in LDAs or in areas deficient in infrastructure, public utilities and other facilities
may deduct from taxable income an amount equivalent to the expenses incurred in the
development of necessary and major infrastructure works. The privilege, however, is not
granted to mining and forestry-related projects as they would naturally be located in
certain areas to be near their sources of raw materials.
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Non-fiscal incentives are as follows:
Employment of Foreign Nationals. A registered enterprise may be allowed to employ
foreign nationals in supervisory, technical or advisory positions for five (5) years from date
of registration. The position of President, General Manager and Treasurer of foreign-owned
registered enterprises or their equivalent shall however not be subject to the foregoing
limitations.
Simplification of customs procedures for the importation of equipment, spare parts, raw materials
and supplies and exports of processed products. Importation of consigned equipment for a period of
10 years from date of registration, subject to posting of a re-export bond. The privilege to operate
a bonded manufacturing/trading warehouse subject to Customs rules and regulations.
Procedures for the issuance of Certificate of Registration under Book 1 Of E.O. 226
1. Official filing of a duly accomplished BOI Form No. 501 complete with supporting
documents and payment of filing fee;
2. Evaluation of application and preparation of an evaluation report (including Publication
of Notice of Filing of Application, referral to the private sector and plant visit, if
necessary);
3. Presentation to the BOI Management Committee;
4. Confirmation by the BOI Executive Board;
5. Preparation of letter advising applicant of the Board Action;
6. Applicant requests for waiver on pre-registration requirements or applicant complies
with pre-registration requirements;
7. Preparation and issuance of Certificate of Registration upon payment by applicant of
Registration Fee; and
8. Release of Certificate of Registration.
Documents to be attached:
1. Copy of Applicant’s Articles of Incorporation/Partnership and By-laws, SEC Certificate
of Registration;
2. Copy of company Audited Financial Statements (AFS) and Income Tax Return (ITR) for
the past three (3) years or for the period the applicant has been in operation if less than
three (3) years. For domestic existing and expanding projects whose existing operations
are not registered with the Board, this must be submitted, unless waived by the Board;
3. Copy of company’s Board Resolution authorizing officer to sign in behalf of applicant
enterprise; and
4. Project Report.
Special Investor’s Resident Visa (Executive Order No. 63)

The Special Investor’s Resident Visa (SIRV), issued pursuant to the provisions of the
Omnibus Investments Code of 1987, as amended shall entitle the holder to reside in the
Philippines for an indefinite period as long as the required qualifications and investments are
maintained as provided for in Article 74 of the Omnibus Investment Code. The visa when
issued by the Philippine Embassy or Consulate shall be issued with the following notation:
Special Investor’s Resident Visa under the Omnibus Investments Code of 1987.
This Executive Order also grants incentives to foreigners investing at least US$50,000
in a tourist-related project or in any tourist establishment as determined by the Committee.
Executive Order No. 63 grants the foreign investor a Special Investor’s Resident Visa (SIRV) for
237
as long as the investment subsists. The Executive Order also recognizes the right of the investor
to remit earnings from his investment in the currency in which the investment was originally
made and at the exchange rate prevailing at the time of remittance. In case of liquidation, the
investor is also allowed to repatriate the entire proceeds of the liquidation of the investment in
which the investment was originally made. Lastly, the right of succession is also recognized.
An investor may apply for SIRV at the Philippine Embassy or Consulate in his home country
or place of residence. If already in the Philippines, the investor may file the application at the
Department of Tourism for endorsement to the Bureau of Immigration.
Lease of Private Lands

Foreign investors investing in the Philippines can now lease private lands up to 75 years.
Based on R.A. No. 7652, entitled Investor’s Lease Act, lease agreements may be entered into
with Filipino landowners. Lease period is 50 years, renewable once for another 25 years. For
tourism projects, the lease shall be limited to projects with an investment of not less than
US$5M, 70% of which shall be infused in said project within years from signing of the lease
contract.
Special Economic Zone Act of 1995 (Republic Act 7916)
The Law
The law provides for the legal framework and mechanism for the creation, operation,
administration and coordination of Special Economic Zones in the Philippines, creating for this
purpose, the Philippine Economic Zone Authority (PEZA) and for other purposes. On October
7, 2002, the Department of Tourism (DOT) entered into a Memorandum of Agreement (MOA)
with PEZA that will grant Special Economic Zone status to tourism development zones and
tourism estates upon registration with PEZA subject to the issuance of the required Presidential
Proclamation. The PEZA shall consider for registration tourist-oriented enterprises to be
located in PEZA-registered tourism development zones/tourism estates which are enclosed by
the DOT as enterprises that will be established and operated with foreign tourists as primary
clientele.

Incentives available are:
a. Up to 100% foreign ownership of locator enterprises;
b. Income tax holiday (ITH) for six years for pioneer firms and four years for non-pioneer
firms. If a non-pioneer firm is located in a less developed area, it shall generally be entitled
to 6 years ITH.
c. After the ITH period, the option to pay a special 5% Tax on Gross Income, in lieu of all
national and local taxes, except real property taxes;
d. Tax and duty-free importation of capital equipment required for the technical viability of
registered tourism activities;
e. Special Investor’s Resident Visa;
f. Employment of foreign nationals; and
g. Other incentives as may be determined by the PEZA Board.
238
Case: Republic Act 7922 was enacted establishing the Cagayan Economic Zone. Accordingly,
any foreign investor who establishes a business enterprise within the Zone and who maintains
a capital investment of not less than P150,000.00 shall be granted a permanent resident status
within the Zone. Such foreign investor shall have the freedom of ingress and egress to and
from the Zone without need of any special authorization from the Bureau of Immigration.
Discuss the constitutionality of the law.
Legal Opinion: Such law is constitutional in accordance with the State policy which provides:
“The State recognizes the indispensible role of the private sector, encourages
private enterprise, and provides incentives to needed investments.” (Sec. 20, Art II, 1987
Constitution)
This law providing for the legal framework and mechanisms for the creation, operation,
administration, and coordination of special economic zones in the Philippines will 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. In addition, these special economic zones shall be vested
with the status of a separate customs territory which shall be within the framework of the
Constitution and the national sovereignty and territorial integrity of the Philippines.
Business Models
The Law
Joint Venture
In a joint venture, which is similar to partnership, two or more persons bind themselves
to contribute money, property or industry, with the intention of dividing the profits among
themselves. (People vs. Caballero, 24059-CR, August 26, 1981)70

To constitute a joint venture, there must be an agreement to enter into undertaking in
objects of which parties have community of interest and common purpose in performance, and
each of the parties must have an equal voice in the manner of its performance and control over
agencies used therein, though one may entrust performance to others. (Reyes vs. New Riviera
Hotel Development Corporation, CV-69210, February 15, 1985).71
A joint venture is distinguished from a partnership in such a way that a joint venture may
or may not attain a juridical personality. If qualified as a partnership under the Civil Code, it is
taxable as a corporation, and if not qualified as a partnership, it has no juridical personality.72
Corporations may enter into a consortium among themselves to finance a specific
venture and divide the profits according to the terms of the agreement. Joint ventures, while
not expressly recognized as such under the Civil Code of the Philippines, are afforded the
same legal status as a partnership. Consequently, because the tax rules for partnerships are
harsher than for corporations, joint ventures established in the traditional sense tend to be
uncommon. The more common approach is to establish a new corporation, with the “joint
venturers” holding shares in the corporation.
70
71
Ibid.
72
Handbook on Partnership Law and Corporation by Jose N. Nolledo, 1997 Reprint, p. 7.
239
The exception is for investments in construction projects, or in energy operations
pursuant to an operating or consortium agreement under a service contract with the Philippine
government. In these cases, the joint venture will be treated as a conduit vehicle for tax purposes,
which overcomes the punitive nature of the tax rules applying to partnerships.73
Participants in a joint venture in organizing the joint venture, deviate from the traditional
pattern of corporation management. Just as in close corporations, shareholders’ agreements in
joint venture corporations contain certain provisions which do one or more of the following:
(1) require greater than majority vote for shareholder and director action;
(2) give certain shareholders or group of shareholders power to select a specified number of
directors;
(3) give to the shareholders control over the selection and retention of employees; and
(4) set up a procedure for settlement of disputes by arbitration.
The usual rules as regards the construction and operations of contracts generally apply
to a contract of joint venture which has the force of law between parties and must be complied
with in good faith.
The legal concept of a joint venture is of common law origin. It has no precise definition
but it has been generally understood to mean an organization formed for some temporary purpose.
It is hardly distinguishable from the partnership, since their elements are similar — community of
interest in the business, sharing of profits and losses, and a mutual right of control.
The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity while the joint
venture is formed for the execution of the single transaction, and is thus of a temporary nature.
The Supreme Court had however recognized a distinction between these two business firms
and has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and marketing
assistance of huge multinational corporations of the developed world. Arrangements are
formalized where a foreign group becomes a minority owner of a firm in exchange for its
manufacturing expertise, use of its brand names and other assistance. However, there is always
a danger from such arrangements. The foreign group may, from the start, intend to establish
its own sole or monopolistic operations and merely uses the joint venture arrangement to gain
a foothold or test the Philippine waters. As the Philippine firm enlarges its operations and
becomes profitable, the foreign group undermines the local majority ownership and actively
tries to completely predominantly take over the entire company. In this regard, the courts
should extend protection especially in industries where constitutional and legal requirements
reserve controlling ownership to Filipino citizens.74

Case: The country’s largest property developer Ayala Land, Inc. (ALI) will transfer the legal title
of its 7,377-square-meter property at Ayala Center in Makati City to KHI-ALI Manila, Inc., the
joint-venture company it formed with Dubai-based hospitality group Kingdom Hotel Investments,
Inc. (KHI). ALI said that the property is valued at P1.76 billion. The property is currently being used
by Ansons department store, Park Square 2, and the public transport terminal.
73
“Forms of Doing Business,” www.davaocity.gov.ph
74
Aurbach vs. Sanitary Wares Mfg. Corp., G.R., No. 75875, December 15, 1989.
240
The assignor (ALI) is the registered owner of a parcel of land located at the Ayala Center,
Makati City which it intends to convey and assign to the assignee (KHI-ALI Manila) for
the purpose of enabling the assignee to develop thereon a mixed-use residential and hotel
condominium project.75 Discuss the possible benefits which may be derived by both parties in
the joint venture.
Legal Opinion: The parties may declare the joint venture project as an Investment Priority
Plan and may apply at the Board of Investments for fiscal incentives, as the hotel project will
help tourism in the country. It must be noted that the tourism industry and related projects
such as hotels continue to be among the top foreign exchange generators contributing to the
growth of the Philippine economy.
Management Contracts
In Corporation Law, it is an agreement under which a corporation delegates the
management of its affairs to another corporation for a certain period of time. The conditions
are as follows: (1) Approval by the board of directors and stockholders owning at least the
majority of the outstanding capital stock; (2) Where a stockholder/s representing the same
interest of both the managing and managed corporations own and control more than 1/3 of the
outstanding capital stock entitled to vote of the managing corporation, or where a majority of
the members of the board of directors of the managing corporation also constitute a majority
of the board of directors of the managed corporation, then the management contract must be
approved by the stockholders of the managed corporation owning at least 2/3 of the total
outstanding capital stock entitled to vote; (3) No management contract shall be entered into for a
period longer than five years for one term; (4) The aforementioned conditions shall apply to any
contract whereby a corporation undertakes to manage or operate all or substantially all of the
business of another corporation whether such contracts are called service contracts, operating
agreements or otherwise; and (5) Such service contracts or operating agreements which relate
to the exploration, development, exploitation or utilization of natural resources may be entered
into for such periods as may be provided by the pertinent laws or regulations.76
A management contract is an arrangement under which operational control of an enterprise
is vested by contract in a separate enterprise which performs the necessary managerial functions
in return for a fee. Management contracts involve not just selling a method of doing things
(as with franchising or licensing) but involves actually doing them. A management contract
can involve a wide range of functions, such as technical operation of a production facility,
management of personnel, accounting, marketing services and training.
In Asia and, specifically, in the Philippines, many deluxe, and first class hotels operate
under management contract arrangements with their multinational counterparts, as they can
more easily obtain economies of scale, a global reservation systems, brand recognition, etc. It
is not unusual for contracts to be signed for 25 years, and having a fee as high as 3.5% of total
revenues and 6-10% of gross operating profit. For example, properties like Hotel Sofitel, New
World Renaissance Hotel, Manila Diamond Hotel, Dusit Hotel Nikko, Pan Pacific Hotel and
Mandarin Oriental are all under management contracts.
Management contracts have been used to a wide extent in the airline industry, and when
foreign government action restricts other entry methods. Management contracts are often
formed where there is a lack of local skills to run a project. It is an alternative to foreign direct
investment as it does not involve a high risk and can yield higher returns for the company.
75
www.bworldonline.com
76
Philippine Legal Encyclopedia, by Jose Agaton R. Sibal, 1986 Edition.
241
Case: Hyatt Regency Manila is one of the oldest Hyatt properties worldwide since it opened
its doors to the public in 1969. The deluxe hotel’s owning company, Hotel Enterprises
Philippines, Inc. (HEPI) has a management contract with Hyatt International Corporation
with headquarters in the US. What are the possible reasons for engaging a foreign company to
handle the management of Hyatt?
Legal Opinion: When HEPI, then headed by its president, Jose Mari Chan, and its vice-
president, Elizabeth Chan, engaged Hyatt International Corporation for the past 37 years in a
management contract because that is part of the deal of having a Hyatt branded hotel in all the
territories where the international hotel chain has engaged business. The management contract
can carry a number of conditions like provision of an expatriate, though not necessary, general
manager and a team of experts to include an executive chef and other senior executives. It is
important that the employment of expatriates be accompanied by the provision of Filipino
understudies. This is normally reported by the Human Resources Director with the Department
of Labor and Employment and the Bureau of Immigration and Deportation. HEPI, on the other
hand, is obligated to pay HIC management fees and/or percentage of gross revenues or net income
depending on what is stipulated in the management contract. Hyatt Regency Manila ceased
operating and did not renew its management contract with HIC effective December 31, 2006.
Franchising
The Law
A franchise is a privilege given to a dealer by a franchise service organization to sell
the franchisor’s products or services (including trademarks and tradenames) in a given area,
with or without exclusivity. Such arrangements are sometimes formalized in a franchising
agreement, which is a contract between a franchisor and a franchisee wherein the former may
offer consultation, promotional assistance, financing and other benefits. The franchisee must
pay a franchise fee for such right. In addition, the franchisee is typically required to use the
franchisor’s product.77

A franchise is a license from the owner of a trademark or tradename permitting another
to sell a product or service under that name or mark. More broadly stated, a “franchise” has
evolved into an elaborate agreement under which the franchisee undertakes to conduct a
business or sell a product or service in accordance with methods and procedures prescribed
by the franchisor, and the franchisor undertakes to assist the franchisee through advertising,
promotion and other advisory services.78
Product Distributorship is a form of franchising where owners of products allow other
parties to sell or distribute their products or even use their trademark as a dealer. There is
minimal or no control of operations. The relationship is centered on the quality of products sold.
The Business Format is a form of franchising used by 90% of companies involved in
franchising. This is the reason why franchising is considered the most successful way of
expansion worldwide. In business format, the franchisor, more than his registered trademark
and products, has developed a business system that is made available for use to franchisees.
Compliance to the business system is the core and essential element of their contractual
relationship embodied in a franchise agreement.
77
Barron’s Legal Guides, Dictionary of Finance and Investment Terms, 1985 Edition.
78
Black’s Law Dictionary, 6th Edition, 1990, West Publishing Co., p. 658.
242
The proliferation of several hotels in the country with international brands or names
was made possible through franchising agreements. The same is true for certain international
restaurants and coffee shops, such as Figaro. Max’s is now engaged in franchising outside the
Philippines.
A franchise agreement involves multiple licensing of intellectual property (i.e.,
tradename, trademarks and service marks, among others). Such licensing is governed by the
rules on technology transfer agreements. The term “technology transfer arrangements” refers
to contracts or agreements involving the transfer of systematic knowledge for the manufacture
of a product, the application of a process, or rendering of a service including management
contracts; and the transfer, assignment or licensing of all forms of intellectual property rights,
including licensing of computer software except computer developed for mass market.79
Under Republic Act No. 8293, also known as the Intellectual Property Code of the
Philippines, the term “intellectual property rights” consists of: a) Copyright and Related
Rights; b) Trademarks and Service Marks; c) Geographical Indications; d) Industrial Designs;
e) Patents; f) Layout-Designs (Topographies) of Integrated Circuits; and g) Protection of
Undisclosed Information.80
The Intellectual Property Code mandates that all technology transfer arrangements must
comply with the voluntary licensing of all intellectual properties in order to prevent or control
practices and conditions that may constitute an abuse of intellectual property rights having
an adverse effect on competition and trade.81 The Philippine taxes on all payments relating to
technology transfer arrangements shall be borne by the licensor.82

Case: Joane Perez, is an entrepreneur who wants to have a restaurant of her own. After scouting
for a couple of months, she decided to approach Pancake House for franchising. However,
she wanted to incorporate some personal concepts in the restaurants that will, in effect, alter
drastically the true concept of Pancake House. Can Joanne modify drastically the business
concept of Pancake House?
Legal Opinion: No, Joane cannot modify the business concept according to her wishes. When
she decided to acquire a franchise of Pancake House, she was essentially buying one whole
system that has been tried and tested in the market. Drastic changes implemented can result in
violation of the franchise agreement between the two parties.
Timesharing
Timesharing is a form of shared property ownership, commonly in vacation or recreation
condominium property, wherein rights vest in several owners to use property for specified
period each year (i.e., two weeks each year).83
With timeshares, the use and costs of running the resort are shared among the owners.
Developers have applied the timeshare model to houseboats, yachts, campgrounds, motor
homes, cruises and private jets.
The notion of a timeshare was originally created in Europe in the 1960s. A ski resort
developer in the French Alps innovatively marketed his resort by encouraging guests to “stop
renting a room” and instead “buy the hotel.” The developer was successful in increasing
occupancy and the idea spread worldwide.
79
Section 4.2, R.A. 8293, Intellectual Property Code, June 6, 1997.
80
81
Section 85, R.A. 8293, Intellectual Property Code, June 6, 1997.
82
83
Black’s Law Dictionary, 6th Edition, 1990, West Publishing Co., p. 1483.
243
Timeshare ownership of vacation or recreation property is a popular choice for persons
who wish to secure a long-term commitment to a particular location. Timesharing is common
in Hawaii, Florida, Arizona, Colorado, and Mexico, as well as in certain other popular vacation
spots in the United States. When a person signs a contract to purchase a “timeshare,” he is
agreeing to pay the owner of the property a sum of money for the exclusive right to use or
occupy the property for a specified time during the year. One or two weeks is the typical period
that may be purchased. Usually, the timeshare agreement is made for improved property, such
as a vacation home.
The form of a timeshare agreement varies. Usually, the person has the right of exclusive
use of the vacation home during the same time each year or other specified period. Each
timeshare unit is considered an estate or interest in real property, separate and distinct from all
other timeshare estates in the same unit or any other unit. Therefore, estates may be separately
conveyed and encumbered.
The cost of purchasing a timeshare depends on the time of year selected; premium prices
are charged for the most popular times of the year. The annual maintenance fee for the vacation
property and the annual property taxes are divided proportionally among the timeshare
owners. A person who does not plan to use the property during the specified period may rent
the timeshare to a third party.
Timeshare agreements are affected by various federal and state statutes. States generally
require developers of timeshares to file detailed statements that demonstrate compliance with
all applicable statutory requirements. For example, states typically require the developer to
fully disclose how the project is to be financed and to give examples of all contracts, deeds,
fact sheets, and other instruments that will be used in marketing, financing, and conveying
timeshare interests. Some states also require information from the developer concerning the
management of the project, including a copy of the management agreement, disclosure of any
relationship between the developer and the management company, and a statement as to whether
the management agent will be bonded or insured.
Taxes
The Law
Taxes on Income
Generally, active business income earned by individuals is subject to graduated rates of
tax between 5-32%. Personal exemption is granted to single individual or married individual
judicially decreed as legally separated with no qualified dependents (P20,000.00); head of
family (P25,000.00); and married individual (P32,000.00).84 There is allowed an additional
exemption of P8,000.00 for each dependent not exceeding four (4).85
The active business income of Corporations, on the other hand is subject to a flat 35%
rate. (The tax rate will be reduced to 30% in 2009.) Passive income such as interest, royalties,
and dividends are subject to final withholding taxes which are withheld at source. The
applicable rates of final withholding tax vary depending on the type of income involved and
the taxpayer.
Corporations (including partnerships) are classified as domestic or foreign depending on
the place of incorporation or organization. A domestic corporation is a corporation organized
under Philippine Laws. A foreign corporation is a corporation organized under the laws of a
foreign country. A foreign corporation is either resident or non-resident.
84
Section 35 (A), R.A. 8424, Tax Reform Act of 1997, December 11, 1997.
85
Section 35(B), R.A. 8424, Tax Reform Act of 1997, December 11, 1997.
244
The taxable income of a domestic corporation includes income earned from all sources
(within and outside the Philippines). A resident foreign corporation is one considered doing
business in the Philippines (continuity of commercial dealings) and is taxed on net Philippine-
source income. The regular income tax rate is 35% of net taxable income. However to deter
corporations that consistently declare losses or pay very small income taxes, the law requires
corporation to pay a 2% minimum corporate income tax (MCIT) on gross income on an annual
basis, beginning its fourth year of operations, if the MCIT is greater than its regular corporate
income tax liability. Any excess of the MCIT over the regular income tax shall be carried forward
and credited against the normal tax for the three immediately succeeding taxable years. Non-
resident foreign corporations are taxed at 32% of the gross amount of Philippine source income
such as dividends, rents, royalties, compensation, and remuneration for technical services.
This tax is withheld at source.
Foreign and local businesses in the Philippines that qualify and are registered for incentives
can avail of income tax holidays and this may be followed by a final tax rate of 5% on gross income
in lieu of local and national taxes if the business is located in a special economic zone. In Subic Bay
Free Port and Clark Special Economic Zones, they are charged 5% of gross income earned in lieu of
all national and local taxes except real property taxes on land owned by developers.
International carriers doing business in the Philippines are liable to pay tax of 2 1/2
percent of its “Gross Philippine Billings.” Gross Philippine Billings refer to the amount of gross
revenue derived from the Philippines in a continuous and uninterrupted flight, irrespective
of the place of sale or issue and the place of payment of the ticket or passage document.86 For
international shipping, the term “Gross Philippine Billings” means gross revenue whether for
passenger, cargo, or mail originating from the Philippines up to final destination, regardless of
the place of sale or payments of the passage or freight documents.87

Case: Mr. Von Bach is a German operator of a German international carrier doing business in
the Philippines. The data that follow do not include percentage taxes:
Revenues Collections
From the Philippines 5500,000,000 5450,000,000
From the U.S. 5450,000,000 5400,000,000
From Germany 5950,000,000 5900,000,000
How much income tax must Mr. Von Bach pay?

Legal Opinion: Mr. Von Bach must pay 512,500,000. Gross Revenues from Philippine source
(5500,000,000 multiplied by 2.5%) is 512,500,000.
Value Added Taxes

A 12% value added tax is imposed on any person who, in the course of trade or business
sells, barters, exchanges, leases goods or properties, renders services, or engages in similar
transactions and who imports goods. The value added tax is based on the gross selling price
or gross value in money of the goods or properties sold or bartered. In case of imported goods,
the value added tax is based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes (if any), and any other charges as
may be due.
86
Section 28 (A)(3)(a), R.A. 8424, Tax Reform Act of 1997, December 11, 1997.
87
Section 28 (A)(3)(b), R.A. 8424, Tax Reform Act of 1997, December 11, 1997.
245
In computing the liability, the taxpayer subtracts from the tax due on sales taxes on his
purchase of raw materials. He thus pays only the difference between the tax on sales (output
tax) and the tax outlays for materials, supplies, services and capital goods (input tax). If at the
end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by
the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried
over the succeeding quarters. Export sales are zero-rated. Certain transactions are exempt
from VAT e.g., sale or importation of agricultural or marine food products, services subject
to percentage taxes, interest income of banks and financial institutions, services rendered by
regional headquarters of multinational companies, etc.
Percentage Taxes
Persons whose annual gross receipts do not exceed 5550,000 are exempt from payment
of value added tax but shall pay a percentage tax equivalent to three (3%) percent on quarterly
sales. Domestic carriers and keepers of garages shall pay three 3% of their quarterly gross
receipts. International air carriers and shipping carriers doing business in the Philippines shall
pay 3% of their gross quarterly receipts.
Excise Taxes
Excise tax is imposed on certain specified goods manufactured or produced for
consumption in the Philippines for domestic sale or consumption or for any disposition and
those imported. Excise tax is paid in addition to VAT. Alcohol products, automobiles, and
certain luxury items such as jewelry, precious metals, perfumes and toilet waters, yachts and
other vessels intended for pleasures or sports are all subject to excise taxes. The liability to
pay excise tax accrues immediately upon removal of the goods from place of production or
manufacture.
Customs and Import Duties

Customs duties are taxes on imports or exports. Importation begins from the time the
carrying vessel or aircraft enters Philippine territorial jurisdiction with the intention to unload
therein to the time the goods are released or withdrawn from the customs house upon payment
of the customs duties or with legal permit to withdraw.
Whether brand new or used, purchased or donated, an imported vehicle is subject
to 40% Customs duty, 10% VAT and Ad Valorem Tax from 15% to 100% depending on its
piston displacement. Its book value serves as the tax base and not the purchase price nor the
acquisition cost. The book value is sourced from universally accepted motor vehicle reference
books such as the Red Book, Blue Book, World Book depending on the origin of the imported
vehicle. Spare parts sent with the motor vehicle are taxed separately.
Travel Taxes
Under Presidential Decree (PD) No. 1183, as amended by PD 1205, Batas Pambansa (BP)
38 and Executive Order (EO) 283, Filipinos and other nationals traveling to other countries are
required to pay travel tax before departure from the Philippines.
The following are required to pay travel taxes:
• Filipino nationals
• Permanent resident aliens
• Non-resident aliens who have stayed in the Philippines for more than one (1) year
246
The following are exempted to pay travel taxes:
• Filipino overseas contract workers
• Filipino permanent residents abroad whose stay in the Philippines is less than one
year (Balikbayan)
• Infants (2 years old and below)
The requirements for exemption are as follows:

a) Filipino Overseas Contract Workers
• Valid passport
• Employment certificate
• Valid Overseas Employment certificate (OEC) from POEA if hired through this
agency. The OEC serves as the travel tax exemption certificate; workers do not need
to go to PTA for exemption.
• For those directly hired abroad, a certificate of work or employment issued by the
employer and noted by the Philippine Embassy/Consulate or the Employment
Contract authenticated by the Philippine Embassy/Consulate.
b) Filipino Permanent Residents Abroad
• Copies of ID pages of passport and stamp of last arrival in the Philippines
• Proof of permanent residence in foreign country which may, among others, be the
official document issued by the foreign government concerned showing the grant
of permanent resident status to the Filipino citizen
• For those between 18 to 60 years old and are employed, Philippine Income Tax
return (ITR) for the previous year
The ITR may either be
An Information Return (BIR Form 1701C or 1703) for those who do not derive
income in the Philippines
The appropriate ITR form prescribed by the BIR for those who derived income
in the Philippines
• For those between 18 to 60 years old and are unemployed, an Affidavit of
Unemployment notarized by the Philippine Embassy or Consulate
c) Infants
• Photocopy of passport
• Certified true copy of birth certificate
The other individuals exempted from Travel Tax are as follows:

• Foreign diplomatic representatives
• Employees of the UN and its agencies
• US military personnel
• International carrier crew
• Philippine foreign service personnel assigned abroad and their dependents
• Philippine Government employees on official travel (excluding Government-owned
and controlled corporations)
247
• Grantees of foreign Government funded trips
• Students with approved scholarships by appropriate Government agency
• Personnel of Philippine offices of multinational corporations not engaged in business
in the Philippines and their dependents
Duty Free Philippines

Duty Free Philippines is a duty and tax free merchandising system in the Philippines
created to generate foreign exchange and revenues for the government. The Department of
Tourism, through the Philippine Tourism Authority was authorized to establish said system.
Imported merchandise, goods and articles in duty free shops or stores can be sold to the
following groups of persons:
1. Incoming passengers, within forty eight (48) hours upon arrival from a foreign country at
an international airport or seaport are entitled to purchase not exceeding two (2) reams of
cigarettes of any brand; two (2) bottles of wine and/or liquor of any brand; and all other
articles with a total value not exceeding US$250.00 payable only in acceptable foreign
currency. Any purchase in excess of US$250 but not exceeding US$1,000.00 will be subject
to full duty and tax. Imported articles purchased in excess of US$1,000.00 may be released
after securing a release certificate from the Bangko Sentral ng Pilipinas, and payment of
full duties and taxes due.
2. Departing passengers with confirmed bookings destined to foreign countries before
boarding their flights or vessels at an international airport or seaport of entry may
purchase articles and merchandise in any quantity and value; provided, that all such
purchases must be delivered to the pre-designated claim counter/s at the airport or
seaport of embarkation under customs supervision to insure the exportation thereof.
In case of flight or voyage cancellation, all such duty and tax free purchases must be
returned to or placed under the custody and control of the proper officer/s of the Bureau
of Customs (BOC) until the same are finally reported.
3. Diplomatic personnel, as well as personnel of other foreign government and offices of
international organizations, institutions, associations and agencies, which are entitled
to tax and/or duty exemption pursuant to Philippine law or agreements to which
the government of the Republic of the Philippines is a signatory, as endorsed by the
Department of Foreign Affairs may purchase tax and duty free merchandise through
their respective embassies, legations, institutions, organizations, associations, consular
offices or agencies.
4. A Balikbayan (a Filipino citizen who has been continuously out of the Philippines for
a period of at least one (1) year, a Filipino overseas worker, or a former Filipino citizen
and his family who has been naturalized in a foreign country and comes or returns to
the Philippines) shall be entitled to a tax-free maximum purchase of US$1,500.00 or its
equivalent in other acceptable foreign currencies, provided:
a. Purchases shall only be made in United States dollars or other acceptable foreign
currencies;
b. Purchases shall be made within 15 calendar days from the date of arrival and shall
be availed of on a one-time shopping basis only; during the Christmas season
reckoned from November 15 to January 15, the privilege is extended to 30 calendar
days from the date of arrival;
c. The privilege is non-transferable;
d. The privilege can be availed of only once a year;
248
e.
Only balikbayan of majority age under Philippine laws can enjoy the privilege,
provided that minors shall continue to be entitled to purchase privileges not
exceeding US$250; and
f. A balikbayan shall be entitled to buy only one (1) item of every product category of
non-consumables whose selling price exceeds US$200.00.88
In addition, the balikbayan shall be entitled to Kabuhayan shopping privilege through
an additional duty and tax exempt purchase in the amount of two thousand United States
Dollars (US$2,000) or its equivalent in Philippine peso and other acceptable foreign currencies,
exclusively for the purchase of livelihood tools.89

Case: Ms. Monina Palafox is a former citizen of the Philippines. She became a naturalized
citizen in Canada while working as a nurse. She came home in the Philippines on December 10,
2007 to visit her relatives. Discuss the shopping benefits which Ms. Palafox will receive under
the Balikbayan Program.
Legal Opinion: Ms. Monina Palafox may be entitled to a tax and duty free shopping privileges
at Duty Free Philippines for a maximum amount of US$1,500.00 or its equivalent in other
acceptable foreign currencies, provided:
1. that the privilege will be availed of within 30 calendar days from the date of arrival.
2. the privilege is non-transferable;
3. the privilege can be availed of only once a year;
4. Ms. Palafox shall be entitled to buy only one (1) item of every product category of non-
consumables whose selling price exceeds US$200.00.90
Barangay Micro Business Enterprise Law
The Law
The Barangay Micro Business Enterprises (BMBEs) Act of 2002 (R.A. 9178, July 22, 2002)
was enacted to hasten the country’s economic development by encouraging the formation and
growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino
entrepreneurial talents, and integrating those in the informal sector with the mainstream
economy, through the rationalization of bureaucratic restrictions, the active intervention of the
government specially in the local level, and the granting of incentives and benefits to generate
much-needed employment and alleviate poverty.
“Barangay Micro Business Enterprise,” hereinafter referred to as BMBE, refers to any
business entity or enterprise engaged in the production, processing or manufacturing of
products or commodities, including agro-processing, trading and services, whose total assets
including those arising from loans but exclusive of the land on which the particular business
entity’s office, plant and equipment are situated, shall not be more than Three Million Pesos
(P3,000,000).91
Any person, natural or juridical, or cooperative, or association, having the qualifications
of a Barangay Micro Business Enterprise as defined may apply for registration as BMBE.92
88
Republic Act 6768 as amended by R.A. 9174 Instituting a Balikbayan Program, November 7, 2002.
89
Section 3(g), Republic Act 9174, November 7, 2002.
90
Republic Act 6768 as amended by R.A. 9174 Instituting a Balikbayan Program, November 7, 2002.
91
92
249
Procedure for Registration
The following are the procedures when applying for registration as BMBE:
a. an applicant for BMBE shall go to the Office of the Municipal or City Treasurer where the
business is located;
b. the applicant shall accomplish BMBE Form 01 in triplicate and submit to the Office of the
Municipal or City Treasurer;
c. the Municipal or City Treasurer evaluates the application. Application shall be processed
within fifteen (15) working days upon submission of complete documents. Otherwise,
the BMBEs shall be deemed registered; and
d. a registered BMBE shall be issued a CA as proof of registration, which will be effective for
a period of two (2) years, renewable for a period of two (2) years for every renewal.93
All BMBEs shall be exempted from income tax for income arising from the operation
of the enterprise. The Local Government Units (LGUs) are encouraged either to reduce the
amount of local taxes, fees and charges imposed or to exempt the BMBE from local taxes, fees
and charges.
The BMBEs shall be exempt from the coverage of the Minimum Wage Law provided, that
all employees covered under the Act shall be entitled to the same benefits given to any regular
employee such as social security and healthcare benefits.94

Case: Mrs. Nenita Naidas wishes to put up a resort in the City of Muntinlupa under the name
“Nitz Garden and Swimming Pool.” She has a capital of P2.5M for the construction of the
swimming pool and other improvements therein. She wants to legally put up her business
without going through expensive registration fees and subsequent expenses for labor benefits.
Does her business qualify for the BMBE Law?
Legal Opinion: Yes, it is definitely advisable for Mrs. Naidas to register as a Barangay Micro
Business Enterprise (BMBE). Under the Barangay Micro Business Enterprises (BMBEs) Act
of 2002 (R.A. 9178, July 22, 2002), a registered BMBE shall be exempted from income tax for
income arising from the operation of the enterprise. In addition, a registered BMBE shall also
be exempted from the coverage of the Minimum Wage Law. In this regard, registration shall
be valid for and renewable every two years. A registration fee not exceeding P1,000.00 shall be
paid to the local government unit concerned.
1. What is a tourism investment?

2. What is the BOT Law?
3. What is the Investments Priority Plan of the government?
93
Section 6, Department Administrative Order No. 01, Series of 2003, Implementing Rules and Regulations of R.A. 9178, otherwise known as
the “Barangay Micro Business Enterprises (BMBE) Act of 2002.”
94
Sections 9 and 10, Department Administrative Order No. 01, Series of 2003, Implementing Rules and Regulations of R.A. 9178, otherwise known as
the “Barangay Micro Business Enterprises (BMBEs) Act of 2002.”
250
4. What is the rationale of the Foreign Investments Act of 1991 and its importance to the
tourism industry?
5. What are the legal requirements for a foreign investor to engage in retail trade in the
Philippines?
6. What are the instances when a foreigner cannot engage in business in the
Philippines?
7. What are the investment limitations for foreigners in the transportation industry in the
Philippines?
8. What are the investment limitations for foreigners in the hotel industry in the
Philippines?
9. What are the investment limitations for foreigners in the travel trade industry in the
Philippines?
10. What is the role of banking in granting loans to tourism-related establishments?
11. What is the nature of these commercial documents: (a) bill of lading, (b) letter of credit,
(c) trust receipt?
12. What are the benefits enjoyed by enterprises registered under the Omnibus Investment
Code?
13. What is the essence of the BMBE Law? Enumerate the benefits of enterprises registered
under this law.
14. What are the advantages and disadvantages of using the joint venture business
model?
15. What are the advantages and disadvantages of using the franchising business model?
16. What are the advantages and disadvantages of using the timesharing business
model?
17. What taxes may be imposed on tourism-related companies in the Philippines?
18. Why are most Philippine deluxe hotels affiliated with multinational corporations
abroad merely on a management contract?
19. What is the rationale of Executive Order No. 63 or the Special Investor Resident Visa?
20. Where do hotels and airlines base their foreign exchange rates?
What’s in the News?

Pick up a newspaper within the last seven days and identify
news items that indicate a tourism project is emerging within
your community or the country. Paste it on a clean bond paper.
Attach to it a one-page essay on your opinions about this tourism
project. Identify potential areas of concern, laws that should be
observed, and assessment of its impact to the community or
country.
251
Interview with an OFW
Interview an overseas Filipino worker who intends to
settle in the country and ask the following:
• Would you be interested in putting up a business?
• If yes, what type of business? If not, why not?
• How does the foreign currency exchange rate affect
you?
Share your findings in class.
Advice to the Mayor

Divide the class into groups with 4 to 5 members each. If your
group was to advise the mayor of your town or city on how to invite
investors to put up tourism-related projects, what will be your
advice? Indicate laws that should be observed, incentives that you
can legally and realistically give to potential local and even foreign
investors, and pinpoint specific development areas in the town or
city. Report your findings in class.
RESEARCH PROJECT
Surf the website of the Manila Yacht Club and check out
their procedure on membership, rates on services, and other
pertinent information. Form the class into groups with 4 to 5
members in each group. Each group should develop a check-
list of things the Manila Yacht Club should have to properly
inform persons or entities who want to invest in shares of the
club. Are there similar projects in your region where proper and
clear information dissemination and transparency on finances
is desired? Share your group’s findings in class.
252
Chapter 13 Labor Law
“A motivated worker will be a productive worker.” (Abraham Maslow)
Case of the Hotel Mafia

Mr. Jimmy Hizon is the HR Director of a deluxe hotel in Manila
who is investigating on an alleged “inside job” on the series of thefts in
the second floor of the hotel. Guests were threatening to go to the press
if this wasn’t resolved. The chief of security, Martin Reyes, has a theory
and has a plan on how to entrap the culprits. Upon reviewing the closed
circuit television camera tapes, there appears to be no forced entry and all
persons who entered the guestrooms had legitimate purposes. Both Mr.
Hizon and Mr. Reyes agreed to field a bogus hotel guest, Mr. Louis Adams,
an American whose luggage was equipped with minute hidden cameras.
He was given a room on the second floor for three days and two nights. On
his last night, while he was having dinner, Mr. Adams’ room was the target
of the hotel thieves. A male room attendant was seen through the camera
entering the unlocked sliding glass door in the second floor balcony, a
feature not found in other floors. Henry Calixto, the room attendant, was seen through the camera being
able to figure out the lock combination of the suitcase. Successful in his mission, Henry left the room
through the balcony. The standard in cleaning balconies was for room attendants to lock the glass sliding
door before leaving. Surprisingly none of the sliding doors on the second floor were locked and different
attendants would service the second floor. Mr. Hizon filed cases against Henry and his accomplices
which could lead to dismissal. How would you characterize the approach of Mr. Hizon? Would such case
prosper in our local courts?
Learning Objectives
• Enumerate the classification of employees, their benefits, privileges and policies affecting them
• Identify some best practices in handling human resources in tourism establishments
• Identify the procedures in handling sexual harassment in the workplace
• Explain the rights of workers employed in tourism establishments
The tourism industry, with its labor intensive nature, is prone to many labor issues.
Hence, labor law plays a vital role in the efficient operation of the various business enterprises
related to tourism. This chapter deals with important provisions governing labor laws, as well
as the benefits, privileges and policies affecting employees.
Constitutional Provisions on Labor
The Law
Section 3. The State shall afford full protection to labor, local and overseas, organized
and unorganized, and promote full employment and equality of employment opportunities
for all.
253
It shall guarantee the rights of all workers to self-organization, collective bargaining
and negotiations, and peaceful concerted activities, including the right to strike in accordance
with law. They shall be entitled to security of tenure, humane conditions of work, and a
living wage. They shall also participate in policy and decision-making processes affecting
their rights and benefits as may be provided by law.
The State shall promote the principle of shared responsibility between workers and
employers and the preferential use of voluntary modes in settling disputes, including
conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.
The State shall regulate the relations between workers and employers, recognizing
the right of labor to its just share in the fruits of production and the right of enterprises to
reasonable returns of investments, and to expansion and growth.
Section 14. The State shall protect working women by providing safe and healthful
working conditions, taking into account their maternal functions, and such facilities and
opportunities that will enhance their welfare and enable them to realize their full potential
in the service of the nation.
Section 15. The State shall respect the role of independent people’s organizations to
enable the people to pursue and protect, within the democratic framework, their legitimate
and collective interests and aspirations through peaceful and lawful means.
Section 16. The right of the people and their organizations to effectively and reasonably
participate at all levels of social, political and economic decision-making shall not be abridged.
The State shall, by law, facilitate the establishment of adequate consultation mechanisms.1

Labor, whether local or overseas, organized or not organized, shall be given constitutional
protection. The right to strike, although already a part of the right to self-organization, is
specifically mentioned. The right to a living wage is expressly stated. A wage is a living wage
if it is adequate to sustain a worker and his family in dignity.
The State shall promote shared responsibility between workers and employers. Thus, the
workers shall also participate in policy and decision-making processes affecting their rights and
benefits as may be provided by law. In this regard, the law may provide for consultations with
workers or their unions. The union which is the collective bargaining agent may be represented in
the governing body of an enterprise whose opinion voicing that of the union he represents may be
taken into account by management.
The recognition by the State of the right of labor to its just share in the fruits of production
and the right of enterprises to reasonable returns on investments as well as to expansion and
growth may be considered a sequel to the rule that the principle of shared responsibility
between workers and employers must be promoted by the State. The words “just share in the
fruits of production” should not cover only basic salaries and other employment benefits but
may also cover profit-sharing.2
The State also protects the rights of the working women by assuring them safe and
healthful conditions of work and opportunities to maximize their full potential in the service
of the nation.
1
Art. XIII Social Justice and Human Rights, 1987 Constitution.
2
The 1987 Constitution with Explanations, by Jose N. Nolledo, 1993 Revised Edition.
254
Classification of Employees
Employees of a company may be classified as follows:
• Regular Employees
• Casual Employees
• Seasonal Employees
• Project Employees
• Probationary Employees
• Employees for a fixed term
• Overseas Filipino Workers
• Special Workers
a) Apprentices
b) Learners
c) Handicapped workers3
Regular Employees – The employees who are deemed regular are:
(a) Those who have been engaged to perform activities which are usually necessary or
desirable in the usual trade or business of the employer; and
(b) Those casual employees who have rendered at least one (1) year of service, whether
such service is continuous or broken, with respect to the activity in which they are
employed.4
(c) An employee who is allowed to work after a probationary period.5
(d) Workers supplied by a “labor-only contractor” to the principal shall be considered
regular employees of the latter.6

Case: Philippine Airlines, Inc. (PAL) contracted the services of G.C. Services Enterprises,
to undertake specific projects. Accordingly, G.C. Services recruited and hired carpenters,
painters, and electricians and assigned them to different PAL shops, namely: Carpentry Shop,
Electrical Shop, Technical Center Shop and In-flight Center Shop, all under PAL’s Construction
and Corporate Services Department. These hired workers had been employed for a period
ranging from 1 year and 4 months to 11 years and 10 months. In addition, these workers were
supervised, directed and controlled by PAL’s regular employees. What is the classification of
the workers which were recruited and hired by G.C. Services for PAL?
Legal Opinion: The workers recruited and hired by G.C. Services are considered regular
employees of PAL. It is evident that the workers were employed by PAL through G.C. Services
Enterprises as painters, carpenters, welders or electricians at its maintenance department.
These workers were performing work and activities which are directly related to the nature of
the business of PAL. They had been employed for a period ranging from 1 year and 4 months
to 11 years and 10 months. This continuous employment indicates that their jobs are directly
necessary to the daily operation of PAL’s business.
3
Handbook on Pleadings, Practice and Procedure before Labor Arbiters, by Atty. Michael Anthony Clemente, Central Book Supply, 2005
Edition.
4
Article 280, Labor Code of the Philippines; Perpetual Help Credit Cooperative vs. Benedicto Faburada et al., G.R. No. 121948, October 8,
2001.
5
Article 281, Labor Code of the Philippines.
6
255
Therefore, G.C. Services Enterprises is merely a “labor-only” contractor who acted
as mere supplier of manpower for PAL at its maintenance department. Accordingly, the
employees recruited by G.C. Services Enterprises, are considered employees of PAL. Further,
the employees, having performed activities which are directly related to PAL’s business, are
deemed regular employees of the latter pursuant to Article 280 of the Labor Code. And as
regular employees, they must be accorded security of tenure in their employment.7
Casual Employees
Casual employees are those whose employment is neither regular, project nor seasonal as
defined under Article 280 of the Labor Code. There is casual employment where an employee
is engaged to perform a job, work or service which is merely incidental to the business of the
employer and such job, work or service is for a definite period made known to the employee
at the time of engagement; provided, that any employee who has rendered at least one (1) year
of service, whether such service is continuous or not, shall be considered a regular employee
with respect to the activity in which he is employed and his employment shall continue while
such activity exists.8
Seasonal Employees
Seasonal employees are those whose work or services is seasonal in nature and the
employment is for the duration of the season.9 Regular seasonal employees are those called to
work from time to time. The nature of their relationship with the employer is such that during
off season they are temporarily laid off but during summer season they are reemployed, or
when their services may be needed. They are not, strictly speaking, separated from the service
but are merely considered as on leave of absence without pay until they are reemployed. Their
employment relationship is never severed but only suspended. As such, those employees can
be considered as in the regular employment of the employer.10 In effect, these seasonal regular
employees enjoy security of tenure and cannot be dismissed without just cause.
Project Employees
A project employee is one whose “employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of the
engagement of the employee or where the work or services to be performed is seasonal in nature
and the employment is for the duration of the season.”11 The principal test for determining
whether an employee is a project employee or a regular employee is whether the project
employee was assigned to carry out a specific project or undertaking, the duration and scope
of which were specified at the time the employee was engaged for that project.12 Failure of the
employer to file termination reports after every project completion with the nearest public
employment office is an indication that an employee was not and is not a project employee.13
7
Philippine Airlines, Inc. (PAL) vs. NLRC et al., G.R. No. 114775, September 25, 1998.
8
Book VI, Rule I, Section 5(b), Omnibus Rules Implementing the Labor Code.
9
Article 280 of the Labor Code, as amended; Book VI, Rule I, Section 5(a), Omnibus Rules Implementing the Labor Code.
10
Manila Hotel Company vs. CIR et al., G.R. No. L-18875, September 30, 1963.
11
Article 280, Labor Code of the Philippines, as amended.
12
Tomas Lao Construction, LVM Construction Corporation vs. NLRC, 278 SCRA 716; Vivian Y. Imbuido vs. NLRC et al., G.R. No. 114734, March
31, 2000.
13
Audion Electric Co., Inc. vs. NLRC, 308 SCRA 340.
256
Probationary Employees
A probationary employee is one who is on trial by an employer during which the
employer determines whether or not he is qualified for permanent employment. Probationary
employment shall not exceed six months from the date the employees started working.14 In all
cases of probationary employment, the employer shall make known to the employee the standards
under which he will qualify as a regular employee at the time of his engagement. Where no
standards are made known to the employee at the time, he shall be deemed a regular employee.15
Probationary employment shall be governed by the following rules:

(a) Where the work for which the employee has been engaged is learnable or apprenticeable in
accordance with the standards prescribed by the Department of Labor and Employment,
the period of probationary employment shall be limited to the authorized learnership or
apprenticeship period, which is applicable.
(b) Where the work is neither learnable nor apprenticeable, the period of probationary
employment shall not exceed six months reckoned from the date the employee actually
started working.
(c) The services of any employee who has been engaged on probationary basis may be
terminated only for a just or authorized cause, when he fails to qualify as a regular
employee in accordance with reasonable standards prescribed by the employer.16
It is settled that a probationary employee enjoys only a temporary employment status,
not a permanent status. In general terms, he is terminable anytime as long as such termination
is made before the expiration of the six-month probationary period. The employment of a
probationary employee may only be terminated either (1) for a just cause; or (2) when the
employee fails to qualify as a regular employee in accordance with reasonable standards made
known to him by the employer at the start of the employment.
The power of the employer to terminate an employee on probation is subject to the
following conditions:
(1) It must be exercised in accordance with the specific requirements of the contract;
(2) The dissatisfaction on the part of the employer must be real and in good faith, not
prejudicial so as to violate the contract or the law;
(3) There must be no unlawful discrimination in the dismissal.
The burden of proving just or valid cause for dismissing an employee rests on the employer.17

Case: Effective April 6, 1992, Philip Luis F. Marin (Marin, for short) was appointed Reservations
Officer at Cathay Pacific Airways Ltd. (Cathay) for a probationary period of six months. A letter
dated March 30, 1992 was given to him specifying his appointment wherein he is to receive
a monthly salary, including holidays and rest days, with a promise of a salary review upon
satisfactory completion of the probationary period. The letter also stated that Cathay reserved
the right to “terminate [Marin’s] services during the probationary period if [his] performance
proves to be unsatisfactory, in which case [he] will receive the salary due [him] at the time of the
termination of [his] services.” Mr. Marin “accepted that terms of employment,” and that he would
be reconfirmed as a member of [the] regular staff upon completion of the probationary period.
14
15
Book VI, Rule I, Section 6(d), Omnibus Rules Implementing the Labor Code.
16
Book VI, Rule I, Section 6, Omnibus Rules Implementing the Labor Code.
17
Cathay Pacific Airways, Ltd. vs. Philip Luis F. Marin et al., G.R. No. 148931, September 12, 2006.
257
Mr. Marin was briefed and counseled by virtue of a Memorandum which was released by
M.A. Canizares (Administrative Supervisor) dated October 14, 1991 as follows:
(a) The overall performance of the probationary staff shall be assessed by the Department
Head and Supervisor at the end of the third month of the probationary period. A second
and final assessment of the overall performance shall be conducted before the end of the
six-month of the probationary period to determine whether probationary staff may be
confirmed as a regular employee.
(b) Department Heads and Supervisors shall be directly responsible for the discipline
of probationary staff in the departments giving them every opportunity of qualifying
as regular employees. Written memos may be dispensed with for administrative
convenience, but the employee’s attention should at all times, be called and discussed
with the employee concerned.
(c) Probationary staff may be confirmed as regular employees based on the recommendation
to the Manager of the Department Head and/or Supervisor.
It was noted that Mr. Marin was not furnished with the set of regulations of Cathay and
copies of his assessment. However, Marin admitted that he was briefed by Senior Supervisor
Nenitha Montallana on April 13, 1992 on the rules regarding phone calls, break time and
others. Marin also admitted that he received from Cathay copies of documents to be used to
evaluate his performance. There were occasions that Marin was briefed on his unsatisfactory
performance assessment on July 6, 1992. Finally, on September 30, 1992, Marin was briefed on
his performance assessment and Cathay’s decision not to regularize his employment upon
expiry of the probationary period. Marin was finally informed of the termination of his services
in a letter dated October 2, 1992.
Is the decision of Cathay not to regularize Marin’s employment upon the expiration of
the probationary period valid considering that Marin was not furnished copies of the set of
regulations of Cathay, as well as his assessment reports?
Legal Opinion: While it is true that Mr. Marin was not furnished with the set of regulations
of Cathay, and copies of the staff assessment reports, Marin was briefed by Cathay through
Ms. Montallana on their contents. When inquired if he understood the contents and his job
specifications, Marin answered in the affirmative. Marin even admitted having received
from Cathay copies of documents to be used to evaluate his performance. In this regard,
there was compliance of statutory requirements in terminating the services of a probationary
employee.18
Employees for a Fixed Term

These are employees covered in employment contracts providing for “term employment”
or “fixed period employment.” Stipulations providing for a fixed period employment are valid
when the period agreed upon has been knowingly and voluntarily agreed by the parties without
force, duress or improper pressure exerted on the employee, and when such stipulations were
not designed to circumvent the laws on security of tenure.19
The following are the guidelines which must be observed in order for fixed contracts of
employment may not circumvent security of tenure:
(1) The fixed period of employment was knowingly and voluntarily agreed upon by the
parties, without any force, duress, or improper pressure being brought to bear upon the
employee and absent any other circumstances vitiating his consent; or
18
Cathay Pacific Airways, Ltd. vs. Philip Luis F. Marin et al., G.R. No. 148931, September 12, 2006.
19
Brent School vs. Zamora, 181 SCRA 702.
258
(2) It satisfactorily appears that the employer and employee dealt with each other on more
or less equal terms with no moral dominance whatever being exercised by the former on
the latter.20
Overseas Filipino Workers

Also referred as “migrant worker,” overseas Filipino worker refers to a person who is
to be engaged, is engaged, or has been engaged on a remunerated activity in a state of which
he or she is not a legal resident.21 A person to be engaged in a “remunerated activity” refers
to an applicant worker who has been promised or assured employment overseas and acting
on such promise or assurance sustains damage and/or injury.22 The law which governs overseas
employment is Republic Act 8042 or the “Migrant Workers and Overseas Filipinos Act of 1995.”
Special Workers
a) Apprentices
An “apprentice” is a worker who is covered by a written apprenticeship agreement
with an individual employer or any of the recognized entities.23 It is a person undergoing
training for an approved apprenticeable occupation during an established period assured
by an apprenticeship agreement.24
An “apprenticeship agreement” is an employment contract wherein the employer
binds himself to train the apprentice and the apprentice in turn accepts the terms of
training.25 An “appenticeable occupation” means any trade, form of employment or
occupation which requires more than three (3) months of practical training on the job
supplemented by related theoretical instruction.26 The period of apprenticeship shall not
exceed six (6) months.27
b) Learners
Learners are persons hired as trainees in semi-skilled and other industrial occupations
which are non-apprenticeable and which may be learned through practical training on
the job in a relatively short period of time which shall not exceed three (3) months.28
Learners may be employed when no experienced workers are available, the employment
of learners is necessary to prevent curtailment of employment opportunities, and the
employment does not create unfair competition in terms of labor costs or impair or lower
working standards.29
c) Handicapped workers
Handicapped workers are those whose earning capacity is impaired by age or
physical or mental deficiency or injury.30 Under Section 4(a) of R.A. 7277, also known
as “Magna Carta for Disabled Persons,” “disabled persons” are those suffering from
restriction or lack or different abilities, as a result of a mental, physical or sensory
20
Philippine National Oil Company-Energy Development Corporation vs. NLRC, 220 SCRA 695.
21
Sec. 3(a), R.A. 8042, “Migrant Workers and Overseas Filipinos Act of 1995.”
22
Sec. 2(a), Omnibus Rules and Regulations Implementing R.A. 8042.
23
Article 58 (b), Labor Code of the Philippines, as amended.
24
Section 4(k), R.A. 7796 (TESDA Act of 1994).
25
Art. 58 (d), Labor Code, as amended.
26
Art. 58 (c), Labor Code, as amended.
27
Art. 61, Labor Code of the Philippines.
28
29
30
Art. 78, Labor Code, as amended.
259
impairment, to perform an activity in the manner or within the range considered normal
for a human being. A qualified disabled employee shall be subject to the same terms
and conditions of employment and the same compensation, privileges, benefits, fringe
benefits, incentives, or allowances as a qualified able-bodied person.31
Benefits, Privileges, Policies Affecting Employees
Minimum Wage
By virtue of Republic Act No. 6727 (Wage Rationalization Act), the determination of
minimum wage rates are now within the function of the Regional Tripartite and Productivity
Board. The concept of “minimum wage” means more than setting a floor wage to upgrade
existing wages. “Minimum wages” underlies the effort of the State to promote productivity-
improvement and gain-sharing measures to ensure a decent standard of living for the workers
and their families; to affirm labor as a primary social economic force.32
Collective Bargaining
This means conferring promptly and in good faith for negotiating agreements with
respect to wages, hours of work, etc. and entering into written contracts, (called Collective
Bargaining Agreement or CBA) adjustment of grievances, etc. The provisions commonly found
in collective bargaining agreements are: 1) Enumeration or reservation of management rights;
2) Union recognition and security; 3) Wage and fringe benefits and their administration; 4)
Physical working conditions; 5) Selected personnel management and plant operation practices;
6) Grievance and arbitration; 7) Duration of contract.33
The parties to collective bargaining are the employer and the employees represented by
their labor union. While it is a mutual obligation of the parties to bargain, the employer is not
under any legal duty to initiate contract negotiation. The mechanics of collective bargaining are
set in motion only when the following conditions are present, namely: (1) possession of the status
of majority representation of the employees’ representative in accordance with any of the means of
selection or designation provided for by the Labor Code; (2) Proof of majority representation; and
(3) a demand to bargain under Art. 250 [a] of the Labor Code. 34 If the jurisdictional preconditions
are present, the collective bargaining should begin within 12 months following the determination
and certification of the employees’ exclusive bargaining representative.
Failure or refusal to meet and convene, evading the purposes of bargaining and not
observing good faith, and grossly violating the economic provisions of the CBA constitutes
unfair labor practice which is a violation under the Labor Code. In this regard, a strike or
lockout may occur when the bargaining is caught in a deadlock.
The CBA negotiated by the employees’ bargaining agent should be ratified or approved
by the majority of all the workers in the bargaining unit, not just the members of the bargaining
union. The ratification is mandatory. The CBA after ratification should be registered within
thirty (30) calendar days from the execution of the agreement with the Bureau of Labor Relations
or the DOLE Regional Office that has jurisdiction over the establishment. All provisions of the
CBA shall have a term of three (3) years after its execution. Insofar as the representation aspect
is concerned, the term is five (5) years.
31
32
Employers Confederation of the Philippines vs. National Wages and Productivity Commission and Regional Tripartite Wages and Productivity
Board-NCR et al., G.R. No. 96169, September 24, 1991.
33
Everyone’s Labor Code, by C. A. Azucena, 2001 Edition, p. 237.
34
Kiok Loy vs. NLRC, G.R. No. 54334, January 22, 1986.
260
Labor Management Council
Under Article 255 of the Labor Code, it reserves the right of an individual employee
or group of employees (unionized or non-unionized) to present grievances to their employer
at any time, with or without collective bargaining, with or without exclusive bargaining
representatives. The Department of Labor and Employment promotes the formation of Labor
Management Councils (LMC) in organized and unorganized establishments.35 An LMC, either
as council or committee, can serve as a forum where management and employees may air
their concerns, short of collective bargaining. It is largely a communication mechanism which
includes prevention or resolution of disputes. Harnessed to the fullest and given the sincerity,
confidence and maturity of both sides, LMC can effectively secure industrial peace, provided it
maintains its integrity. In fact, an LMC can be so effective it can make a labor union unnecessary.
Labor Management Councils require that employee representatives should be elected by the
employees, not hand-picked by management.
Maternity and Paternity Leaves

Maternity leave benefits are covered under Republic Act No. 8282 (May 1, 1997), also
known as the Social Security Act of 1997. Under said law, a female member (need not be married)
who has paid at least three (3) monthly contributions in the 12-month period immediately
preceding the semester of her childbirth or miscarriage shall be paid a daily maternity benefit
equivalent to 100% of her average daily salary credit for 60 days or 78 days in case of caesarian
delivery, subject to the following conditions:
(a) That the employee shall have notified her employer of her pregnancy, and the probable
date of her childbirth, which notice shall be transmitted to the SSS in accordance with its
rules and regulations;
(b) The full payment shall be advanced by the employer within 30 days from the filing of the
maternity leave application;
(c) That payment of daily maternity benefits shall be a bar to the recovery of sickness benefits
provided under this Act for the same period for which daily maternity benefits have been
received;
(d) That the maternity benefits provided under this Act shall be paid only for the first four (4)
deliveries or miscarriages;
(e) That the SSS shall immediately reimburse the employer of 100% of the amount of maternity
benefits advanced upon receipt of satisfactory proof of such payment and legality thereof;
and
(f) That if an employee member should give birth or suffer miscarriage without the required
contributions having been remitted for her by her employer to the SSS, or without the
latter being previously notified by the employer of the time of pregnancy, the employer
shall pay to the SSS damages equivalent to the benefits which said employee member
would otherwise have been entitled to.36
On the other hand, Republic Act No. 8187, also known as the Paternity Leave Act of 1996
governs the granting of paternity leave benefits to every married male employee. Under the
said law, every married male employee in the private and public sector shall be entitled to a
paternity leave of seven (7) days with full pay for the first four (4) deliveries of the legitimate
spouses with whom he is cohabiting.37 The following conditions must be met in order to avail
of paternity leave benefits:
35
Implementing Rules of the Labor Code, Book V, Rule XXI, Section 1.
36
Section 14-A, R.A. 8282, May 1, 1997.
37
Sec. 2. Republic Act No. 8187 (Paternity Leave Act of 1996).
261
(a) He is an employee at the time of delivery of his child;
(b) He is cohabiting with his legitimate spouse at the time she gives birth or suffers a
miscarriage;
(c) He has applied for paternity leave in accordance with the Implementing Rules;
(d) His wife has given birth or suffered a miscarriage.
Republic Act No. 8972 otherwise known as the Solo Parents’ Welfare Act of 2000 governs
the granting of leave privileges to solo parents. In addition to leave privileges under existing
laws, parental leave of not more than seven (7) days every year shall be granted to any solo
parent employee who has rendered service for at least one (1) year.38
Union Rights, Strikes and Lockouts

A legitimate labor organization (LLO) has the requisite personality to sue on behalf of
its members for their individual money claims.39 For the purpose of collective bargaining,
a legitimate labor union must be certified as an exclusive bargaining agent who won in a
certification election.
“Strike” means temporary stoppage of work by the concerted action of employees as a
result of a labor or industrial dispute.40 “Lockout” means temporary refusal of an employer to
furnish work as a result of an industrial or labor dispute.41
A labor dispute includes any controversy or matter concerning terms or conditions of
employment or the association or representation of persons in negotiating, fixing, maintaining,
changing or arranging the terms and conditions of employment, regardless of whether the
disputants stand in the proximate relation of employer and employee.42
The grounds for a strike and lockout are limited to the following: (a) Collective bargaining
deadlock; (b) Unfair Labor Practice (ULP). In other words, a valid strike or lockout needs a
labor dispute.
A strike, to enjoy protection of the law, must comply with the following requirements:
(1) A notice of strike or lockout filed with the Department of Labor and Employment through
the National Conciliation and Mediation Board (NCMB) to be filed by the bargaining
agent;
(2) A cooling-off period must be observed. The cooling off-period is 30 days in case of
bargaining deadlock and 15 days in case of ULP;
(3) During the cooling off period, the NCMB mediates and conciliates the parties;
(4) A strike vote should be taken by secret balloting to be approved by a majority of the total
union membership or majority of the directors or partners of the employer. A strike vote
must be done before a strike may start and with 24-prior notice to the NCMB;
(5) Result of the strike vote must be reported to the NCMB at least 7 days before the intended
strike or lockout; and
(6) No strike or lockout shall be declared after assumption of jurisdiction by the Secretary of
Labor and Employment or by the President of the Philippines, as the case may be.43
38
39
La Carlota Sugar Central vs. Court of Industrial Relations, 64 SCRA 78, May 19, 1975.
40
Art. 212 (o), Labor Code of the Philippines.
41
Art. 212 (p), Labor Code of the Philippines.
42
Art. 212 (l), Labor Code of the Philippines.
43
262
The concept of unfair labor practice violates the constitutional right of workers and
employees to self-organization, and inimical to the legitimate interests of both labor and
management, including their right to bargain collectively and otherwise deal with each other
in an atmosphere of freedom and mutual respect, disrupt industrial peace and hinder the
promotion of healthy and stable labor-management relations.44
Service Charges
The rule of service charges applies only to establishments collecting service charges
such as hotels, restaurants, lodging houses, night clubs, cocktail lounge, massage clinics, bars,
casinos, gambling houses and similar enterprises, including those entities operating primarily
as private subsidiaries of the Government.45 All service charges collected by hotels, restaurants,
and similar establishments shall be distributed at the rate of 85% for all covered employees
and 15% percent for management. The share of employees shall be equally distributed among
them.46 The 15% shall be for the disposition by management to answer for losses and breakages
and distribution to managerial employees at the discretion of management in the latter case.47
Employment Contracts
An employment contract is that by virtue of which one person (employee) binds himself
with respect to another (employer) to place at the service of the latter his own efforts in work,
and the latter in turn agrees to pay him a compensation proportional to the time or to the
quantity of work done.
The concept of “employment contract” is regulated under the provisions of the Labor
Code of the Philippines, Civil Code of the Philippines and other special laws. Execution of
employment contracts are in line with the characteristics of autonomy of contracts wherein
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, public order and public policy. An
employment contract is impressed with public interest. Hence other considerations of moral
and social character have to be reckoned with to promote industrial peace and in keeping
with social justice. Whenever there is doubt in the interpretation of any labor or employment
contracts, the same shall be construed in favor of the safety and decent living for the laborer.48
Legally speaking, a contract of employment is consensual in nature which does not
require additional formalities for its validity. However, the current practice in labor intensive
industries like the tourism industry is to utilize express written employment contracts, clearly
understood and voluntarily agreed by the parties to protect the interest of both capital and
labor. This is true especially for employees under a probationary, project, casual and fixed-term
employment wherein the standards, scope and duration of the employment must be express,
clearly understood and voluntarily agreed by the parties. It is a fair assumption to say that
normal employees would comply with norms if they are properly and sufficiently informed.
This communication process increases the extent of knowledge of each employee, expands the
span of understanding of each employee and enhances the level of acceptance by each employee.
By way of practice, the following are usually incorporated in a written and express contract
of employment to emphasize the need for employees to comply with lawful and reasonable
orders given by superiors in relation to their jobs:
44
45
Section 1, Rule VI, Book III, Rules Implementing the Labor Code.
46
47
Section 2, Rule VI, Book III, Rules Implementing the Labor Code.
48
263
(a) Company rules and regulations;
(b) Code of Discipline;
(c) Mission orders;
(d) Policy manual on security, safety, accounting and auditing;
(e) Day-to-day instruction;
(f) Job description;
(g) Standard operating procedures; and
(h) Memoranda given by superiors to their subordinates.
Sample of an Employment Contract – Probationary
We are pleased to inform you that we are engaging your services as a __Designation__
effective _____________ with a (daily/monthly) rate of _______________________ (5________).
The following are the conditions of your employment with this Company:
1. You shall be on probation for a period of six (6) months commencing on your first
day of work with the Company. During your probationary employment, you will
be working with us on a trial basis to determine your fitness for regularization.
Your conversion to permanent status shall be primarily conditioned and dependent
upon your satisfactory service and performance of the work assigned to you and
it is within the exclusive discretion of the Company to determine whether or not
such service is satisfactorily performed and on your having successfully passed/
complied with our established standards for regularization which include, among
others, the following criteria: dependability, trustworthiness, efficiency, initiative,
attitude towards work/the public/the Company, its officers and co-employees,
cooperation, client response, judgment, punctuality, quality/quantity of work,
educability, articulateness and professionalism;
2. The Company likewise reserves its rights to terminate your probationary
employment, even prior to the expiration of your probationary period, for any of
the just and authorized causes provided by existing law or for your having failed to
satisfactorily meet and comply with the abovementioned standards, conditions and
requirements. In such event, you will be entitled to collect only your salary up to the
end of working hours of the last day of your actual service;
3. You are required to comply with all existing rules, regulations and policies of
the Company as well as those which may hereafter be issued, including but not
limited to those governing order and discipline, honesty, safety and security, work
assignments and standard operating procedures, use of Company properties and
access to matters of confidentiality, and such other rules deemed necessary in the
conduct of our business;
4. This probationary employment does not entitle you to the benefits that is or may
hereafter be granted only to regular and permanent employees, except those which
the Company as a matter of policy and upon its discretion, extends to all employees
regardless of status and to those provided by law;
5. You agree that all record and documents of the Company and all information
pertaining to its business and/or its affairs and that of its customers are absolutely
confidential and unauthorized disclosure or reproduction of the same will not be
made by you at any time during or after your employment. You agree that any
breach of confidentiality will constitute sufficient ground for immediate termination
of your employment for cause and/or civil and criminal liability;
264
6. You agree to be assigned to any work or work station or branch of the Company
for such periods as may be determined by the Company and whenever the service
requires such assignments;
7. In case you intend to resign from the Company, you are required to notify the Company
at least thirty (30) days prior to the effectivity of your resignation, otherwise, failure
on your part to do so will render you liable for damages. However, it is within the
sole discretion of the Company whether or not to accept such resignation earlier
than the expiration of said period.
If you agree with the above terms and conditions, please indicate your conformity
by signing on the space provided below for this purpose.
Very truly yours,

__Name of Company__
By: General Manager
I HEREBY CERTIFY that I have read and have fully understood the foregoing terms and
conditions of my employment with the Agency and that I accept the same completely.
EMPLOYEE
Death Benefits
Under the Social Security Law, upon the death of a member who has paid at least 36 monthly
contributions prior to the semester of death, his primary beneficiaries shall be entitled to the
monthly pension: Provided, that if he has no primary beneficiaries, his secondary beneficiaries
shall be entitled to a lump sum benefit equivalent to 36 times the monthly pension. If he has
not paid the required 36 monthly contributions, his primary and secondary beneficiaries shall
be entitled to a lump sum benefit equivalent to the monthly pension times the number of
monthly contributions paid to the SSS or 12 times the monthly pension, whichever is higher.49
A funeral grant equivalent to 512,000 shall be paid, in cash, or in kind, to help defray the cost of
funeral expenses upon the death of a member, including permanently totally disabled member
or retiree.50
In case of work-related deaths, beneficiaries will receive death benefits under the
Employees Compensation and State Insurance Fund, in addition to the benefits under the SSS
Law. Accordingly, the amount under the Employees Compensation Fund shall be the amount
equivalent to his monthly benefit, plus ten percent thereof for each dependent child, but not
exceeding five. The Employees Compensation Commission has increased the funeral benefits
to 510,000.51
Health Benefits
This includes sickness, medical and hospitalization benefits. Under the Social Security
Law, a member who has paid at least 3 monthly contributions in the 12-month period
immediately preceding the semester of sickness or injury and is confined more than three (3)
days in a hospital or elsewhere with the approval of the SSS, shall be paid a daily sickness
benefit equivalent to 90% of his average daily salary credit.52
49
Sec. 13, Republic Act 8282.
50
Sec. 13-B, Republic Act 8282.
51
Art. 194, Labor Code of the Philippines, as amended.
52
265
In case of work-related sickness, the covered employee will be entitled to medical services,
appliances and supplies,53 in addition to the benefits under the SSS Law.
Drug Testing
Under Republic Act No. 9165 (June 7, 2002), also known as the Comprehensive Dangerous
Drugs Act of 2002, drug testing shall be done by any government forensic laboratories or by
any of the drug testing laboratories accredited and monitored by the Department of Health
(DOH) to safeguard the quality of test results. Drug test certificates issued by accredited drug
testing centers shall be valid for a one-year period from the date of issue which may be used
for other purposes.
In this regard, employers are mandated to provide company work rules and regulations
on random drug testing for purposes of reducing the risk in workplace. Accordingly, officers
and employees shall be subjected to undergo random drug testing. Any officer or employee
found positive for use of dangerous drugs shall be dealt with administratively which shall be a
ground for suspension or termination, subject to the provisions of Article 282 of the Labor Code.54
Retirement
Under Article 287 of the Labor Code, as amended by Republic Act No. 7641, also known
as The New Retirement Law, any employee may be retired upon reaching the retirement age
established in the collective bargaining agreement or other applicable employment contract. In
the absence of a retirement plan or agreement providing for retirement benefits of employees
in establishments, an employee upon reaching the age of 60 years or more, but not beyond 65
years which is hereby declared the compulsory retirement age, who has served at least 5 years
in the said establishment, may retire and shall be entitled to a retirement pay equivalent to at
least ½ month salary for every year of service, a fraction of at least 6 months being considered
as one whole year.
Uniform Policies
Some tourism establishments which include but not limited to restaurants, department
stores, rest areas in gasoline stations, de luxe and first class hotels, tourist inns, special interest
resorts, apartels, motels and those engaged in water transport services, require their employees
and staff to be well-groomed and should wear clean and smart uniforms. Uniform policies in
these establishments are prerequisite requirements in order to be accredited by the Department
of Tourism.
SSS, PhilHealth, Employees’ Compensation Commission, and Pag-Ibig

Employees in the private sector are covered under the SSS Law wherein the mission is to
promote and perfect a sound and viable tax exempt social security system suitable to the needs
of the people which shall provide meaningful protection to members and their beneficiaries
against hazards of disability, sickness, maternity, old age, death and other contingencies
resulting in loss of income or financial burden.55
PhilHealth assumed the responsibility of administering the former Medicare program
for private sector employees, with its landmark transfer from the Social Security System (April
1998). With this transfer came the turnover of the health insurance funds, initially totaling P14
billion from the SSS. The amount covers employee and employers’ shares in the medical care
program. The benefit package includes the following categories of personal health services:
53
Article 185, Labor Code of the Philippines; Rule VIII, ECC Rules.
54
Section 36 (d), R.A. 9165.
55
266
Inpatient hospital care:
• Room and board;
• Services of health care professionals;
• Diagnostic, laboratory, and other medical examination services;
• Use of surgical or medical equipment and facilities;
• Prescription drugs and biologicals, subject to the limitations stated in Section 37 of
RA 7875; and
• Inpatient education packages.
Outpatient care:
• Services of health care professionals;
• Diagnostic, laboratory, and other medical examination services;
• Personal preventive services;
• Prescription drugs and biologicals, subject to limitations described in Section 37 of
RA 7875; and
• Emergency and transfer services.
An employee may also recover from the Employees Compensation and State Insurance
Fund in case of work-related disabilities.
According to Republic Act 7742 which was fully implemented on January 1, 1995,
membership to the Pag-IBIG Fund shall be mandatory for all employees covered by the Social
Security System (SSS). This mandatory coverage extends to expatriates whose age is up to 60
years old and who are compulsorily covered by the SSS. In the absence of an explicit exemption
from SSS coverage, the said expatriate, upon assumption of office, shall be compulsorily
covered by the Fund. Some of the benefits under the Pag-IBIG program are the housing loan,
calamity loan, and a provident savings program.
Termination of Employment
It is the constitutional right of workers to security of tenure and their right to be protected
against dismissal except for just and authorized cause and without prejudice to the requirement
of notice under Article 283 of the Labor Code. Due process in termination disputes is the heart
of security of tenure and is personal to the employee.
The following are the standards of due process for termination of employment under
Article 282 of the Labor Code:
(a) A written notice served on the employee specifying the ground and grounds for termination,
and giving to said employee reasonable opportunity within which to explain his side;
(b) A hearing or conference during which the employee concerned, with the assistance of
counsel if the employee so desires, is given the opportunity to respond to the charges,
present his evidence, or rebut the evidence presented against him; and
(c) A written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify the
termination. In case of termination, the foregoing notices shall be served on the employee’s
last known address.
For termination of employment as based on authorized causes under Article 283 of the
Labor Code, the requirements of due process shall be deemed complied with upon service
of a written notice to the employee and the appropriate Regional Office of the Department
of Labor at least 30 days before the effectivity of the termination specifying the grounds for
termination.
267
If the termination is brought about by the completion of the contract or phase thereof, no
prior notice is required. If the termination is brought about by the failure of an employee to
meet the standards of the employer in the case of probationary employment, it shall be sufficient
that a written notice is served the employee within a reasonable time from the effective date of
termination.56
Under Article 282 of the Labor Code, the following are considered just causes for
termination:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
(b) Gross or habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed by him by his employer or
duly authorized representative;
(d) Commission of a crime or offense by the employee against the person of his employer or
any immediate member of his family or his duly authorized representative; and
(e) Other causes analogous to the foregoing.

Case: Mr. Ciro Betila (Betila, for short) worked with Century Park Sheraton Hotel - Manila as
a room attendant from June 22, 1980 until July 22, 1989 when his services were terminated.
On January 22, 1989, Mr. Motomu Okumura, a Japanese guest at the Sheraton Hotel, filed a
complaint with the Tourist Security Division of the Department of Tourism regarding the loss
of 40,000 Japanese yen and US$210.00 inside his hotel room. An investigation was conducted by
the Tourist Security Division. It found out that the room attendant assigned to Mr. Okumura’s
room on the day was Betila. Betila was invited to appear on January 22, 1989 to shed light on
the complaint but failed to appear despite receipt of notice. The investigation proceeded in his
absence.
On January 26, 1989, the Tourist Security Division submitted a progress report to the
hotel, with the following findings:
“Investigation disclosed that Betila reported to duty on 22 January 1989 and left (at)
around 2:00 p.m., earlier than his off-duty, but after he had serviced Room 350 and no other
room attendant entered the same room until 5:00 p.m. when the theft was discovered by the
victim. The following day, said person (Betila) failed to appear for investigation because such
day was his scheduled day-off. The records of personnel assignment where alleged losses
occurred x x x show that from June 1986 to December 1988, there were 12 reported losses
in the room assignments of Betila and all (the lost articles) were not recovered. Two of the
mentioned cases were reported to this office and investigated by Investigators Romeo Balanquit
and Leo Castillo. Both investigators informed the undersigned that in their respective cases,
investigation disclosed that the reported losses in the room assignments of Betila all occurred
on the date before his scheduled day-off, thereby providing him the best opportunity to escape
investigation immediately after the discovery of the crime committed. Said modus operandi is
true in the instant case.”
Ciro Betila was recommended to be separated from service.
On April 5, 1989, Mr. Masatoshi Kusumoto, another Japanese guest at the hotel, also lost
his money. Again, it appeared that Betila was the one who cleaned his room on said date. The
Tourist Security division sent Betila a letter informing him of Mr. Kusumoto’s complaint. He
56
Section 2, Rule XXIII, DOLE Order No. 9, May 1, 1997.
268
was also invited to appear before said office on April 8, 1989 for investigation. Once more, he
did not honor the invitation. The investigation proceeded in his absence. From the worksheet
submitted by Betila to the hotel, it was established that he was the only person who entered
the room of Mr. Kusumoto on said date, prior to the discovery of the missing money. The
investigator again recommended the dismissal of Betila “to deter him from victimizing more
hotel guests to the detriment of the hotel in particular and the tourism industry in general.”
In a letter, 4 dated May 5, 1989, Nicolas R. Kirit, Executive Housekeeper of the hotel,
informed respondent Betila of the findings of the Department of Tourism as contained in its two
(2) letter-recommendations, copies of which were attached to said letter. Betila was required to
explain his side within forty-eight (48) hours from receipt of the letter. Despite receipt of said
letter on May 11, 1989, he did not submit his explanation.
The hotel management then proceeded to evaluate the findings and recommendations
made by the investigators of the Department of Tourism. It decided to dismiss Betila from the
service and he was informed of his dismissal in a Memorandum, 5 dated July 17, 1989. Betila
refused to acknowledge its receipt. Instead, he filed a complaint for illegal dismissal and unfair
labor practice against Century Park Sheraton.
Is Ciro Betila validly dismissed by the hotel company?
Legal Opinion: Yes, Ciro Betila was validly dismissed. It is not true that Betila was denied due
process. He was given at least three (3) chances to explain the reported losses. The Investigation
reports reflect that he was invited on two (2) occasions to shed light on the complaints received
from the Japanese guests of the hotel. Betila did not appear in said investigations. Nor did he
submit any written explanation to the investigators exculpating himself from the charges. Due
process is simply an opportunity to be heard. Betila was given more than ample opportunity
to defend himself. He chose not to use his opportunities.57

Case: On June 1, 1992, Ms. Melva Nath started to work for Shangri-la Hotel Manila as Director
of Rooms for a probationary period of not more than six (6) months. On September 4, 1992,
Resident Manager Gerard Sintes met with Nath for their regular weekly meeting. Since Nath’s
performance was due for evaluation on September 11, Sintes apprised Nath of her poor work
performance and non-compliance with company rules. Nath neither disputed Sintes’ findings
nor justified her alleged acts and omissions.
On September 7, Monday, Nath called up the hotel and left word that she was ill and
could not report for work. That afternoon, Personnel Manager Teresa Lalin returned Nath’s
call to remind the latter that a medical certificate ought to be submitted by her. Nath informed
Lalin she would report for work on September 9, Wednesday. Nath did not report on September
9. Lalin and Sales Director Gami Holazo visited Nath at her residence. They relayed General
Manager Al Wymann’s message requiring Nath to report for work and reminded Nath of her
scheduled evaluation on September 11.
On September 10, 1992, Nath sent a letter to Lalin dated September 9, to quote:
“Thank you for taking the trouble to discuss things with me. I appreciate your concern
and admire your efforts at trying to work things out in this rather difficult situation. I would be
happy to consider returning to work. You will understand, however, that this would depend
upon my performance evaluation. I feel that the whole exercise becomes academic if my output
is evaluated as anything less than satisfactory. Thus I would very much appreciate a copy of
my official performance evaluation prior to my return.
57
Maranaw Hotel & Resort Corporation (Century Park Sheraton Manila) vs. NLRC et al., G.R. No. 110776, May 26 1995.
269
“Enclosed are copies of most of the work I have accomplished in what effectively amounts
to 2 1/2 months on the job. I hope you will appreciate that what I have produced is quite
substantial especially in light of the fact that I was without a secretary for one month and
without a computer for about two.”
On September 14, 1992, the hotel dismissed Nath. The letter of dismissal reads:
“Our records show that you have been absent from work since last 07 September 1992
(Monday) up to the present for a total of seven (7) working days. You called me last 07 September
1992 to advise the Hotel that you were sick and will be reporting on Wednesday, 09 September
1992.
“By September 9, 1992, you again called me to say that you will instead report on Thursday,
10 September 1992. From 10 September 1992 up to the present date, you still have not reported
for work. Furthermore, you have not advised us in any manner for a total of four (4) working
days now regarding your status and the probable date you intend to report for work.
“In view of the above and considering that you are still under probationary status, as
Director of Rooms, I regret to advise you that your employment with Shangri-la Hotel Manila
is hereby dismissed effective immediately.”
Consequently, Nath filed a complaint for illegal dismissal. Is her dismissal valid?
Legal Opinion: There was just cause to dismiss Nath, a probationary employee. However, she
was dismissed without due process of law for failure to comply with the 2-notice rule. Her
dismissal being for just and authorized cause but without due process, Nath is not entitled to
reinstatement, backwages, damages and attorney’s fees. A contrary policy may encourage the
employee to do even worse and will render a mockery of the rules of discipline that employees
are required to observe. Under the circumstances, the dismissal of the employee for just cause
must be maintained. However, Nath is entitled for her salaries and other related benefits for
which she is entitled by reason of her payroll reinstatement for the remaining three (3) months
of her probationary period. Shangri-la Hotel is further ordered to pay the sum of one thousand
(51,000.00) pesos by way of penalty for non-compliance with due process.58

Case: On 16 March 1989, the Hotel Nikko Manila Garden (Nikko for brevity), employed
Antonio Habana (Mr. Habana, for short) as Rooms Division Director. As Rooms Division
Director, Mr. Habana was tasked with the management and supervision of the “Front Office,
GRO, Concierge, Reservations, Roomskeeping, Housekeeping and Telephone Exchange to
ensure high standard of service.” His specific duties were:
1. Formulates and plans, projects, policies, system/procedures and new approaches in the
management of all departments under Rooms and supervises the implementation of the
same if determined feasible.
2. Conducts regular and surprise inspection of all work areas to ensure quality of performance.
Formulates/implement operations improvement measures for Rooms Division.
3. Prepares divisional objectives and budget and implementation of the same.
4. Oversees the proper implementation of established Standard Operating Procedures in
Front Office operations, Reservations, public areas, guest floors and offices.
5. Ensures effective and efficient handling and processing of FITS, group booking and
convention.
58
Melva Nath vs. NLRC et al., G.R. No. 122866, June 19, 1997.
270
6. Upgrades the guest rooms and services offered therein, the laundry service, cleanliness
and maintenance of public/service and garden areas for a more effective and efficient
Housekeeping operations.
7. Oversees the efficient and high quality Housekeeping of guest rooms, suites, service areas
at guest floors.
8. Oversees the proper handling of hotel telephone systems and switchboard operation to
ensure good communication service.
9. Performs other duties that the General Manager/Assistant General Manager may assign
from time to time.
In the course of his employment, Mr. Habana encountered several difficulties, among
which was his failure to unite and control his managerial staff. Thereafter, on 22 March 1990,
then Assistant General Manager Masao Yokoo issued a memorandum expressing concern over
the disputes between Mr. Habana and his managerial staff in the Rooms Division. Mr. Yokoo
stressed the importance of good teamwork and urged Mr. Habana to take responsibility for the
“unhealthy situation” and to immediately carry out corrective measures.
Instead of complying, Mr. Habana issued a reply belying the existence of any conflict
within the Rooms Division. He suggested that “better result will be attained if you (Yokoo)
call the attention of those uncooperative with their supervisor whose intention is to achieve a
systematic and orderly operation of his division such as mine . . . .”
Aside from the afore-discussed conflict, Mr. Habana was engaged in real estate business,
was frequently absent and tardy and that there were rampant violations of hotel rules due to
his failure to effectively manage his division.
As a result thereof on 24 April 1990, a memorandum was issued instructing Mr. Habana
and some Managers in Housekeeping to conduct a daily inspection of the guest rooms and the
public areas, due to the several complaints received by management.
On 27 April 1990, Mr. Habana sent a memorandum of protest alleging that the order to
inspect the hotel’s guest rooms and public areas from 9:00 a.m. to 6:30 p.m. left him no time to
perform his other functions and thus effectively stripping him of his powers and responsibilities
without justification. He declared that the above order was a form of harassment to “ease him
out of his position.” But before that, Mr. Habana approached the Human Resources Manager
indicating his desire to resign due to his “difficulty in coping with his responsibilities as Rooms
Division Director” and his differences with his immediate boss. Negotiations ensued until both
parties agreed on 5120,000 as separation pay.
On May 2, 1990, Mr. Habana went to the Hotel’s Comptroller, Mr. Ernesto Rosales asking
for his severance pay of 5120,000 plus accrued benefits in the amount of 511,865.28, for a total
of 5131,865.28. The check was prepared but before it was released, Mr. Habana was asked to
submit a letter of resignation pursuant to hotel policy. Mr. Habana dictated the contents of his
resignation letter to Mr. Rosales’ secretary who prepared the same. After the letter was finished,
petitioner signed it and submitted it to Mr. Rosales who, in turn, gave the check to petitioner.
Consequently, on May 17, 1990, Mr. Habana filed a complaint for illegal dismissal and
damages against Hotel Nikko and its officers. Is Mr. Habana illegally dismissed on the grounds
that he was forced to resign?
Legal Opinion: No, Mr. Habana was not illegally dismissed. The directive for Mr. Habana to
conduct inspection is part of his job description. Precisely, it was his duty to take command
responsibility. Sadly, he had lost sight of the fact that being a leader is not all prestige and glamour
but includes, in great measure, hard work. Being charged to take action is not harassment
but a challenge to Mr. Habana’s leadership capability. In sum, the various measures executed
by the hotel’s top management were not acts of harassment but were legitimate exercise of
management prerogatives. As long as company’s management prerogatives are exercised in
271
good faith for the advancement of the employer’s interest and not for the purpose of defeating
or circumventing the rights of the employees under special laws or under valid agreements,
the same must be upheld.
Mr. Habana voluntarily resigned. Voluntary resignation is defined as the voluntary act
of an employee who “finds himself in a situation where he believes that personal reasons
cannot be sacrificed in favor of the exigency of the service and he has no other choice but to
disassociate himself from his employment.” In this case, as indicated in the various memoranda
he received from his superiors, petitioner was clearly having trouble performing his job, one
which undeniably carries immense responsibilities. Because of these difficulties, it was quite
reasonable for Mr. Habana to think of, and eventually, relinquish his position voluntarily (and
get a fat sum as severance pay in the bargain) instead of waiting to be fired. Mr. Habana is a
managerial employee holding a responsible position. He is an educated individual. It is hard
to believe that he was forced to resign.59
Laws Against Discrimination
The Law
Art. 3. Declaration of basic policy. The State shall afford protection to labor, promote
full employment, ensure equal work opportunities regardless of sex, race or creed, and
regulate the relations between workers and employers.60

The laws against discrimination with respect to labor are as follows:
1) Republic Act No. 7277, also known as the Magna Carta for Disabled Persons
The following constitutes acts of discrimination of handicapped workers:
a) Limiting, segregating or classifying a disabled job applicant in such a manner that
adversely affects his work opportunities;
b) Using qualification standards, employment tests or other selection criteria that
screens out or tends to screen out a disabled person unless such standards, tests or
other selection criteria are shown to be job-related for the position in question and
are consistent with business necessity;
c) Utilizing standards, criteria or methods of administration that have the effect of
discrimination on the basis of disability or perpetuate the discrimination of others
who are subject to common administrative control.
d) Providing less compensation, such as salary, wage or other forms of remuneration
and fringe benefits, to a qualified disabled employee, by reason of his disability, than
the amount to which a nondisabled person performing the same work is entitled;
e) Favoring a nondisabled employee over a qualified disabled employee with respect to
promotion, training opportunities, study and scholarship grants, solely on account
of the latter’s disability;
f) Reassigning or transferring a disabled employee to a job or position he cannot
perform by reason of his disability;
59
Antonio Habana vs. NLRC et al., G.R. No. 121486, November 16, 1998.
60
Labor Code of the Philippines.
272
g) Dismissing or terminating the services of a disabled employee by reason of his
disability unless the employer can prove that he impairs the satisfactory performance
of the work involved to the prejudice of the business entity: Provided, however,
That the employer first sought to provide reasonable accommodations for disabled
persons.
h) Failing to select or administer in the most effective manner employment test to
which accurately reflects the skills, aptitude or other factor of the disabled applicant
or employee that such test purports to measure, rather than the impaired sensory,
manual or speaking skills of such applicant or employee, if any; and
i) Excluding disabled persons from membership in labor unions or similar
organizations.61
2) Republic Act 6725 Strengthening the Prohibition on Discrimination against Women with
Respect to Terms and Conditions of Employment
The following are acts of discrimination:
a) Payment of a lesser compensation, including wage, salary or other form of
remuneration and fringe benefits, to a female employee as against a male employee,
for work of equal value;
b) Favoring a male employee over a female employee with respect to promotion,
training opportunities, study and scholarship grants solely on account of their sexes.
3) Presidential Decree 966 (July 20, 1976), Declaring Violations of the International Convention
on the Elimination of All Forms of Racial Discrimination to be Criminal Offenses and
Providing Penalties Therefor.
Any form of discrimination as mentioned above shall constitute criminal liability.
Employment of Women
It is the policy of the State to protect the working women by providing safe and healthful
working conditions, taking into account their maternal functions, and such facilities and
opportunities that will enhance their welfare and enable them to realize their full potential in
the service of the nation.
The Labor Code of the Philippines provides protection for the working women.
Consequently:
(a) No woman, regardless of age shall be employed or permitted to work in any commercial
undertaking between midnight and 6 o’clock in the morning the following day, except
in cases where the woman employee has been engaged to provide health and welfare
services or when the nature of the work requires the dexterity of women.62
(b) An employer is required to provide facilities such as seats, separate toilet rooms and
lavatories, a dressing room and a nursery in the workplace for their women employees.63
(c) It shall be unlawful for an employer to require as a condition of employment or
continuation of employment that a woman employee shall not get married, or to stipulate
expressly or tacitly the upon getting married, she shall be deemed resigned, separated or
discharged from employment by reason of her marriage.64
61
Sec. 32, R.A. 7277.
62
Articles 130 and 131, Labor Code of the Philippines.
63
64
273
(d) It shall be unlawful for an employer to discharge a woman employee on account of her
pregnancy or while on leave or in confinement due to her pregnancy.
(e) It shall be unlawful to discharge or refuse admission of such woman upon returning to
her work on account that she may again be pregnant.65
(f) Any woman who is permitted or suffered to work with or without compensation, in any
night club, cocktail lounge, beer house, massage clinic, bar or similar establishments,
under the effective control or supervision of the employer for a substantial period of time
shall be considered an employee of such establishments.66
Sexual Harassment in the Workplace

Under Republic Act No. 7877 also known as the Sexual Harassment Act of 1995, sexual
harassment is committed by an employer, employee, manager, supervisor, agent of the
employee, manager, supervisor, agent of an employee, or any other person who, having
authority, influence or moral ascendancy over another in a work environment, demands,
requests or otherwise requires any sexual favor from others, regardless of whether the demand,
request for requirement for submission is accepted or not.67
In a work-related environment, sexual harassment is committed when:
(1) The sexual favor is made as a condition in the hiring or in the employment, re-employment
or continued employment of said individual, or in granting said individual favorable
compensation, terms, conditions, promotions, or privileges, or the refusal to grant the
sexual favor results in limiting, segregating, or classifying the employee which in any
way would discriminate, deprive or diminish employment opportunities or otherwise
adversely affect said employee;
(2) The above acts would impair the employee’s rights or privileges under existing labor laws; or
(3) The above acts would result in an intimidating, hostile or offensive environment for the
employee.68
In this regard, it shall be the duty of the employer to prevent or deter the commission of
the acts of sexual harassment and promulgate appropriate rules and regulations in consultation
with and jointly approved by employees prescribing the procedure for the investigation of
sexual harassment cases and the administrative sanctions.69
Examples of sexual harassment in a workplace:
(1) Offering sexual advances to an employee by bringing her to a motel instead of driving
her home.70
(2) Touching a female subordinate’s hand and shoulder and caressing her nape against her
will resulting to the damage of the dignity of the female employee.71
(3) A manager who, after having been rejected by the complainant of his sexual demands or
solicitations to be his girlfriend and to enter his room daily for a kiss as a condition for
the signing of complainant’s permanent appointment as a bookbinder in his department,
thus in relation to his office or position as such, with lewd design and malicious desire, did
then and there willfully, unlawfully and feloniously grab complainant, kiss her all over her
face and touch her right breast against her will and consent, to her damage and detriment.72
65
66
Section 4, Rule XII, Implementing Rules of the Labor Code.
67
Section 3, R.A. 7877, February 14, 1995.
68
Section 3(a) (1), R.A. 7877, February 14, 1995.
69
Section 4, R.A. 7877, February 14, 1995.
70
Delfin C. Villarama vs. NLRC, G.R. 106341, September 2, 1994.
71
Carlos Libres vs. NLRC, G.R. 123737, May 28, 1999.
72
See Rogelio Esteban vs. The Sandigan and the People of the Philippines, G.R. Nos. 146646-49, March 11, 2005.
274
(4) A manager stealing kisses from subordinates; willfully delaying release of appointment
papers and other benefits of subordinates in exchange for a date.73
(5) A manager’s penchant for teasing and showing unwelcome affection (like touching the
thigh and kissing the hand) to women which indicates a certain moral depravity and
lack of respect towards his female employees, taking advantage of his superior position
instead of treating his subordinates like his own children.74
(6) A manager of the Family Program Clinic who is demanding, soliciting, and requesting
sexual favors from a fresh graduate of BSC-Nursing who is seeking employment in his
office by demanding from the applicant that she should expose her body and allow her
private parts to be mashed and stimulated by the manager, which sexual favor was made
as a condition for the employment in his Family Program Clinic.75
(7) A manager of a carwash franchising company requiring female carwash attendants to
wear bikini as their uniform.
(8) A company doctor who masturbates male applicants undergoing pre-employment
medical examination.
(9) A male manager who offers pornographic materials to female employees to read while
waiting to see him at his office reception area.
(10) A hotel resident manager who locks the door of his office, unzips his fly and shows his
genitals to a female junior manager aspiring for a promotion in the company.
Best Labor Practices in Tourism Establishments

This topic has been added to enable the readers to appreciate the best labor practices
of selected tourism establishments from the lodging industry, travel agency/tour operators,
transportation companies, food service industry and tourist sites. It will be noted that 90% of
the selected respondents agree that it is imperative to have a proactive and supportive Human
Resource Department which will be instrumental in enhancing the welfare of the employees
and helping the company towards its growth in investments. An open-door policy with the
President or General Manager of the company is most welcome as it has proven to be the
most effective means of removing the barriers of communication and enhancing a shared
responsibility of nationhood between capital and labor.
In summary, based on interviews with almost 60 respondent managers, the following are the
best labor practices that are now implemented in various tourism establishments:
(1) A comprehensive background check is usually undertaken by an employer before
admitting newly hired employees.
(2) A two-week orientation training is given to the newly hired employees before they
start the actual duty. An immersion of the operations will be observed plus a thorough
study of the company’s background by the new employee will be undertaken. A written
examination on what was learned during the orientation training will have to be taken by
the newly hired employees before they start to work.
(3) Some respondents report that they do not have unions in their workplace. Instead, a
weekly or monthly dialogue with the General Manager or President, or weekly meetings
with Labor Management Councils are being established to thresh out every problem
being encountered by employees.
73
See Civil Service Commission vs. Allyson Belagan, G.R. No. 132164. October 19, 2004.
74
See Atty. Grace Veloso et al., vs. Judge Anacleto Caminade, A.M. No. RTJ- 01-1655, July 8, 2004.
75
See Dr. Rico S. Jacutin vs. People of the Philippines, G.R. No. 140604, March 6, 2002.
275
(4) A performance evaluation on a monthly or quarterly basis is being undertaken among
employees. In this regard, proactive counseling is being done to improve performance and
productivity level of employees. By way of practice, a written performance evaluation is
furnished to the employee concerned.
(5) Meritocracy is observed in such as way that Increase in pay and other incentives are always
based on performance. Other benefits being given over and above the benefits prescribed
under labor standard laws are: meal allowance, vacation leave, sick leave, emergency
leave, bereavement leave, hospitalization and medical benefits, group disability insurance,
rice subsidy, birthday leaves, profit-sharing, performance based awards, productivity
bonus, education benefits, 14th up to 16th month pay, quarterly bonuses, loyalty awards,
Christmas groceries and a competitive retirement program. Sports and recreational
activities, Christmas parties and weekly bible-reading activities are being undertaken to
develop the employees’ physical, social and spiritual well-being.
(6) Adherence to due-process in termination disputes are strictly followed by the employer
(i.e., 2-notice rule, hearing or opportunity to be heard, etc.).
(7) Newly hired employees are oriented on and being furnished copies of the company’s
Code of Ethics before they start working. All other day-to-day activities of the company
policies are published in memos, copy furnished the employees and posted in strategic
bulletin boards.
(8) Employees are furnished copies of their job description, company policies, house rules
and the instruments on how they will be evaluated.
(9) Companies invest highly on training and development of employees and managers.
(10) To minimize labor cost, some of the tourism establishments apply the franchising as a
business model. Contractual employment on emergency cases is also being undertaken.
(11) For tourist sites which are being administered by the government, strict adherence to civil
service laws, rules and regulations is imperative.
1. What are the rights of a worker as provided for by the Philippine Constitution?
2. What are the classifications of employees?
3. What is your concept of “minimum wage”? Why does it vary per region of the
country?
4. When can an employer be exempted from paying the minimum wage?
5. What is a collective bargaining agreement?
6. Enumerate the mandated benefits and privileges of workers in the tourism industry.
7. What is the difference between a labor union and a labor-management council?
8. What is a grievance committee?
9. What is the meaning of “due process”?
10. What is the meaning of “termination from employment for cause”?
11. Enumerate reasons where employers are legally allowed to lay off workers.
12. What is a labor strike? What is the process before a labor strike can be carried out by
employees? When is a labor strike legal and illegal?
276
13. Enumerate the strikeable issues workers may raise against a company.
14. What is your concept of “service charge”? Can employers implement an option to
scrap the service charge as one of the benefits of employees?
15. How do you handle a case of sexual harassment in the workplace?
16. Mention some best practices in handling human resources in the tourism industry, i.e.,
in terms of recruitment and selection; training and development; and discipline and
labor relations.
17. What is an employees’ handbook or manual? How important is it in managing human
resources in a tourism establishment? How does it help in solving HR problems in the
future?
18. Enumerate the different forms of discrimination an employee may experience at
work.
19. What is the rationale behind drug-testing for employment purposes?
20. Suggest ways on attaining industrial peace and harmony in the tourism industry. Are
our present laws sufficient in aiding the attainment of this goal?
Seminar on Labor Law
Organize a 2-hour seminar on Labor Law with 3 guest
speakers – a labor lawyer, a labor leader and an HR manager. The
teacher can assign topics for discussion and facilitate the open forum.
This exercise allows students to see different views on handling
labor issues in the industry.
Employee Satisfaction Survey

Group the class into three groups. Each group will undertake
a survey gauging the satisfaction of employees in the tourism
industry. The recommended minimum number of respondents is
50. Ask the following questions.
• Are you satisfied with your job? (Use scale of 1 – 5 with 5 as very satisfied)
• What aspects of your job do you like most?
• What aspects of your job do you like least?
Collate responses and share your findings in class.
Film Critique
Watch the film “Disclosure” (Michael Douglas and Demi Moore
in the lead) either in class or at home. Discuss in class the following
issues. Can a woman sexually harass a man? What constitutes
sexual harassment in the workplace? How can it be prevented in the
workplace? You may alternatively submit a paper on your responses.
277
RESEARCH PROJECT
Surf the Internet and look up the case of Melva Nath versus Shangri-
la Manila Hotel, a deluxe hotel in Makati City. Melva Nath was the former
director of rooms of the hotel for only about two and a half months and was
illegally dismissed by the hotel in September 1992. What are the lessons
learned in this case? Did the company observe due process in the case? How
can companies prevent cases like this to happen in the future? Do you agree
with the decision of the court? Why do you agree or why don’t you agree?
Why do you think tourism-related establishments are more prone to labor
cases than other industries?
278
Chapter 14 Insurance Law
There are products that satisfy the protection and investment needs of the market. (Estelito Madrid Jr., CEO
of Pru Life UK-Philippines)
Case of the B & B Company

In Europe and now in the Philippines, B&B in tourism parlance is
known as bed and breakfast. But for some people in the insurance business,
B&B may have a different connotation, i.e., build and burn. A prominent
business clan has been known to build many establishments, many of
which are related directly or indirectly to the tourism industry, e.g., hotels,
restaurants, shopping malls, entertainment bars, etc. After 4 to 6 years of
existence, these establishments would burn down to the ashes. In many
probes, accidents seem to be the common main cause of these fires. Mr. Jesse
Ongpauco, the patriarch of the clan is usually unfazed by these series of
fires which happen to their business establishments almost every year. His
idea is far more optimistic than most businessmen with similar misfortune.
“That is what insurance is for. We will operate in a few months’ time –
business as usual.” Some local insurers have begun to suspect insurance
fraud may have been committed by Mr. Ongpauco. To date, nothing is
proven by either the local fire authorities or the insurance investigators.
In his attempt to insure subsequent properties and business ventures, Mr.
Ongpauco has been refused by many of the large local insurance companies.
Now, majority of his business interests are insured by insurance companies
abroad. Can you suggest ways of how Mr. Ongpauco can renew the trust of
the local insurance industry? Can you assume that the foreign insurance
companies have not been as diligent as the local insurance companies in
doing a background check on Mr. Ongpauco’s track record?
Learning Objectives
• Enumerate items that can be insured by a tourism establishment
• Identify the rationale behind the concept of insurance
• Explain the different kinds of insurance
• Identify the advantages and disadvantages of having insurance
Insurance is very useful for companies engaged in the tourism industry because there
are many kinds of risks in enterprises where investment oftentimes is quite substantial. By
way of example, an employer may subscribe to a group insurance of his employees as part of
its employee-benefit program. Companies utilizing building structures for the operation of
their hotels, restaurants and other tourism-related establishments may think of investing in
property insurance against fire or earthquake to protect their investments. Lastly, an investment
in marine insurance, the usual practice among companies engaged in the transportation of
cargoes at sea, may also be worth looking at.
Insurance contracts are governed by the Insurance Law (P.D. 612 which instituted the
Insurance Code now referred to as P.D. 1460). In case of the latter’s deficiency, the provisions
of the Civil Code of the Philippines govern.
279
Definition and Concept
The Law
Section 2 (1). – A “Contract of Insurance” is an agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.1

The essential elements of an insurance contract are:
(a) Insurable interest;
(b) Existence of risk;
(c) Assumption of such risk by the insurer;
(d) Said assumption being part of a general scheme to distribute actual losses among those
bearing similar risks;
(e) Payment of premium.2
The characteristics of an insurance contract are:

(a) Aleatory. There is an element of risk. An aleatory contract is one where the obligations
depends upon the occurrence of an uncertain event (as in the case of fire insurance) or one
certain to happen but at an indeterminate time (i.e., death in life insurance).
(b) Contract of indemnity. There is an exchange of value for value, particularly in property
insurance.
(c) Onerous. There is a valuable consideration given (payment of premium).
(d) Bilateral. Both parties are bound to do something.
(e) Formal. As to form, a policy is required to be issued, and the premium must be paid.3
The parties in an insurance contract are:

(a) Insurer – a person, partnership, association, or corporation duly authorized to transact an
insurance business.4
(b) Insured – a person with an insurable interest, who stands to benefit from a policy of
insurance.5 In its strict sense, the insured party is the owner or purchaser of the policy
even though benefit of the insurance may accrue to someone else.6
(c) Beneficiary – a person designated by the terms of the policy to receive the proceeds of the
insurance policy upon the happening of the event insured against.7 It is the person named
in an insurance policy as the one to receive proceeds or benefits accruing thereunder.8
1
P.D. 1460, Insurance Code.
2
3 Basic Commercial Laws with Introductory Features by Jose N. Nolledo, 1995 Edition, p. 104.
3
Commercial Law Review by Cesar L. Villanueva, 2002 Edition, pp. 279-280.
4
Section 6, P.D. 612 as amended.
5
The New Insurance Reviewer (Life and Non-Life) by Cesario P. Topiangco, 1986 Edition.
6
Barron’s Legal Guides Law Dictionary by Stefen H. Gifis, 5th Edition, p. 262.
7
The New Insurance Reviewer (Life and Non-Life) by Cesario P. Topiangco, 1986 Edition.
8
Barron’s Legal Guides Law Dictionary by Stefen H. Gifis, 5th Edition, pp. 49-50.
280
Insurance contracts may refer to the following:
(a) Life Insurance – an insurance on human lives and insurance appertaining thereto or
connected therewith.
(b) Fire insurance – which includes loss by fire, lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are covered by extension to fire insurance policies or
under separate policies.9
(c) Marine insurance – a contract whereby one for a consideration agrees to indemnify
another for the loss or damage on a certain interest subject to marine risks by certain
perils of the sea or specified casualties during a voyage or fixed period.
(d) Personal accident insurance – an insurance which provides pecuniary compensation for
expenses or losses of income brought about by death or bodily injury arising from violent,
external, visible and accidental means.
An insurance contract is considered a contract of adhesion in which almost all the
provisions have been drafted only by one party, usually the insurance company. The only
participation of the other party is the signing of his signature or his adhesion.10 In this regard,
such contracts are to be construed liberally in favor of the insured and strictly against the
insurer in resolving all ambiguities against the latter.

Case: American-Fortune Life and General Insurance Co., Inc. (Am-Fortune) issued Fire
Insurance Policy No. 136171 in favor of Mr. John Michael Roxas on his five-star hotel building in
Makati City, together with all its effects therein. The insurance was for 58M covering the period
from 23 January 2008 to 23 January 2009. On 23 January 2008, of the total premium of 510,000 Mr.
Roxas only paid 55,000.00 thus leaving a considerable balance unpaid.
On 8 March 2008, the insured building was completely destroyed by fire. On March 10,
2008 Mr. Roxas paid the balance of the premium. On the same day, Mr. Roxas filed with Am-
Fortune a claim on the fire insurance policy.
Am-Fortune denied the claim of Mr. Roxas, for the premium has not yet been fully paid
in violation of Policy Condition No. 2 of the Contract which states:
1. ‘This policy of insurance witnesseth, that only after payment to the Company in accordance
with Policy Condition No. 2 of the total premiums by the insured as stipulated above for
the period aforementioned for insuring against Loss or Damage by Fire or Lightning as
herein appears, the Property herein described x x x
2. This policy including any renewal thereof and/or any endorsement thereon is not in
force until the premium has been fully paid to and duly receipted by the Company in the
manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent,
broker or Company official, shall be deemed invalid and of no effect.’
Is Mr. Roxas entitled to claim under the fire insurance policy?
Legal Opinion: No, Mr. Roxas is not entitled to claim under the fire insurance policy. This is
fully supported by Section 77 of the Insurance Code which provides–Sec. 77. An insurer is
entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy whenever the grace period provision applies.
9
Sec. 167, P.D. 1460, Insurance Code.
10
281
The rule that contracts of insurance will be construed in favor of the insured and most
strongly against the insurer should not be permitted to have the effect of making a plain
agreement ambiguous and then construe it in favor of the insured. In addition, it is elemental
law that the payment of premium is requisite to keep the policy of insurance in force. If the
premium is not paid in the manner prescribed in the policy as intended by the parties the
policy is ineffective. Partial payment even when accepted as a partial payment will not keep
the policy alive even for such fractional part of the year as the part payment bears to the whole
payment.11
Insurable Interest
Law
Section 10. Every person has an insurable interest in the life and health:
x x x.
(b) Of any person on whom he depends wholly or in part for education or support, or in
whom he has pecuniary interest.
(c) Of any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or prevent the
performance;
x x x.
Section 13. Every interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated peril might directly damnify
the insured, is an insurable interest.
Section 14. An insurable interest in property may consist in:
(a) An existing interest;
(b) Inchoate interest founded on an existing interest;
(c) An expectancy, coupled with an existing interest that out of which the expectancy
arises.
Section 15. A carrier or depository of any kind has an insurable interest in a thing held
by him as such, to the extent of his liability but not to exceed the value thereof.12

An insurable interest is that relationship with a person or thing that will support the
issuance of an insurance policy. A person is usually regarded as having an insurable interest
in the subject matter insured when he will derive pecuniary benefit or advantage from its
preservation, or will suffer pecuniary loss or damage from its destruction.13
Insurable interest in property should exist not only on the date of execution of the contract
of insurance but on the date of the occurrence of the risk insured against. On the other hand,
insurable interest in the life and health of a person insured must exist when the insurance takes
effect, but need not exist thereafter or when the loss occurs. 14
11
Sps. Tibay et al. vs. Court of Appeals et al., G.R. No. 119655. May 24, 1996.
12
The Insurance Code, P.D. 1460, as amended.
13
Barron’s Legal Guides Law Dictionary by Steven H. Gifis, 5th Edition, p. 261.
14
Section 19, The Insurance Code, P.D. 1460, as amended.
282
Insurable Interest in Group Insurance
Any person so related to another either by contract or commercial relation may lawfully
procure insurance on the other’s life. Thus, an employer may insure the life of the employee
and vice versa. 15
The primary aim of group insurance is to provide the employer with a means of procuring
insurance protection for his employees and their families at the lowest possible cost, and in so
doing, the employer creates goodwill with his employees, enables the employees to carry a
larger amount of insurance, and helps to attract and hold a permanent class of employees.16
A group insurance is essentially a single insurance contract that provides coverage for many
individuals. It provides life or health insurance coverage for the employees of the employer.
In order to validly claim benefits from the group insurance, employees must be actively at
work and must have completed a specified period of continuous employment, otherwise, the
insurable interest ceases. Generally, group insurance have non-forfeiture clauses, except for
term insurance (provides protection for a limited period, i.e., 5, 10, 15 years). If an employee’s
group insurance terminates because he leaves the employer, the employee has the privilege of
converting the group insurance within one month following the termination of employment
into any standard form of insurance, except for a term insurance.17

Case: On June 9, 2005, Mr. John Bartolome insured the life of his best friend Noel Lim under
the group insurance of Mr. Bartolome’s travel agency called Lucky Charm Travel Agency,
designating himself as the irrevocable beneficiary. Other than being his best friend, John
Bartolome is not related to Noel Lim. On July 10, 2007, after the lapse of more than two years,
Noel Lim dies. Is John Bartolome entitled to the proceeds of the policy, considering that all
premiums have been paid and considering further that no misrepresentation or concealment
material to the risk has been employed?
Legal Opinion: No, because the policy is void and unenforceable unless the person who
procures it has an insurable interest in the life of the insured. An insurable interest must be
present either in the person taking out the insurance or the beneficiary. Being best friends
does not automatically create an insurable interest. There must be an actual expectation of
pecuniary benefit to sustain an insurance (i.e., a corporation has an insurable interest in the life
of a key man, such as an officer of the firm). In the instant case, John Bartolome has no insurable
interest in the life of Noel Lim.
Insurable Interest in Property

In property insurance, it is important that insurable interest must exist when the insurance
takes effect and when the loss occurs.18 In marine insurance, the owner of a ship has in all cases
an insurable interest in it, even when it has been chartered by one who covenants to pay him
its value in case of loss, provided that in this case the insurer shall be liable for only the part of the
loss which the insured cannot recover from the charterer.19
The measure of an insurable interest in property is the extent to which the insured might
be damnified by loss or injury thereof.20 Any contract of property insurance that gives to the
insured more than the indemnity against the actual loss that may be suffered by reason of
designated perils is a policy which is contrary to law.
15
The Law on Insurance by Hector de Leon, 1994 Edition, p. 29.
16
Pineda et al., vs. Hon. Court of Appeals et al., G.R. No. 105562, September 27, 1993.
17
New Insurance Reviewer, by Cesario P. Tiopianco, 1986 Edition, pp. 36-37.
18
Sec. 19, Insurance Code, P.D. 1460 as amended.
19
20
283
Beneficiaries
The Law
Section 18. No contract or policy of insurance on property shall be enforceable except
for the benefit of some person having an insurable interest in the property insured.
Section 19. An interest in property insured must exist when the insurance takes effect,
and when the loss occurs, but need not exist in the meantime; and interest in the life or health
of a person insured must exist when the insurance takes effect, but need not exist thereafter
or when the loss occurs.

A person cannot lawfully procure insurance on the life of another in whose life he has no
insurable interest. Hence, the assured must have an interest to preserve the life to be insured
in spite of the insurance. In order that one may have an insurable interest in the life of another,
it must be one of those mentioned in Section 10 of the Insurance Code.21 This holds true where
the employer who is the titular or named insured obtains insurance on the life and health of
its employees.22
With respect to insurance on property, it is imperative that the beneficiary is a person
having an insurable interest in the property insured.23
However, an interest in property insured must exist when the insurance takes effect, and
when the loss occurs; on the other hand, interest in the life or health of a person insured must
exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.24

Case: It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for brevity),
a crewing/manning outfit, procured Group Policy No. G-004694 from Insular life Assurance
Co., Ltd. to provide life insurance coverage to its sea-based employees enrolled under the plan.
On 17 February 1986, during the effectivity of the policy, six covered employees of the PMSI
perished at sea when their vessel, M/V Nemos, a Greek cargo vessel, sunk somewhere in El
Jadida, Morocco. They were survived by several beneficiaries under the policy.
Following the tragic demise of their loved ones, the beneficiaries sought to claim death
benefits due them. They approached the President and General Manager of PMSI, Capt.
Roberto Nuval. Capt. Nuval expressed willingness to assist beneficiaries to recover Overseas
Workers Welfare Administration (OWWA) benefits from the POEA and to work for the other
benefits arising from the deaths of their husbands/sons. The beneficiaries were thus made to
execute special powers of attorney authorizing Capt. Nuval to ‘follow up, ask, demand, collect
and receive’ for their benefit indemnities of sums of money due them relative to the sinking
of M/V Nemos. By virtue of these written powers of attorney, the beneficiaries were able to
receive their respective death benefits from OWWA.
Unknown to them, however, the PMSI, in its capacity as employer and policyholder of
the life insurance of its deceased workers, filed with Insular Life formal claims for and in behalf
of the beneficiaries, through its President, Capt. Nuval.
21
The Law on Insurance (with Insolvency Law) by Hector S. de Leon, 1994 Edition. pp. 27-28.
22
Please see Pineda et al., vs. Hon. Court of Appeals et al., G.R. No. 105562, September 27, 1993.
23
24
Section 19, Insurance Code, P.D. 1460 as amended.
284
On 3 July 1989, after the beneficiaries learned that they were entitled as beneficiaries
under a life insurance benefits (group policy) with Insular Life, they sought to recover these
benefits from Insular life but the latter denied their claims on the ground that the liability to
the beneficiaries was already extinguished upon delivery to and receipt by PMSI of the six
(6) checks issued in their names. Who is entitled to the life insurance claim under the group
insurance policy with Insular Life?
Legal Opinion: The surviving beneficiaries under the policy, not the employer, are the ones
entitled to claim. The employer only acts as the agent of the insurer. An agency relationship
is based upon consent by one person that another shall act in his behalf and be subject to
his control. It is clear from the evidence regarding procedural techniques that the insurer-
employer relationship meets this agency test with regard to the administration of the policy.
The insurer directs the performance of the employer’s administrative acts, and if these duties
are not undertaken properly the insurer is in a position to exercise more constricted control
over the employer’s conduct.
The employer owes to the employee the duty of good faith and due care in attending to
the policy, and that the employer should make clear to the employee anything required of him
to keep the policy in effect, and the time that the obligations are due. As administrator of the
policy, the employer should be considered as the agent of the insurer, and any omission of duty
to the employee in its administration should be attributable to the insurer.25
Fire, Marine and Third Party Liability Insurance
Marine Insurance
Sec. 99. Marine Insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freight, cargoes, merchandise, effects,
disbursements, profits, moneys, securities, choses in action, evidences of debts,
valuable papers, bottomry, and respondentia interests and all other kinds of
property and interests therein, in respect to, appertaining to or in connection with
any and all risks or perils of navigation, transit or transportation, or while being
assembled, packed, crated, baled, compressed or similarly prepared for shipment
or while awaiting shipment, or during any delays, storage, transshipment, or
reshipment incident thereto, including war risks, marine builder’s risk, and all
personal property floaters risks.
(b) Person or property in connection with or appertaining to a marine, inland
marine, transit or transportation insurance, including liability for loss or
damage arising out of or in connection with the construction, repair, operation,
maintenance or use of the subject matter of such insurance but not including life
insurance or surety bonds nor insurance against loss by reason of bodily injury
to any person arising out of the ownership, maintenance or use of automobiles.
(c) Precious stones, jewels, jewelry, precious metals, whether in the course of
transportation or otherwise.
(d) Bridges, tunnels and other instrumentalities of transportation and
communication (excluding buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers, wharves, docks and slips, and other
aids to navigation and transportation, including dry docks and marine railways,
dams and appurtenant facilities for the control of waterways.
25
Luz Pineda et al. vs. Hon. Court of Appeals, et al., G.R. No. 105562, September 27, 1993.
285
(2) “Marine protection and indemnity insurance,” meaning insurance against, or against
legal liability of the insured for loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality
in use in ocean or inland waterways, including liability of the insured for personal injury,
illness or death or loss of or damage to the property of another person.26

The phrase “perils of the sea” or “perils of navigation” includes only those casualties due
to the unusual violence or extraordinary action of wind and wave, or to other extraordinary
causes connected with navigation.27
A loss which, in the ordinary course of events, results: (1) from the natural and inevitable
action of the sea, (2) from the ordinary wear and tear of the ship, (3) from the negligent failure
of the ship owner to provide the vessel with proper equipment to convey the cargo under
ordinary conditions, is not a peril of the sea. Such a loss is rather due to what is called as perils
of the ship. In such as case, the insurer does not undertake to insure against perils of the ship.

Case: On November 4, 1976 Mr. Choa Tiek Seng (Mr. Seng) imported some lactose crystals
from Holland. The goods were loaded at the port at Rotterdam in sea vans on board the vessel
“MS Benalder” as the mother vessel, and thereafter aboard the feeder vessel “Wesser Broker
V-25” of Ben Lines Container, Ltd. (Ben Lines for short). The goods were insured by the Filipino
Merchants’ Insurance Co., Inc. (insurance company for short) for the sum of P98,882.35, the
equivalent of US$8,765.00 plus 50% mark-up or US $13,147.50, against all risks under the terms of
the insurance cargo policy. Upon arrival at the port of Manila, the cargo was discharged into the
custody of the arrastre operator E. Razon, Inc. (broker for short), prior to the delivery to Mr.
Seng through his broker. It must be noted that the cargo, upon discharge from the vessel, was
delivered to the custody of the arrastre operator (E. Razon) under clean tally sheet. Moreover,
the container van containing the cargo was found with both its seal and lock intact.
Of the 600 bags delivered to Mr. Seng, 403 bags were in bad order. The surveys showed
that the bad order bags suffered spillage and loss later valued at P33,117.63.
Mr. Seng filed a claim for said loss dated February 16, 1977 against the insurance company
in the amount of P33,117.63 as the insured value of the loss. The insurance company rejected
the claim alleging that the said 400 bags were loaded in bad order, and that in any case, the
van did not carry any evidence of spillage. In addition, the insurance comply alleged that the
insured (Mr. Seng) failed to prove that the alleged damage was due to risks connected with
navigation or perils of the sea.
Is Mr. Seng entitled to the insurance claims?
Legal Opinion: Yes, Mr. Seng is entitled to the insurance claims. The terms of the policy are
clear and the claim of Mr. Seng is covered under an “all risk” insurance. An all risk insurance
policy insures against all causes of conceivable loss or damage, except as otherwise excluded
in the policy or due to fraud or intentional misconduct on the part of the insured. It covers
all losses during the voyage whether arising from a marine peril or not, including pilferage
losses during the war. The insurance policy covers all loss or damage to the cargo except those
caused by delay or inherent vice or nature of the cargo insured. It is the duty of the respondent
insurance company to establish that said loss or damage falls within the exceptions provided
for by law, otherwise it is liable therefor. In this case, the damage caused to the cargo has not
been attributed to any of the exceptions provided for nor is there any pretension to this effect.
Thus, the liability of the insurance company is clear.28
26
Insurance Code, P.D. 1460 as amended.
27
Philippine Legal Encyclopedia, by Jose Agaton R. Sibal.
28
Choa Tiek Seng vs. Hon. Court of Appeals et al., G.R. No. 84507, March 15, 1990.
286
Case: On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay) a common
carrier, entered into a contract with Ms. Isabela Roque whereby the former would load and
carry on board its barge, “Mable 10,” about 422.18 cubic meters of logs from Malampaya Sound,
Palawan to North Harbor, Manila. Ms. Roque insured the logs against loss for 5100,000 with
Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the Ms. Roque loaded on the barge, 811 pieces of logs at Malampaya
Sound, Palawan for carriage and delivery to North Harbor, Manila, but the shipment never
reached its destination because “Mable 10” sank with the 811 pieces of logs somewhere in
Cabuli Point in Palawan on its way to Manila. The barge (Mable 10) where the logs were
loaded was not seaworthy such that it developed a leak. It was found that one of the hatches
was left open causing water to enter the barge and because the barge was not provided with
the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside
the barge.
On March 8, 1972, Ms. Roque wrote a letter to Manila Bay demanding payment of
5150,000 for the loss of the shipment plus 5100,000 as unrealized profits but the latter ignored
the demand. Another letter was sent to Pioneer claiming the full amount of P100,000 under the
insurance policy but Pioneer refused to pay on the ground that its liability should not extend
to perils of the ship.
Should Pioneer be held liable for the loss of the cargo?
Legal Opinion: No, Pioneer should not be held liable for the loss of the cargo. An insurance
company in marine insurance should not be held liable on perils of the ship. Since the law
provides for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier
which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over
the vessel but he has full control in the choice of the common carrier that will transport his
goods. Or the cargo owner may enter into a contract of insurance which specifically provides
that the insurer answers not only for the perils of the sea but also provides for coverage of
perils of the ship.
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather
than the perils of the sea. The facts clearly negate Ms. Roque’s claim under the insurance policy.
In the present case the entrance of the sea water into the ship through the defective pipes was
not due to any accident which happened during the voyage, but due to the failure of the ship
owner to repair a defect, the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than that which results
from perils of the sea.29
Fire Insurance
The Law
Section 167. As used in this Code, the term “fire insurance” shall include insurance
against loss by fire, lightning, windstorm, tornado, or earthquake, and other allied risks, when
such risks are covered by extension of fire insurance policies or under separate policies.
29
Isabela Roque et al., vs. Hon. Intermediate Appellate Court et al., G.R. No. L-66935, November 11, 1985.
287
Fire insurance is essentially a contract of indemnity. In fire insurance, only a hostile and
not a friendly fire is insured against.30 Under an open policy, the measure of indemnity is the
actual loss sustained and the burden is upon the insured to establish the amount of such loss. Under
a valued policy of fire insurance, the valuation in the policy is conclusive between the parties.31

Case: Gulf Resorts, Inc. is the owner of the Plaza Resort situated at Agoo, La Union and had
its properties in said resort insured originally with the American Home Assurance Company
(AHAC). In the first four insurance policies issued by AHAC from 1984-85; 1985-86; 1986-1987;
and 1987-88, the risk of loss from earthquake shock was extended only to the two swimming
pools. Subsequently, AHAC issued in favor of Gulf Resorts, Inc Policy No. 206-4182383-
0 covering the period 1988-1989 and in said policy the earthquake endorsement clause was
deleted. Gulf Resorts renewed its policy with AHAC for the period of 1989-1990 under Policy No.
206-4568061-9 which reads “Endorsement to Include Earthquake Shock in the amount of 510,700.00
and paid 542,658.14 as premium,” computed as follows:
Item - 57,691,000 – on the Clubhouse only @ .392%;

51,500,000 – on the furniture, etc. contained in the building abovementioned@
.490%;
5393,000 – on the two swimming pools only (against the peril of earthquake
shock only) @ 0.100%
5116,600 – other buildings include as follows:
a) Tilter House – 519,800 - 0.551%
b) Power House – 541,000 - 0.551%
c) House Shed – 555,000 - 0.540%
5100,000 – for furniture, fixtures, lines, air-con and operating equipment.
Gulf Resorts agreed to insure with AHAC the properties covered by AHAC Policy No.
206-4568061-9 provided that the policy wording and rates in said policy be copied in the policy
to be issued by AHAC. As a result, AHAC issued Policy No. 31944 to Gulf Resorts covering
the period of 1990-1991 for 510,700,600.00 for a total premium of 545,159.92. The payment is
as follows:
Premium 537,420.60 F/L

52,061.52 – Typhoon
51,030.76 – EC
5393.00 – ES
Doc. Stamps 53,068.10
F.S.T. 5776.89
Prem. Tax 5409.05
Total 545,159.92
30
3 Basic Commercial Laws with Introductory Features, by Jose N. Nolledo, 1995 Revised Edition, pp. 113-114.
31
The Law on Insurance (with Insolvency Law) by Hector S. de Leon, 1994 Edition, pp. 182-183.
288
The above breakdown of premiums shows that Gulf Resorts paid only 5393.00 as
premium against earthquake shock (ES); that in all the six insurance policies for the periods
of 1984-85; 1985-86; 1986-1987; and 1987-88; 1989-90; 1990-91, the premium against the peril of
earthquake shock is the same, that is 5393.00.
On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and Gulf
Resort’s properties covered by Policy No. 31944 issued by AHAC, including the two swimming
pools in its Agoo Playa Resort were damaged.
To what extent should Gulf Resorts, Inc. recover from American Home Assurance
Company with respect to the damaged properties?
Legal Opinion: Gulf Resorts, Inc. can only recover from the properties covered under the
perils of the earthquake shock, i.e., the two swimming pools. The essential elements of a valid
insurance contract are as follows:
(a) Insurable interest;
(b) Existence of risk;
(c) Assumption of such risk by the insurer;
(d) Said assumption being part of a general scheme to distribute actual losses among those
bearing similar risks; and
(e) Payment of premium.
In the subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the two swimming pools. There is no mention of any premium payable for
the other resort properties with regard to earthquake shock. Hence, the claim should be limited
to the swimming pools only.32
Compulsory Motor Vehicle Liability Insurance
The Law
Section 373. For purposes of this chapter:
(a) “Motor Vehicle” is any vehicle as defined in section three, paragraph (a) of Republic
Act Numbered Four Thousand One Hundred Thirty-Six, otherwise known as the
“Land Transportation and Traffic Code.” (As amended by P.D. 1455).
(b) “Passenger” is any fare paying person being transported and conveyed in and by a
motor vehicle for transportation of passengers for compensation, including persons
expressly authorized by law, the vehicle operator or his agents to ride without fare. (As
amended by P.D. 1455).
(c) “Third Party” is any person other than a passenger as defined in this section and shall
also exclude a member of the household, or a member of the family within the second
degree of consanguinity or affinity, of a motor vehicle owner or land transportation
operator, as likewise defined herein, or his employee in respect to death or bodily injury,
arising out of and in the course of employment. (As amended by P.D. 1814).
x x x.
(d) “Land Transportation operator” means the owner or owners of motor vehicles for
transportation of passenger for compensation, including school buses. (As amended
by P.D. 1455).
32
Gulf Resorts Inc. vs. Philippine Charter Insurance Corporation, G.R. No. 156167, May 16, 2005.
289
(e) “Insurance policy” or “Policy” refers to a contract of insurance against passenger and
third-party liability for death and bodily injuries arising from motor vehicle accidents.
(As amended by P.D. 1814).
Section 374. It shall be unlawful for any land transportation operator x x x to operate
the same in the public highways unless there is in force in relation thereto a policy of insurance
or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to
indemnify the death, body injury and/or damage to property of a third-party or passenger, as
the case may be, arising from the use thereof. (As amended by PD No. 1455).
Section 377. Every land transportation operator and every owner of a motor vehicle
shall, before applying for the registration or renewal of registration of any motor vehicle, at
his option, either secure an insurance policy or surety bond issued by an insurance company
authorized by the Commissioner or make a cash deposit in such amount as herein required as
limit of liability for purposes specified in section three hundred seventy-four.33

Before applying for registration of motor vehicle, the land transportation operator/owner
must secure a compulsory motor vehicle liability insurance (also known as the Third Party
Liability Insurance or TPL) accredited by the Insurance Commissioner.
Any claim for death or injury to passenger or third party pursuant to the provisions on
Compulsory Motor Vehicle Liability Insurance shall be paid without the necessity of proving
fault or negligence of any kind, provided:
(1) The total indemnity in respect of any one person shall not exceed five thousand pesos.
(2) There must be submission of the following documents subscribed under oath:
a) Police report incident;
b) Death certificate and evidence sufficient to establish the proper payee;
c) Medical report and evidence of medical or hospital reimbursement in respect of
which refund is made.
d) Claim may be made against one motor vehicle only.34

Case: National Food Authority (NFA, formerly National Grains Authority) was the owner of a
Chevrolet truck which was insured against liabilities for death of and injuries to third persons
with the GSIS. On May 9, 1979, at about 7:00 in the evening at Tabon-Tabon, Butuan City,
the said Chevrolet truck driven by Guillermo Corbeta collided with a public utility vehicle, a
Toyota Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the name
and style of “Victory Line.” The Tamaraw was a total wreck. All the collision victims were
passengers of the Toyota Tamaraw. Five (5) passengers died while ten (10) others sustained
bodily injuries.
Among those injured were Victoria Jaime Vda. de Kho and Gloria Kho Vda. de Calabia.
Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and Willie Calabia, Sr. Three
(3) cases were filed with the Court of First Instance of Agusan del Norte and Butuan City. The
first, Civil Case No. 2196 for quasi-delict, damages and attorney’s fees, was commenced by Uy
on June 5, 1979 against NFA and Corbeta. On August 27, 1979, the second, Civil Case No. 2225
33
Insurance Code, P.D. 1460 as amended.
34
290
for damages, was filed by an injured passenger, against Uy, the operator of the public utility
vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC). The third, Civil Case No.
2256, was instituted by the victims on November 26, 1979 against the following: NFA and
Corbeta for damages due to quasi-delict; GSIS as insurer of the truck; Uy for breach of contract
of carriage; and MIGC as insurer of the Toyota Tamaraw. These cases were consolidated and
partially tried by Judge Fortunato A. Vailoces, of the then Court of First Instance of Agusan del
Norte and Butuan City.
GSIS, as insurer of the Chevrolet truck of NFA was held solidarily liable with its driver,
Guillermo Cordeta. GSIS is now appealing and denies solidary liability with the NFA or
the negligent driver of the cargo truck because it claims that they are liable under different
obligations. It asserts that the NFA’s liability is based on quasi-delict, while GSIS’s liability is
based on the contract of insurance. Rule on the contention of GSIS.
Legal Opinion: A Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL)
is primarily intended to provide compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of a negligent operation and use of motor vehicles.
The victims and/or their dependents are assured of immediate financial assistance, regardless
of the financial capacity of Motor Vehicle owners. Note that common carriers are required to
secure Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage as provided under
Sec. 374[13] of the Insurance Code, precisely for the benefit of victims of vehicular accidents
and to extend them immediate relief.
In this regard, the injured party for whom the contract of insurance is intended can sue
directly the insurer (GSIS). The general purpose of statutes enabling an injured person to
proceed directly against the insurer is to protect injured persons against the insolvency of the
insured who causes such injury, and to give such injured person a certain beneficial interest in
the proceeds of the policy.
However, although the victim may proceed directly against the insurer for indemnity,
the third party liability is only up to the extent of the insurance policy and those required by
law. While it is true that where the insurance contract provides for indemnity against liability
to third persons, and such third persons can directly sue the insurer, the direct liability of the
insurer under indemnity contracts against third party liability does not mean that the insurer
can be held liable in solidum with the insured and/or the other parties found at fault.35
War Risk Insurance
The Law
War Risk Insurance is an insurance covering damage caused by acts of war.36 It includes
coverage for war, hijacking and related perils. Insurers have intended to withdraw liability
coverage for Weapons of Mass Destruction (WMD), a subset of War Risk Insurance. WMD
includes:
• Radioactive contamination (dirty bombs)
• Electromagnetic pulse devices
• Chemical/biological weapons
Coverage was subsequently provided at full policy limits for passenger liability but
limited to a maximum of US$50 million for all third party injury and property damage.
35
GSIS vs. Court of Appeals et al., G.R. No. 101439, June 21, 1999.
36
Black’s Law Dictionary, 6th Edition, 1990, West Publishing Co., pp. 806-807.
291
Some countries, like the United States of America, provide coverage while others do
not. The International Air Transport Association (IATA) has argued that airlines in countries
that do not provide coverage are at a competitive disadvantage. Under the Federal Aviation
Administration programme, insurance coverage for passenger and third party liabilities for US
airlines is approximately US$0.70/passenger compared to almost US$ 3.00 outside of the US.
IATA Policy:
In most jurisdictions, including the European Union (EU), airlines are required by law to
have liability insurance, including coverage for WMDs.37 Aircraft lease agreements also require
coverage of war risk insurance. Since the use of WMDs is directed against States, the ultimate
responsibility for security of citizens rests with States.
Application of the Law (War Risk Insurance on goods seized)

Case: TKC Marketing Corp. (TKC) was the owner/consignee of some 3,189.171 metric tons of
soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September
8, 1989 for carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo
was insured against the risk of loss by Malayan Insurance Corporation (Malayan) for which
it issued two (2) Marine Cargo Policy Nos. M/LP 97800305 amounting to 518,986,902.45 and
M/LP 97800306 amounting to 51,195,005.45, both dated September 1989.
Under the insurance policy, the Institute War Clauses (Cargo) was deemed incorporated
which provides:
“1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by the
clause warranted free of capture, seizure, arrest, restraint or detainment, and
the consequences thereof of hostilities or warlike operations, whether there be a
declaration of war or not; but this warranty shall not exclude collision, contact
with any fixed or floating object (other than a mine or torpedo), stranding, heavy
weather or fire unless caused directly (and independently of the nature on voyage
or service which the vessel concerned or, in the case of a collision any other vessel
involved therein is performing) by a hostile act by or against a belligerent power;
and for the purpose of this warranty ‘power’ includes any authority maintaining
naval, military or air forces in association with a power. Further warranted free from
the consequences of civil war, revolution, rebellion, insurrection, or civil strike arising
therefrom, or piracy.”
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute
to Manila, the civil authorities arrested and detained it because of a lawsuit on a question of
ownership and possession. As a result, TKC notified Malayan on October 4, 1989 of the arrest
of the vessel and made a formal claim for the amount of US$916,886.66, representing the dollar
equivalent on the policies, for non-delivery of the cargo.
Malayan replied that the arrest of the vessel by civil authority was not a peril covered
by the policies. Malayan claims that the arrests, restraints or detainments contemplated in the
coverage were those effected by political or executive acts, pertaining exclusively to warlike
operations. The arrest, restraint or detainment rules out detention by ordinary legal processes.
Hence, arrests by civil authorities, such as what happened in the instant case, is an excepted
risk. Can TKC recover from the claim?
37
www.iata.org
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Legal Opinion: Yes, TKC can recover from the claim. By way of a historical background,
marine insurance developed as an all-risk coverage, using the phrase “perils of the sea” to
encompass the wide and varied range of risks that were covered. The interpretation of Institute
War Clauses in recent years included seizure or detention by civil authorities, whether or not
said “arrest” by civil authorities occurred in a state of war.
It has been held that a strained interpretation which is unnatural and forced, as to lead
to an absurd conclusion or to render the policy nonsensical, should, by all means, be avoided.
Likewise, it must be borne in mind that such contracts are invariably prepared by the companies
and must be accepted by the insured in the form in which they are written. Any construction of
a marine policy rendering it void should be avoided. Such policies will, therefore, be construed
strictly against the company in order to avoid a forfeiture, unless no other result is possible
from the language used. Be that as it may, exceptions to the general coverage are construed
most strongly against the company.38
1. What is the concept of insurance?

2. What are the advantages of insuring the company’s assets and key officers?
3. What is the contract of adhesion?
4. What are the insurable items in a tourism-oriented company?
5. What is an insurance contract?
6. What are the essential elements of an insurance contract?
7. What are the characteristics of an insurance contracts?
8. What are the parties to an insurance contract?
9. Give examples of insurance contracts.
10. What is insurable interest?
11. What is the difference between insurable interest in property insurance and the
insurable interest insuring the life of another other than himself?
12. What is group insurance?
13. What is marine insurance?
14. What is fire insurance?
15. What is compulsory motor vehicle insurance?
Insurance Policy in Scrutiny
Group the class into four groups. Two groups will be assigned
each to bring to class a photocopy of a life insurance policy and
the other two groups a photocopy of a property insurance policy.
Discuss in class the various provisions in the policies to gain a better
understanding of the concept of insurance.
38
Malayan Insurance Corporation vs. Hon. Court of Appeals, G.R. No. 119599. March 20, 1997.
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Insurance Seminar
Attend a seminar normally conducted by insurance
companies in their agent recruitment programs. The teacher may
give extra credit for those who can complete the seminar and show
proof, e.g., certificate of completion. Those who can complete the
seminar may share some of the things they learned in seminar to
the class.
To Insure or Not to Insure

The teacher assigns one local establishment to each student.
Each student has to find out if the assigned establishment and
its manager are insured or not. If insured, indicate the insurance
companies. The class will have a good idea of the insurance
consciousness of businessmen in the community.
RESEARCH PROJECT
Research on the following items (all in the Philippines):
• number of road accidents
• number of sea accidents
• number of air accidents
• number of fires in tourism-related establishments
• number of thefts against tourists
• number of hospitalized tourists
Discuss the importance of travel insurance as well as the varying extent of insurance coverage.
Ask about 10 persons who travel within and outside the country if they avail of travel insurance. Discuss
in class your findings.
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Chapter 15 Tourism and Hospitality
Management Education
Filipino workers are sought after in the global tourism industry. In order to increase the demand for
Filipino tourism workers, competency in tourism and hospitality management education should be reinforced.
(Atty. Antonio Fontanilla, former human resources director, Century Park Hotel)
Case of the Fly-by-Night School

Mr. Vic Florentino owns the Business Education for Skills and
Technology Institute or B.E.S.T. Institute. He started with one branch in
2000 and now has 15 branches all over the country providing culinary arts
certificate programs to those who cannot afford to go to expensive schools in
Manila. The school fees range from 52,500 per month to 58,000 per month.
Most of the instructors are qualified and good but lack accreditation with
TESDA. The kitchen laboratory of the school is wanting in improvement as
it lacks equipment and would barely pass sanitation and fire safety standards
of the government. Some of the instructors would be seen fraternizing with
young female students in local bars in exchange for a passing grade in their
practical exams. Over 1,000 students have graduated from this school and
only 60% of them have landed good jobs locally and abroad. To be able to
seek good jobs, the school provides assistance for a fee of 55,000 for a local
placement, 520,000 for an Asian placement and 5300,000 for a European
or North American placement. At graduation time, in order to be allowed
to graduate, each student is required to donate a small kitchen equipment,
e.g., bread toaster, blender, chef’s knife, et al. to help the school build up its
inventory. What kinds of violations have you noted in the operation of Mr.
Florentino’s school? What sanctions can be imposed on the school?
Learning Objectives
• Differentiate schools abiding with laws from those that are not
• Identify the requirements in the opening and operation of a tourism or hospitality management program
and tourism-related technical vocational programs
• Identify the laws governing various issues in tourism and hospitality education
There are approximately a total of 300+ schools in the Philippines offering degree as well
as non- degree programs related to tourism and hospitality management.1 The degree programs
are governed by the rules and regulations of the Commission on Higher Education (CHED)
while the non-degree or certificate programs are governed by the rules and regulations of the
Technical Education and Skills Development Authority (TESDA). It is estimated that over
40,000 tourism and hospitality management graduates are produced by CHED – recognized
educational institutions annually. Other the other hand, it is estimated that 10,000 graduates
are produced by TESDA – recognized training institutions annually.
1
Commission on Higher Education; TESDA.
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Curriculum
The Law
The curriculum of the B.S. Tourism and B.S. Hotel and Restaurant Management programs
of the different colleges and universities around the country should be compliant with CHED
Memorandum Order No. 31 Series of 2001.
“In accordance with the pertinent provisions of Republic Act (RA) No. 7722, otherwise known as the
“Higher Education Act of 1994,” the following Minimum Curricular Requirements for the Bachelor of Science
in Hospitality Management (HM)/Tourism are hereby adopted and promulgated by the Commission.”2
The government also encourages all Higher Education Institutions to institutionalize
the ladderized interface between the Technical-Vocational Education and Training (TVET)
and Higher Education (HE) which enables students to earn certification at each year level of
competency and enables them to secure gainful employment. Section 4 of CMO 27 Series of
2006 has identified eight (8) priority course programs for national implementation and these
include B.S. Tourism, B.S. Hotel and Restaurant Management and B.S. Travel Management.3

The changes in the curriculum in the B.S. Tourism and B.S. Hotel and Restaurant
Management programs of the different colleges and universities should remain relevant to
the needs of the global and local tourism industry in order to make the graduates employable.
To date, Filipino Tourism and HRM graduates are among the most in demand hotel workers
in the world. Approximately every four years, the curricula of these two-course programs are
updated by the CHED upon recommendation of the technical panel for these courses who
comprise experts in the industry and the academe.
The minimum curricular requirements consist of general education (51 units), hospitality
management core (24 units), business education core (18 units) and major subjects (36 units),
practicum (3 units), and physical education (8 units).

Case: Dr. Melissa Zaldivar is a dean of a college offering B.S. Tourism since 2000. She is
currently reengineering the curriculum for the program to address emerging needs in the
tourism industry. After consulting industry experts and her faculty curriculum development
committee, she has now finalized the curriculum as follows: 54 units of general education, 30
units of hospitality management core, 33 units of business education, 51 units of major subjects,
6 units of practicum, and 8 units of physical education or a total of 182 units. Dr. Zaldivar
added new subjects like Personality Development, Tourism Marketing Management, Tourism
Entrepreneurship, Tourism Statistics, Eco-Tourism and Tourism Computer Applications. Will
the new curriculum need to be approved by CHED?
Legal Opinion: Most likely the new curriculum will be approved by CHED because it meets
the minimum curricular requirements. The new subjects added by Dr. Zaldivar indicate that
curriculum enhancement was made resulting in the increase in the total units.
School Laboratories and Other CHED Requirements
The Law
The grant of government recognition shall be based on full (100%) compliance with the
minimum requirements prescribed by CHED in the offering of a particular program of study,
2
CHED Memorandum Order 31, Series of 2001.
3
CHED Memorandum Order 27, Series of 2006; Executive Order 358.
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specifically in terms of faculty, library, laboratory and administration. Schools offering B.S.
Hotel and Restaurant Management or Hospitality Management are required to have different
kinds of laboratories, e.g., kitchen laboratory for food preparation, mock-up guestroom for
housekeeping, front office for simulation, mock-up restaurant and bar for food and beverage
service, and a computer laboratory for computer subjects. Good laboratories aim to hone the
practical skills of the students. Other things required by CHED are:
• Administrators with, at least, master’s degrees and industry managerial
experience
• 25% of subjects taught by teachers with master’s degrees and industry experience
• At least 2,500 volumes of books accessioned in the library for permit and 5,000 for
recognition
• At least 1,000 square meters in floor area
• Adequate library space (accommodating 15% of enrollment)

For schools seeking to operate for the first time a B.S. HRM or Hospitality Management
program, they need to secure a government permit from CHED. After one or two years,
they have to apply for government recognition so they graduate their first batch of students
within four years. One of the salient aspects of the instrument used by CHED is the section on
laboratories.
CHED has now devolved the inspection of schools to the regional offices through the
Regional Quality Assessment Teams (RQAT).4 Schools are inspected by members of the
academe and industry experts. Inspectors look at the quality of equipment or machinery
appropriate for industrial use, provisions for sanitation, safety, and security, and conduciveness
to learning.

Case: Gary Vicente, school owner, applied for government permit with CHED for the culinary
school he wanted to operate in Quezon City offering an HRM degree program major in Culinary
Arts. The school has 1,500 square meters of floor space in a two-storey building. The main
staircase is less than a meter in width and the fire exit is even narrower. No provisions were
made for exhaust fans for the kitchen laboratories. The library has a collection of 650 volumes
mostly culinary books donated by Gary’s friends. Does Gary’s school stand a chance in getting a
government permit?
Legal Opinion: Given the conditions mentioned above, Gary’s school has no chance of
getting his government permit application approved because of safety concerns, insufficient
library collection, and inconduciveness to learning. However, Gary may re-apply once noted
deficiencies by the RQAT are complied with.
Student Practicum or Apprenticeship
The Law
In relation to CMO No. 31 Series of 2001, the minimum requirements for student practicum
in B.S. Tourism and B.S. Hotel and Restaurant Management are 3 units.
4
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A minimum of 200 hours for each area of specialization (e.g., for HRM majors, at least 200
hours in hotel operations and another 200 hours in restaurant operations).5
For schools offering an International Practicum Training Program (IPTP), CMO 15 Series
of 2002 covers the implementing guidelines.
It is the policy of the Commission on Higher Education (CHED) to encourage and promote
strong academic linkage with industries for cross-cultural training and skills enhancement to
ensure attainment of knowledge, skills and desirable attitudes that will make Filipino students
globally competitive.
In the pursuit of this policy, CHED hereby establishes the International Practicum Training
Program (IPTP) to make possible the practicum training of undergraduate students in various
companies, training institutions and organizations in various parts of the world. The learning
that the students get and their practicum training will develop new competencies and skills
that will make them internationally competitive for employment here or abroad.6
In view of keeping pace with the demands of global competitiveness, the Commission of
Higher Education issues a list of Training Partners accredited by CHED for the International
Practicum Training Program (IPTP). Heads of Higher Education Institutions are enjoined to
enter into agreements only with Training Partners endorsed by CHED.7

The rationale of this requirement is to provide students valuable experience by way of work
immersion in different kinds of tourism-related establishments like hotels, resorts, restaurants,
travel agencies and transportation firms locally or overseas. Practicum or apprenticeship does
not only to enrich the curriculum of the program but, moreover, prepares the student to actual
relevant work where knowledge and skills may be learned and practiced, and good values are
observed, developed and adopted.
The foregoing implementing guidelines are applicable to the International Practicum
Training Program for HRM/Tourism students.
A. Qualification of/Requirements for the Agencies/Parties Involved
i. Higher Education Institutions. Only higher education institutions with accredited
programs are qualified to participate in the International Practicum Training
Program and may deploy their HRM/Tourism students for the purpose.
ii. Training Partner. The Training Partner should be at least a 3-star hotel/resort/club/
restaurant duly accredited by the hotel/restaurant association abroad.
iii. Third Party Training Partner (3TP). The TPTP should be accredited by CHED. The
following are the requirements for accreditation:
1. Registration with the Securities and Exchange Commission;
2. License to conduct recruitment and placement services in the Philippines
in partnership with a duly licensed Philippine-owned agency in the same
business, and maintaining an office in the Philippines for the purpose;
3. Dormitory-type accommodation to the student-trainees abroad:
a. Safe, clean and conducive for rest and study – well-lighted, well-ventilated,
quiet, far from obnoxious places such as beerhouses, gambling joints,
factories;
5
6
7
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b. Complete with necessary household equipment/items in the kitchen,
bedroom, dining room, living room, laundry; and
c. Close to workplace, managed by the 3TP, with person in-charge,
preferably a Filipino responsible for close monitoring of trainees.
4. Proof of capability and willingness to meet the obligations and responsibilities
of the 3TP prescribed in the guidelines particularly in item B. 3 of Article IV,
or if already an old partner or contact, a track record that it adhered to its
previous contract with the participating Higher Education Institutions and the
student-trainees; and
5. Compliance with the requirements of other government agencies in the
Philippines particularly the Bureau of Immigration and Deportment, the
Department of Foreign Affairs and the Department of Tourism.
iv. Student. Considering the cross-cultural nature of this program, participants should
be carefully selected. They should possess the following qualifications:
1. Must be an HRM/Tourism student and currently enrolled in practicum
subject;
2. Must be at least 18 years old;
3. Must have passed pre-practicum requirements;
4. Must be recommended by the Faculty Practicum Coordinator and the Dean of
the College;
5. Must undergo a pre-departure orientation seminar and proficiency training in
basic industry language;
6. Must be physically and mentally fit with a pleasant personality;
7. Must be articulate in English or the language spoken in the host country;
8. Must possess the manifest approval or consent from parents/guardians; and
9. Must have the right attitude towards practicum/work.
B. Obligations/Responsibilities of the Agencies/Parties Involved
The specific obligations/responsibilities of the parties involved in the implementation of
the IPTP are as follows:
1. Higher Education Institution
a. Select participants in accordance with the qualification requirements, with the
concurrence of the 3TP;
b. Assign a full-time academically qualified Faculty Practicum Coordinator
responsible for all aspects of the IPTP and its demands, to include program
implementation and evaluation;
c. Conduct a pre-departure orientation/seminar, in cooperation with the 3TP, for
the students and their parents/guardians;
d. Submit to CHED the list of departing students together with the following
information/documents:
i. addresses and telephone numbers of the Training Partner and the TPTP
ii. schedule of departure and arrival of trainees;
iii. work permit of the students issued by the Ministry of Manpower
abroad;
iv. transcript of records or true copy of grades;
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v. copy of passports;
vi. copy of letter of certification of enrolment in practicum as required by the
foreign government; and
vii. copy of the CHED Certificate of Recognition of the HRM/Tourism
course
e. Provide CHED with authentic list of students certified to have completed the
international practicum training program with documentary evidence.
2. Training Partner
a. Provide the work experience or on-the-job training to the student-trainees in
accordance with the agreed training plan and schedule of activities;
b. Assign a competent Training Supervisor responsible for all phases of the work
including the evaluation of performance of trainees; and
c. Issue Certificate of Completion to the trainees prior to departure from training
venue/country.
3. Third Party Training Partner (TPTP)
a. Screen students based on the preliminary list (PList) endorsed by the school
and, based on the result, prepare the final list (Flist); and
i. The TPTP can only place students whose names appear in the Flist; and
ii. Students will be selected through actual interview in the Philippines.
b. Provide the original copy of the In-Principle Approval Letter (IPA) to the
student-trainees;
c. Inform the school and the parents of the students about the address, telephone
number and other classified information relevant to the training;
d. Submit to the HEI the approved Tenancy Agreement complete with
documentary evidence;
e. Report immediately to the school, any misbehavior or unsatisfactory
performance of the students;
f. Register the student-trainees with the Philippine Embassy immediately upon
arrival, to include their addresses and telephone numbers abroad;
g. Provide the student trainees the following or better benefits upon the signing
of the contract:
i. Free return airfare, including the travel tax and airport terminal fees, if
any;
ii. Free departure medical examination fee;
iii. Monthly allowance equivalent to at least 60% of the prevailing minimum
wage abroad but not less than S$450.00 (or its equivalent in the currency
of the country where the trainee is in);
iv. A dormitory-style accommodation with a person in charge preferably
with a Filipino manager;
v. Free duty meals, uniform and laundry; regardless of assigned department
for the duration of the training;
vi. Allowance for shoes, make-up, haircut, and transportation if the
workplace is far from residence;
vii. Term benefit insurance of at least S$10,000.00 (or its equivalent in the
currency of the country where the trainee is in);
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viii. Accident and dismemberment insurance of at least S$10,000.00 (or its
equivalent in the currency of the country where the trainee is in);
ix. Hospitalization benefits;
x. Overtime pay per existing law of the host country when asked to work
on a holiday or when asked to work for two hours or more in excess of
the regular eight hours;
xi. Night differential pay; and
xii. One day off in lieu of a holiday.
h. Inform the school as to the existing government policies on labor/trainees
particularly on overtime pay;
i. Pay the fees for the Overseas Training Certificate issued by the CHED;
j. Pay the school a Program Development Fee to cover various expenses,
exclusive of the benefits enumerated in the paragraph immediately preceding,
for the following:
i. Faculty Development Program of HRM/Tourism
ii. Operational/administrative expenses of IPTP
iii. Research, evaluation and documentation
k. Present the training plan/trainees program of activities for the school
examination and approval; and
l. Provide the Faculty Practicum Coordinator and the representative/s from
the CHED free board and lodging for at least three (3) days during the initial
inspection visit to the Training Partner’s facilities including return airfare.
4. Student
a. Enrol for practicum units in the school;
b. Secure complete travel documents such as passport, original transcript of
records, and school ID, Overseas Training Certificate (OTC) from CHED and
In-Principle Approval (IPA) Letter from the Training Partner;
c. Comply at all times with the rules and regulations of the host establishment or
training partner and the school where enrolled;
d. Not accept any job (even part-time) aside from his on-the-job training;
e. Not divulge any confidential information about the host establishment;
f. Stay in the dormitory provided by the 3TP and not with a foster family abroad;
and
g. Complete the agreed duration of his practicum training.
5. Parent/Guardian
a. Co-sign the traineeship contract to manifest their approval or consent to the
training abroad of their son/daughter even if he/she is over 18 years old; and
b. Attend the pre-departure seminar or orientation together with the student.
C. Operation of the International Practicum Training Program
1. Implementation
a. The Faculty Practicum Coordinator of HEI and the representative/s from
CHED will conduct an initial visit/inspection of the facilities of the Training
Partner;
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b. The HEI shall send one Faculty Practicum Coordinator to coordinate with his
counterpart – the Supervisor of the Training Partner – per batch of 15 student
trainees at least once during the training period or as the need arises; and
c. The Supervisor of the Training Partner and the Faculty Practicum Coordinator
should, as much as possible, follow the prescribed training plan per department
specifying the knowledge and skills that the student should acquire in the
training areas, namely:
• Food and Beverage Production
• Food and Beverage Service
• Rooms Division (Front Office or Housekeeping)
• Recreational Area
• Other Departments/Areas
2. Monitoring and Evaluation
a. The monitoring and evaluation of the performance of the student-trainees and
the IPTP itself shall be done jointly by the Supervisor of the Training Partner
and the Faculty Practicum Coordinator of the HEI using common procedures,
instruments and standards such as observations, monthly reports, and
interviews/conferences with the students.
b. At the end of the training period, the Supervisor of the Training Partner shall
provide the students with the following documents which the students, in
turn, will submit to the Faculty Practicum Coordinator:
• Certificate of Completion
• Duly accomplished evaluation sheet
• Other pertinent reports, information, and/or documents which may be required
c. The Supervisor of the Training Partner’s evaluation report will be one of the
bases in giving the student’s final grade.
d. A student whose contract was terminated due to registration, or other causes
shall be given a final grade on the basis of each individual school’s grading
system after considering the circumstances surrounding such termination.
e. The CHED shall monitor the compliance of the agencies/parties involved in
the implementation of the policies and guidelines of the IPTP.
3. Duration of the Training
a. The IPTP should not be less than three (3) months but not more than one (1) year.
D. Sanctions
1. Any school found guilty of violating the provisions contained in the IPTP policies
and guidelines shall be subject to the revocation of its annual permit to participate
in the IPTP.
2. Any violation of the IPTP policies and guidelines by a student trainee shall be
subject to any of the following sanctions:
• failing grade in the Practicum subject
• invalidation of the training undertaken
• disqualification from the IPTP
3. Any Student subsequently assessed to be unsuitable for deployment by CHED shall
be deleted from the Flist.
4. Any training partner found guilty, after investigation, of violating any of the
provisions contained in the IPTP policies and guidelines shall be blacklisted by
CHED who shall advise all school participants of such action.
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Case: Catherine Castillo is a senior HRM student of her university expecting to graduate after
completion of her practicum training in the final semester of school year 2007 – 2008. She availed
of the international practicum training program of her school which was recognized by CHED.
She was sent to Singapore for a duration of four (4) months. The practicum coordinator sent
by the school, Mrs. Cuevas, visited their dormitory only once in the 3-week duration that she
was in Singapore. Most of the time, she was visiting tourist attractions and shopping in malls.
Catherine was able to successfully complete her program and she managed to come back home
to the Philippines with the certificate of completion. However, her mother noticed that she was
showing signs of early pregnancy when she arrived. It was only then that Catherine disclosed
to her parents that she was molested in her place of work by one of her foreign supervisors.
What are the liabilities of the school and the teacher in this situation?
Legal Opinion: The dean who is the senior officer responsible for the operation of an academic
program, enforcement of rules and regulations, and the supervision of faculty and student
services, must see to it that his own professors and teachers, regardless of their status or position
outside of the university, must comply with the rules set by the latter. The negligent act of a
professor who fails to observe the rules of the school, is not only imputable to the professor but
is an act of the school, being his employer. Considering further, that the institution of learning
involved herein is a university which is engaged in legal education, it should have practiced
what it inculcates in its students, more specifically the principle of good dealings enshrined in
Articles 19 and 20 of the Civil Code which states:
Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Article 19 was intended to expand the concept of torts by granting adequate legal remedy
for the untold number of moral wrongs which is impossible for human foresight to provide
specifically in statutory law. In a civilized society, men must be able to assume that others
will do them no intended injury – that others will commit no internal aggressions upon them;
that their fellowmen, when they act affirmatively will do so with due care which the ordinary
understanding and moral sense of the community exacts and that those with whom they deal in
the general course of society will act in good faith. The ultimate thing in the theory of liability is
justifiable reliance under conditions of civilized society. Schools and professors cannot just take
students for granted and be indifferent to them, for without the latter, the former are useless.
The conscious indifference of a person to the rights or welfare of the person/persons who
may be affected by his act or omission can support a claim for damages under the Civil Code
of the Philippines. Want of care to the conscious disregard of civil obligations coupled with a
conscious knowledge of the cause naturally calculated to produce them would make the erring
party liable.
Lastly, the school and the practicum coordinator should have taken diligent efforts
in taking care of the student who is having her Practicum outside the school. For failure to
check on the student under the rules and regulations prescribed by the Commission on Higher
Education, the accreditation license of the school may be revoked. In addition, the school, together
with the practicum coordinator may also be blacklisted by CHED.8
8
See University of the East vs. Romeo A. Jader, G.R. No. 132344. February 17, 2000; CHED Memorandum Order 15, Series of 2002.
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Accreditation and Deregulation of Schools
The Law
In accordance with the pertinent provisions of R.A. 7722, otherwise known as the “Higher
Education Act of 1994,” the Commission on Higher Education hereby promulgates the revised
policies and guidelines on voluntary accreditation in aid of quality and excellence in higher
education for the guidance and information of all concerned stakeholders.
It is the declared policy of the State to encourage and assist, through the CHED, higher
education institutions (HEIs) which desire to attain standards of quality over and above the
minimum required by the State.
For this purpose, the CHED encourages the use of voluntary non-governmental
accreditation systems in aid of the exercise of its regulatory functions. The CHED will promote
a policy environment which supports the accreditation’s non-governmental and voluntary
character and protects the integrity of the accreditation process.
CHED demands responsibility from the federations and networks for their certification
of the quality of education offered in accredited programs or institutions.9
Pursuant to CHED Memorandum Order No. 6, Series of 1997, which pertains to the
amendments to CMO 46, Series of 1996, entitled “Policy of Progressive Deregulation vis-à-vis
Higher Education Institutions (HEI),” schools that are given accredited status level III are
autonomous while schools with accredited status level II are given partial deregulation which
among other things entitles the school to curricular autonomy.10

Collegiate schools are generally supervised by CHED. Those that have been granted
accredited status level II are deregulated and are given freedom to change their curriculum
provided they meet minimum standards prescribed by CHED. They only need to inform
CHED of the changes. On the other hand, schools are granted autonomy. This means that
they are no longer supervised by CHED and they have a wide range of privileges including
curricular autonomy, new program offerings, etc.
In the collegiate or tertiary level, the main accrediting agencies authorized by the
Federation of Accrediting Agencies of the Philippines in the private sector are:
• Philippine Accrediting Association of Schools, Colleges and Universities
(PAASCU)
• Philippine Association of Colleges and Universities Commission on Accreditation
(PACUCOA)
• Association of Christian Schools and Colleges Accrediting Agency (ACSCAA)
Meanwhile the public sector has the following accrediting agencies authorized by the
National Network of Quality Accrediting Agencies:
• Accrediting Agency of Chartered Colleges and Universities of the Philippines
(AACCUP)
• Association of Local Colleges and Universities Commission on Accreditation
(ALCUCOA)
For a school to be granted the highest level of accreditation (Level III), the following must
be satisfied, observed and reported by the accrediting agency:
9
10
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• reasonably high standard of instruction
• highly visible community extension program
• highly visible research tradition
• strong faculty development tradition
• highly creditable performance of its graduates in licensure board exams
• existence of working consortia or linkages with other schools or agencies
• extensive and functional library and other learning resource facilities

Case: Far Eastern University’s Institute of Accounts, Business and Finance has been offering a
bachelor’s degree in Tourism Management since 2000. In 2005, it was granted an accreditation
status of level III by the Philippine Association of Colleges and Universities Commission
on Accreditation (PACUCOA). In 2008, its program head, Mr. Gerald Villar and program
coordinator, Mr. Ronald Manzano, would like to make some changes in the curriculum,
specifically adding 9 units more, rearranging the sequence and intensifying the practicum
program. What should be the action of administrators of the university on these changes?11
Legal Opinion: Since the university attained level III status in 2005, they may introduce changes
that are within the minimum standards of CHED and simply informing CHED in writing these
changes. It is important to have the said documents acknowledged by CHED in writing as well
to serve as reference should any dispute arise in the future.
Tuition Fees
The Law
The allowable increase in tuition and other fees in all levels should not be more than
the prevailing national inflation rate. The prevailing national inflation rate shall refer to the
average annual headline inflation rate at the national level of the immediately preceding year
prior to the Academic Year for which the intended increase shall take effect.

Any increases in tuition or other fees in all levels to be made up by private Higher
Education Institutions (HEIs) shall be subject to consultation with stakeholders and approval
of the Commission on Higher Education.12

Case: De La Salle University – College of St. Benilde is intending to increase its tuition in the
B.S. Tourism and B.S. Hotel and Restaurant Management programs by 18% effective Academic
Year 2008-2009. The national inflation rate in 2007 was 8% only. Is it justified for the school to
proceed with their proposed tuition increase?
Legal Opinion: No, DLSU-CSB cannot increase its tuition by 18% for Academic Year 2008-
2009. However, it can only increase its tuition equal or less than the national inflation rate of
the preceding year which is 8% only.
11
Far Eastern University Accreditation Report, 2006.
12
CHED Memorandum Order 7, Series of 2007; CHED Memorandum Order 26, Series of 2003.
305
Sexual Harassment in the Academe
The Law
Section 3 (b) of the Anti-Sexual Harassment Act of 1995 or R.A. No. 7877 provides
that in an education or training environment, sexual harassment is committed:
1. Against one who is under the care, custody or supervision of the offender;
2. Against one whose education, training, apprenticeship or tutorship is entrusted to the
offender;
3. When the sexual favor is made a condition to the giving of a passing grade, or the
granting of honors and scholarships, or the payment of a stipend, allowance, or other
benefits, privileges or considerations; or
4. When the sexual advances result in an intimidating, hostile or offensive environment
for the student, trainee, or apprentice.
Section 4 of R.A. 7877 provides that it is the duty of the employer of head of the school
(president or dean) or head of the training establishment (president or training director)
to deter the commission of acts of sexual harassment and to provide the procedures for the
resolution, settlement or prosecution of acts of sexual harassment. To accomplish this, the
employer or head of office shall:
b. Promulgate appropriate rules and regulations in consultation with and jointly
approved by the students or trainees through their duly designated representatives
(e.g., Student Council), prescribing the procedure for the investigation of sexual
harassment cases and the administrative sanctions thereof.
c. Create a committee on decorum and investigation of cases on sexual harassment.
The committee shall conduct meetings, as the case may be, with officers and
employees, teachers, instructors, professors, coaches, trainers, and students or trainees
to increase understanding and prevent incidents of sexual harassment. It shall also
conduct the investigation of alleged cases constituting sexual harassment.
Section 5 of this law provides that the head of the school shall be solidarily liable for
damages arising from the acts of sexual harassment committed in the school if the head of the
school is informed of such acts by the offended party and no immediate action is taken thereon.13

In Chapter 13, sexual harassment was discussed in the context of an employer-employee
relationship. In this chapter, sexual harassment is discussed in the context of a teacher-student
relationship or any other relationship similar to it, e.g., tutor-tutee, mentor-apprentice, chaperone-
tour participant, facilitator-workshop participant, trainer-trainee, coach-coachee.
Who else are punishable under this law? This law punishes any person who directs or
induces another to commit any of the foregoing acts of sexual harassment, or who cooperates in
the commission of any of those acts by another without which it would not have been committed.
Examples of forms of sexual harassment in the academe are: (a) malicious touching of
private parts (genitalia, buttocks, breasts), (b) overt sexual advances or sexual assault, (c)
gestures with lewd insinuation, (d) verbal requests or demands for sexual favors and lurid
remarks, (d) use of objects, pictures, graphics, letters or written notes with sexual underpinnings,
(e) unwanted brushing or touching against a victim’s body, e.g., pinching, (f) derogatory or
degrading remarks or innuendos towards the members of one sex or one’s sexual orientation
13
Natino, Romeo, Laws on Education in the Philippines, Great Books Publishing, 2006.
306
or used to describe a person, (g) surreptitiously looking or stealing a look at a person’s private
parts or worn undergarments, (h) telling smutty or sexist jokes or sending these through text,
electronic mail or other similar means, causing embarrassment or offense, (i) malicious leering
or ogling, (k) unwelcome inquiries or comments about a person’s sex life, (l) making offensive
hand or body gestures, (m) unwelcome phone calls with sexual overtone causing discomfort,
embarrassment, offense or insult to the receiver.
The composition of the committee to be created to investigate sexual harassment
complaints in the academe should be composed of, at least, one (1) representative each from the
administration, the trainers or teachers, and students or trainees. Under this law, the employer
or head of the school, should disseminate or post a copy of the anti-sexual harassment law for
the information of all concerned.
In relation to the employment of a teacher administratively convicted of sexual harassment,
dismissal may be meted on the employee upon the recommendation of the committee.
Aside from the criminal action that the victim or offended party can file against the
offender under this law, the victim may institute a separate and independent civil action
for damages and other affirmative relief against the offending party. The offended party has
a period of three (3) years from the commission of the offense within which he or she may
institute any criminal or civil action against the offender.
If convicted, the offender shall be penalized by imprisonment of not less than one (1)
month nor more than six (6) months, or a fine of not less than ten thousand pesos (510,000)
nor more than twenty thousand pesos (520,000) or both such fine and imprisonment at the
discretion of the court.

Case: Celso Maniquiz is the choirmaster of a very big university in Manila accused of sexually
harassing a sophomore male student, whom we will call Jessie, who is a member of the
university chorale. Jessie was terrified to report this to school authorities because Mr. Maniquiz
is influential and has brought so much honor to the school and he was also afraid to lose
his cultural scholarship if Mr. Maniquiz kicks him out of the chorale. Through the help of
his parents, he approached the National Bureau of Investigation for an entrapment operation.
This was the very first time the NBI used DNA testing to prove the guilt of a sex offender. Mr.
Maniquiz was subsequently arrested, tried and jailed. Did Jessie do the right thing?
Legal Opinion: Yes, Jessie did the right thing to protect his rights as a student of a respectable
educational institution. It is, however, surprising that he did not approach the school authorities
on the matter for fear of bias, ridicule, punishment or simply being ignored. It is advisable that
school authorities install mechanisms for students to be more open about their problems in
school. The guidance office of universities and colleges should be alert on being instrumental
in the prevention of sexual harassment acts and helping victimized students.
Case: Amelita Atanacio is a respected professor in a venerated educational institution in the
university belt. She teaches tourism subjects to all year levels. She developed a fondness with
one of her male senior students, Eric Chua. She writes letters with heavy sexual overtones to
Eric almost every other day. Statements like : “I want you to treat me more than just a friend
– perhaps an intimate friend. I will take care of your grades if you give me what I want from
you. I will help you with your grades. This is our mutual understanding as consenting adults.”
Eric graduated from the university without filing any case against the teacher because while
the dean, at that time, was supportive of students’ complaints on sexual harassment cases,
top management would conspicuously overturn adverse recommendations by the discipline
committee. There have been cases in the past that top management reversed convictions by
committees because of fear of media exposure if teachers were proven guilty. Besides, he felt
awkward that a male student is filing a sexual harassment case against a female teacher. Was
he right in his assumptions? Are there still remedies for Eric at this point?
307
Legal Opinion: Sexual harassment is not about sex or gender. It is about power, i.e., who has the
power to commit sexual harassment. Hence, it could be a man towards a woman; an employer
towards an employee, a teacher of any gender or sexual orientation towards students. Eric
should have filed an administrative case against Ms. Atanacio despite his feeling awkward
and his assumption of top management’s general attitude towards these cases. In fact, if he has
informed school authorities of his complaint and no immediate action was taken, the president
or dean may be penalized. Now that he has graduated, his only resort is to file a case in court
if the three (3)-year prescription period has not lapsed.
Random Drug Testing for Tertiary Level Students
The Law
In accordance with the pertinent provisions of Republic Act No. 7722, otherwise known
as the “Higher Education Act of 1994” and pursuant to Section 36 (c) of Article III of RA 9165,
otherwise known as the “Comprehensive Dangerous Drugs Act of 2002,” random drug testing
of students in public and private tertiary/higher educational institutions will be implemented
beginning 2003.

The guiding principles in the implementation of this policy in schools and management
of drug test results are as follows:
1. Government recognizes the primary responsibility of the family, particularly the parents
for the education and awareness of its members of the ill effects of dangerous drugs.
2. Parental involvement shall be maximized in the implementation of drug education,
random drug testing, treatment and rehabilitation of drug users and dependents.
3. The school, with the assistance of Local Government Units (LGUs) and other agencies
where the school is located, has the obligation to employ every reasonable means to
provide a healthy and drug-free environment to its populace.
4. Cognizant of the right of the students to continue and complete their studies, the
government and the schools shall give emphasis to the implementation of measures
aimed at guidance and counseling together with the treatment and rehabilitation of any
student found to have used or to be dependent on dangerous drugs.
5. Academic freedom of institutions of higher learning shall be respected in the
implementation of random drug testing and all other pertinent provisions of RA 9165.
6. The implementation of drug abuse prevention and education programs in schools
shall be intensified as an integral part of the over-all demand reduction efforts of the
government.
7. The random drug testing shall be implemented as a collaborative undertaking of the
government, the schools, the students and their parents. The whole process shall not in
any manner be utilized to harass the students.
8. Random drug testing shall be implemented primarily for prevention and rehabilitation.
9. The drug-testing program shall guarantee and respect the personal privacy and dignity
of the student.
10. The drug test results shall be treated with utmost confidentiality.
11. The test results shall not be used in any criminal proceedings.
308
The purposes of random drug testing are:
1. To determine the prevalence of drug users among the students
2. To assess the effectivity of school-based and community-based prevention programs
3. To deter the use of illegal drugs
4. To facilitate the rehabilitation of drug users and dependents
5. To strengthen the collaboration efforts of identified agencies against the use of illegal
drugs and in the rehabilitation of drug users and dependents.

Case: University of Southeast Asia issued an internal policy that all students shall undergo drug
testing to be enforced every First Semester of the school year. Such policy shall be considered a
prerequisite for enrolment. Is the internal policy of the University valid?
Legal Opinion: Yes, such policy is in accordance with Article III, Section 36 (c) of the
Comprehensive Dangerous Drugs Act of 2002 which provides:
“(c) Students of secondary and tertiary schools. – Students of secondary and tertiary
schools shall, pursuant to the related rules and regulations as contained in the school’s
student handbook and with notice to the parents, undergo a random drug testing. x x x.”
Such internal rule is in accordance with the policy of the State to safeguard the integrity of
its territory and the well-being of its citizenry particularly the youth, from the harmful effects
of dangerous drugs on their physical and mental well-being, and to defend the same against
acts or omissions detrimental to their development and preservation.14
Tertiary Education Equivalency
The Law
CMO 21 Series of 1997 provides the policies and guidelines on the implementation of the
Expanded Tertiary Education Equivalency and Accreditation Program (ETEEAP) pursuant to
Executive Order 330.

Many of the practitioners in the tourism and hospitality industry were not able to
complete college degrees because of various reasons. Some have become very successful and
distinguished in their careers as chefs, hotel managers, restaurant managers and travel agents.
ETEEAP simply recognizes those skills and expertise gained from many years of experience
as equivalent of a number of subjects in a standard bachelor’s program. This now allows
undergraduates to complete their degrees in a much shorter time. In some cases, the bachelor’s
degrees are awarded without taking anymore additional units.

Case: Carlos Lim is the executive chef of a top fine dining restaurant located in a deluxe hotel
in Manila. He has been in the industry for the past 20 years and because he had to support his
siblings’ education, he wasn’t able to continue his own college education at Centro Escolar
University. He only completed seven (7) semesters in college and lacked one (1) more semester to
graduate in the B.S. Hotel and Restaurant Management program. Is Carlos eligible for ETEEAP?
14
Sec. 2, R.A. 9165, Comprehensive Dangerous Drugs Act of 2002.
309
Legal Opinion: Yes, his stature in the industry seems solid and his number of years of experience
is more than enough to qualify him for the ETEEAP. All he has to do is choose a university or
college, not necessarily at CEU, where his transcript of records may be assessed for the degree
of B.S. Hotel and Restaurant Management and pay the necessary school fees. It is likely that the
units that Carlos still lack could well be compensated by his long years experience as executive
chef, a managerial position in the industry.
Foreign Students
The Law
There have been a number of CHED Memoranda issued in relation to processing foreign
students in the Philippines.
• CMO 53, s. 1997 – Amendments to CHED Memorandum Order (CMO) No. 2,
Series of 1994 Re “The Implementing Guidelines on the Entry and Stay of Foreign
Students in the Philippines and the Establishment of an Inter-Agency Committee
for the Purpose” to conform with Executive Order No. 423 signed on 25 June 1997
amending Executive Order No. 188
• CMO 7, s. 1996 – Submission of Names of Designated Liaison Officers of Higher
Education Institutions with Foreign Students
• CMO 1, s. 1996 – Submission of Reports on Foreign Students with Expired Visas and
Derogatory Records
• CMO 15, s. 1995 – General Procedure in the Processing of Entry and Stay of Foreign
Students
• CMO 2, s. 1994 – Rules and Regulations to Implement E.O. No. 188 “Guidelines on
the Entry and Stay of Foreign Students in the Philippines and the Establishment of
an Inter-Agency Committee for the Purpose”

The typical foreign student enrolled in Philippine schools is granted student visa, travels
to his home country once or twice a year, rents a studio or apartment, and visits tourist spots
in the country. The school must ensure that all the documents of a foreign student are in order
before admitting or enrolling the student. Many of these foreign students come and study in
Philippine colleges and universities for various reasons. Interviews with a sample of over a
hundred foreign students indicate that the top 5 reasons for studying in the Philippines are
(a) reasonable cost of education, (b) best chance to learn and acquire proficiency in the English
language, (c) relatively good quality of education, (d) recommendation of friends, colleagues
and relatives, and (e) proximity to home country.

Case: Martha Dionisio is the registrar of a university in Quezon City with a large tourism
and hospitality management enrollment. The number of foreign students ranges from 45 to
85 at any given semester. The foreign students come mainly from South Korea, China and the
Middle Eastern countries. During the first semester of school year 2007-2008, Martha submitted
to the Commission on Higher Education National Capital Region Head Office the list of
foreign students enrolled. It was noted that the list was not complete and 24 foreign students
were inadvertently omitted from the list because they had expired visas. Could Martha be in
violation of a policy of CHED?
310
Legal Opinion: Yes, Martha Dionisio is violating CHED Memorandum Order 1, Series of
1996 which requires all higher educational institutions to submit to CHED the list of foreign
students with expired visas. The school president and the registrar will most likely receive a
memorandum from CHED to cite the violation and to remind them of strict compliance with
the CHED rules and regulations.
1. What are the sections of the model curriculum in Tourism?

2. What is the difference between a deregulated school and an autonomous school?
3. Why is accreditation important to schools?
4. What is the rationale of the ladderized program?
5. What is a random-drug testing program? Why is it introduced in schools?
6. What is the rationale of the random-drug-testing program?
7. Give examples of sexual harassment taking place in a school.
8. What is the ETEEAP? How does it benefit the people?
9. What are the requisites for a school to increase its tuition and other fees?
10. For tuition fee increase purposes, what benchmark does the government
recommend?
11. What is the rationale of the accreditation process?
12. Enumerate the various accrediting agencies recognized by CHED.
13. What are the responsibilities of a Training Partner in an International Practicum
Training Program?
14. Enumerate the responsibilities of the school in an International Practicum Training
Program.
15. What are the requisites before an International Practicum Training Program to be
implemented?
16. Enumerate the ways in which sexual harassment can take place in the academe.
17. What is the general rule in admitting foreign students in Philippine colleges and
universities?
The Accidental Researcher

Prof. Ram Sevilla is a well-respected professor in a state
university where teachers are not paid very well unless they produce
research projects. Prof. Sevilla utilizes his students in Tourism to do
parts of his research projects in exchange for grades. He is noted for
his ability to churn up research papers quickly; hence, gets to travel
to many countries while delivering papers in conferences. Do you
agree with Prof. Sevilla’s style? Divide the class into two and debate
on the topic.
311
Morning Hug
Berni Rodriguez is a senior Tourism student having his
apprenticeship at a prestigious international airline. His adviser’s
attention was called by Mr. Andy Lopez, HR manager of the airline,
for the numerous counts of tardiness of Berni. After verifying with
Berni, the adviser found out that Mr. Lopez has a ritual every morning
where he gets to hug all the apprentices before starting work at 9:00
am. This is what Berni has been avoiding hence his frequent tardiness. Can Berni file a sexual
harassment case against Mr. Lopez? Write a 150-word essay to detail your answer.
Testimonials
Talk to some Tourism or Hospitality Management graduates and inquire about their
practicum or apprenticeship experiences. Share them in class.
RESEARCH PROJECT
Divide the class into 5 groups. Each group will research on one
school with a BS Tourism or BS Hotel and Restaurant Management
program or equivalent. Find out if the school has an apprenticeship tie-up
abroad wherein their students are allowed to conduct their practicum or
apprenticeship in a foreign country. Find out what is the procedure of the
school in deploying students for apprenticeship placements abroad. What
measures is the school undertaking to ensure quality training, safety of
the students and financial viability of the program? What are the legal
implications of these school policies?
312
Chapter 16 Formalities of Entry In and Exit
from the Philippines
“I love this country. Tropical climate, warm and hospitable people, affordable standard of living. I can
live here comfortably.”(David Batchelor, general manager, The Peninsula Hotel)
Case of the Overstaying Alien

Kim Jae Boon, is a 21-year-old Korean student enrolled in a school in
Manila. She is expecting to finish her Hotel and Restaurant Management
course within 4 years, the period granted by the Philippine government on
her student visa. On her final semester, Kim got very ill and was hospitalized
for 2 weeks. This situation forced her to drop her subjects in the university.
Her stay in the country would necessarily be extended in order to complete
her studies. Thus, she would probably finish her studies in October instead
of March. Kim failed to seek good advice from the agency that was taking
care of her visa requirements causing her visa to lapse. When she got better
in the summer and was about to enroll for the first semester of the next
school year, the registrar noted that her visa has lapsed and Kim is now
regarded as an overstaying alien. What are the possible remedies for Kim’s
situation? If she is unsuccessful in her bid for a visa renewal, can she be
deported back to South Korea? Discuss the importance of proper travel
documentation and the consequences of staying in a country without
proper documentation. Do you know of anyone who was deported because
of visa problems? Do you know of anyone who has been denied of a visa to
enter a particular country? What are the possible reasons for deportation?
What are the possible reasons for visa denial?
Learning Objectives
• Identify various government requirements for foreigners to enter the Philippines
• Explain the importance of a valid passport when traveling
• Enumerate the privileges of Filipinos covered by the Balikbayan program
• Discuss the Dual Citizenship Law
The entry and admission of foreigners into the Philippines are matters of privilege,
because every foreign state has absolute and exclusive power of government in its own territory.
Although entitled to all the rights and privileges of a friendly guest, they cannot claim the right
to enjoy privileges which by their nature belong exclusively to the host.
Unquestionably, every State has a fundamental right to the integrity of its territory and
the exclusive and peaceable possession of its dominions, which it may guard and defend by
all possible means against any attack. The international community leaves States at liberty
to fix the conditions under which foreigners should be allowed to enter their territory. These
conditions may be more or less convenient to foreigners, but they are a legitimate manifestation
of territorial power and not contrary to law. This chapter deals with the requirements of
foreigners, as well as Filipinos, for entry in and exit from Philippine territory.
313
Admission Requirements
The Law
“Section 10. Non-immigrants must present for admission into the Philippines an
unexpired passports or official documents in the nature of passports issued by the government
of the countries to which they owe allegiance or other travel documents showing their origins
and identity as prescribed by regulations, and valid passport visas granted by diplomatic or
consular officers, x x x.”1

Non-immigrants must present unexpired passports and valid visas prior to their
admission into the Philippines. The Philippine Immigration Act provides seven visa categories
for non-immigrants, namely:
(1) temporary visitor;
(2) transient;
(3) seaman;
(4) treaty trader or treaty investor;
(5) foreign government official;
(6) student; and
(7) prearranged employment.2
An alien is allowed only one immigration visa category at any given time.
Admission of Aliens Under Prearranged Employment

For aliens who wish to engage in gainful employment in the Philippines, prearranged
employment visas are secured from the Philippine consular office, upon authorization issued
by the Commissioner of Immigration. An applicant for a prearranged employment visa must
prove the following jurisdictional facts to the Board of Commissioners: (a) the nature of the
labor or service for which the visa is desired; (b) no person can be found in the Philippines
who is willing and competent to perform such labor or service; (c) the length of time of
employment; (d) the wages or compensation to be received; (e) the reasons why no other
person in the Philippines can be engaged for such labor or service; (f) certified copies of the
contract of employment; (g) the reasons why the admission of the applicant into the Philippines
shall be beneficial to the public interest; and (h) proof of his valid entry and admission in the
Philippines.
The Board of Commissioners shall also require the following documentary proof from
the applicant: (a) qualification of the applicant; (b) alien employment permit issued by the
Department of Labor and Employment; (c) in proper cases, a provisional permit to work or
special work permit issued by the Bureau of Immigration; (d) in certain cases, absence of
derogatory information against the applicant from any local or international law enforcement
agency; (e) financial capacity of the petitioning company to support and maintain the applicant
during his employment in the Philippines; (f) a written undertaking that the applicant shall not
participate in any partisan political activity for the duration of his stay in the Philippines, (g) a
written undertaking that the applicant shall use the prearranged employment visa exclusively;
(h) certified copies of the corporate registration papers at the Securities and Exchange
Commission; and (i) proof of payment of the income taxes of the alien and his employer.
1
The Philippine Immigration Act of 1940, C.A. 613, as amended.
2
Section 9, C.A. 613, as amended.
314
Admission under the Balikbayan Program
A Balikbayan shall mean a Filipino citizen who has been continuously out of the
Philippines for a period of at least one (1) year, a Filipino overseas worker, or a former Filipino
citizen and his family who had been naturalized in a foreign country and comes or returns to
the Philippines.3 Those bearing foreign passports, with the exception of restricted nationals,
shall be allowed, among others, visa-free entry to the Philippines for a period of one (1) year.
Philippine Immigration Policy on Non-Immigrant Chinese

Shifts in Philippine foreign policy towards China in recent years have resulted in
significant changes in immigration guidelines towards five (5) major classes of Chinese,
namely: (1) People’s Republic of China (PROC); (2) Special Administrative Region (SAR) of
Hong Kong-China; (3) SAR of Macau-China; (4) Certificate of Identity (C.I.) holders; and (5)
Republic of China (Taiwan-Taipe [Formosa]).
They are now allowed under: (a) temporary visitor or business visas with multiple entry
visas for up to six months.4 They may even be issued visas without prior authorization from
the Department of Foreign Affairs, provided, they submit the following requirements: (a) Duly
accomplished Visa Application Form; (b) Passport valid for six months beyond the period of
authorized stay in the Philippines; (c) Valid entry visa to the next port of destination or re-entry
to the country of origin or residence; (d) Confirmed return onward passage ticket; and (e) Such
other requirements as may be deemed necessary by the consular officer.5
Chinese are now allowed an initial stay of 59 days, whether for travel individually or in
groups.6
Philippine Immigration Policy on Indians

Temporary visitor visas are available to Indian nationals provided: (a) They apply for a
visa from their country of origin (i.e., India) or from their place of legal or permanent residence,
if they are no longer permanently residing in India; or (b) Those who have been previously
issued a temporary visitor visa may apply for a visa from any Philippine Embassy or Consulate
in a third country, if they have not been subsequently denied a visitor’s visa, blacklisted or
deported from the Philippines.7
Lifting Immigration Restrictions on South Africans

On October 8, 1993, the UN General Assembly lifted all economic sanctions imposed
against South Africa in the areas of trade, investment, finance, travel and transportation. Hence,
South Africans are no longer restricted aliens.8
Passport Requirements
A passport is defined as an official document of identity and nationality issued to a person
intending to travel or sojourn in foreign countries. It is the property of the government of the
issuing authority. It is not a private property of the person to whom it has been issued.9
3
4
E.O. No. 168 (April 11, 1994), Section 1.
5
Ibid., Section 2.
6
Foreign Service Circular No. 25-94 (31 January 1994).
7
Note Verbale No. 903730 dated 17 September 1990 between the Governments of India and the Republic of the Philippines (DFA Letter No.
31477 dated 9 October 1990 by Acting Secretary Manuel T. Yan).
8
Letter dated May 30, 1994 of the Department of Foreign Affairs to the Department of Justice.
9
Philippine Legal Encyclopedia, by Agaton Sibal, p. 699.
315
There are three types of passports, namely:
(a) Diplomatic passports – these are issued for persons imbued with diplomatic status or
are on diplomatic mission such as the President and former Presidents of the Republic
of the Philippines; the Vice-President and former Vice-Presidents of the Republic of the
Philippines; Senate President and Speaker of the House of Representatives; The Chief
Justice of the Supreme Court; The Cabinet Secretaries, Undersecretaries and Assistant
Secretaries of the Department of Foreign Affairs; Ambassadors, Foreign Service Officers
of all ranks in the career diplomatic service, attachés and members of their families.
(b) Official passports – are issued to all government officials and employees on official trip
abroad but who are not on a diplomatic mission or delegates to international or regional
conferences or has not been accorded diplomatic status such as the Undersecretaries
and Assistant Secretaries of the Cabinet other than the Department of Foreign Affairs;
Associate Justices and other members of the Judiciary.
(c) Regular Passports – are issued to private persons who are not eligible to diplomatic or
official passports, including government officials or employees going abroad for pleasure
or other personal reasons.10
The Passport/Certificate of Identity/Document of Identity or Travel Document of an
alien seeking entry and admission into the Philippines must be valid for at least six months.
Aliens allowed entry and admission into the Philippines must always have their
passports in their possession. This negates allegations of being an undocumented alien. In the
alternative, aliens may carry faithful reproductions/photocopies of their passports indicating
their names and personal circumstances, the date of issuance and expiry of their passport,
the latest admission stamp and visa, if any. This facilitates their embassy in the issuance of
replacement passports in case of the loss of the original.
Aliens are advised to maintain certified or authenticated copies of their passports or travel
documents. These copies may facilitate the releases of new passports or travel documents by
the embassy or agency concerned in case of loss of the originals. The copies, however, must
include the passport or travel documents cover page, the biographical pages, the latest visa (if
non-restricted) and admission category.
A non-immigrant alien who loses his/her passport or travel document during his stay in
the Philippines must immediately report the loss to the nearest police authority and obtain a
copy of the report of such loss. A copy of this report shall be furnished the nearest embassy, or
consulate of the alien in the Philippines. A copy of the report shall also be furnished the Bureau
of Immigration, for record purposes.
Philippine Passport
In the Philippines, a passport is a document issued by the Department of Foreign Affairs
certifying the Philippine citizenship of the holder and is used for travel purposes.11
On the other hand, a travel document is a certification containing the description and
other personal circumstances of the bearer, issued for direct travel to or from the Philippines
and normally valid for short periods or for a particular trip. It is issued only to persons whose
citizenship is doubtful and who fall under the following categories:
a) A Filipino citizen returning to the Philippines who for one reason or another has lost
his/her passport or cannot be issued a regular passport;
10
11
Foreign Service Code, Section 136; 1987 Revised Administrative Code.
316
b) A Filipino citizen being sent back to the Philippines;
c) An alien spouse of a Filipino and their dependents who have not yet been naturalized
as a Filipino and who are traveling to the Philippines or is a permanent resident of the
Philippines;
d) Aliens permanently residing in the Philippines who are not able to obtain foreign passport
and other travel documents;
e) A stateless person who is likewise a permanent resident, or a refugee granted such status
or asylum in the Philippines.12
While a Philippine passport may be sufficient proof of citizenship, caution must be
exercised against concluding Philippine citizenship solely on the basis of the presentation of
a Philippine passport at an authorized port of entry. Persons claiming Philippine citizenship
may be denied entry by immigration authorities upon: (1) A failure of the claimant to establish
his Philippine citizenship; (2) A substantial finding of a fraudulent claim or misrepresentation
of Philippine citizenship; or (3) A doubtful claim of Philippine citizenship.
In case of loss, the same should be immediately reported to the Department (of Foreign
Affairs) or the (Philippine Foreign) Post. The holder of such passport shall submit to the
Department or Post an affidavit stating in detail the circumstances of such loss or destruction.
The holder of such a passport who is in the Philippines, should also furnish the National
Bureau of Investigation and the Bureau of Immigration copies of the affidavit. For those who
are abroad, copies of the affidavit will be forwarded by the Post to the Department’s Office
of Consular Services, and shall transmit a copy of the affidavit to the National Bureau of
Investigation and Bureau of Immigration. The transmittal of the affidavit shall be accompanied
by a request for the confiscation of the said passport if found, and to investigate or detain if
necessary, the person attempting to use or has used the passport. All Posts will be informed
of the lost passport, including pertinent information on the passport and the circumstances of
loss.
No new passport shall be issued until satisfactory proof is shown that the passport was
actually lost and after the lapse of fifteen (15) days following the date of submission of the
affidavit of loss. Provided, however, That in the case of a passport reported lost by a Filipino
traveling abroad, the Consulate may waive the fifteen (15) days requirement if the loss has
been proven to the Consular Official’s satisfaction: Provided, further, That in case the Filipino
who reported a loss of passport is returning to the Philippines, the holder may be issued a
Travel Document: Provided, finally, That in the event the lost passport is found, it should be
destroyed if a replacement has been issued, or mailed to the holder who was issued a Travel
Document.
In all cases, the head of Office of Consular Services or the head of the Consular Section
of an Embassy or the Consul General of a consulate may, upon his discretion, waive the fifteen
(15)-day waiting period.13
Fantasy Passports/Camouflage Passports

Fantasy Passports are not valid travel documents. They are usually issued by a private
individual or organization, usually purporting to be from a fictitious or invented country
(Fantasy Land) or authority, a country that once existed but no longer exists, or a self-appointed
political group.
12
13
317
The following documents are Fantasy Passports: (1) Anishinabek (Native American), (2)
State of Antigua, (3) Association d’Entraide Humanitaire Internationale, (4) Carolingian Bernican
States and Dynasty, (5) Centre d’ Information Corps Diplomatique et Consulaire, (6) Kingdom
of Colonia, (7) Conch Republic, (8) Confederate States of America, (9) Confederation Mondiale
des Correspondants Diplomatiques, (10) Corps Diplomatiques of the United States of America,
(11) Republic of Corterra, (12) Department of Foreign Affairs Silver Card, (13) Ecumenical
World Patriarchate, (14) Empire Washitaw de Dugdahmoundyah, (15) Haudenosaunee, (16)
Hutt River Principality or Hutt River Province, (17) International Biographical Association,
(18) International Humanitarian Society, (19) International Parliament for Safety and Peace,
(20) International Society for Krishna Consciousness, (21) International Solidarity Center,
(22) Iroquois Nation, (23) Khalistan, (24) Knights of Malta, (25) Republic of Kenouwe, (26)
Maori Kingdom of Tetiti, (27) Dominion of Melchizedek, (28) Nation of Israel, (29) North
American Indian Nation Government, (30) NSK-Neue Slowenische Kunst (New Slovanian
Art), (31) Oceanus, (32) Organization of African Unity, (33) Paisos Catalans, (34) Principality of
Palmerya, (35) Parliamentary, (36) Patriarchate of Antioch, (37) Planetary, (38) Polyaesiea, (39)
Roma, (40) Romano, (41) Romano Jumako, (42) Republic of San Cristobal, (43) Principality of
Sealand, (44) Service d’Information, (45) Symbolic European, (46) Texas, (47) Trust Territory
of the Pacific Islands, (48) United Nations Office, Inc. (49) Free and Independent State of Vera
Cruz, (50) Principality of Vikingland, (51) World Parliament Confederation of Chivalry, (52)
World Service Authority.14
Camouflage passports are not legitimate travel documents. They are deceptive as they
purport to be legitimate travel documents from countries which once existed or which have
changed their names. The names of the camouflage passports generally have some basis in
history or geography, if not in international recognition of their statehood.
The following documents are camouflage passports: (1) British Guiana, (2) British
Honduras, (3) British West Indies, (4) Burma, (5) Ceylon, (6) Eastern Samoa, (7) Netherlands
East Indies, (8) Netherlands Antilles, (9) Newfoundland and Labrador, (10) New Grenada, (11)
New Hebrides, (12) Republic of Rhodesia, (13) South Vietnam, (14) Soviet Union, (15) Spanish
Guinea, (16) Upper Volta and (17) Zanzibar.15
Visa Requirements
A visa is a written endorsement made on a travel document or passport by a consular
official denoting that the visa application has been properly examined and that the bearer is
permitted to proceed to the country of his destination.16 The visa thus issued is not a guarantee
that the holder will be automatically admitted into the country, because the admission of
foreign nationals into the Philippines is a function of the immigration authorities at the port
of entry.
The nationals from the following countries are required to secure visas prior to entry into
the Philippines:
1. Albania 15. Georgia 29. Pakistan
2. Afghanistan 16. India 30. People’s Republic
of China
3. Armenia 17. Iran 31. Russian Federation
4. Azerbaijan 18. Iraq 32. Slovenia
5. Belarus 19. Jordan 33. Sudan
14
Taken from U.S. Department of State, Bureau of Consular Affairs, Office of Fraud Prevention Program, July 1998.
15
Ibid.
16
Foreign Service Code, Section 136.
318
6. Belize 20. Kazakhstan 34. Syria
7. Bosnia- 21. Kyrgyzstan 35. Tajikistan
Herzegovina
8. Cambodia 22. Laos 36. Tonga
9. Croatia 23. Latvia 37. Turkmenistan
10. Cuba 24. Lebanon 38. Ukraine
11. Egypt 25. Libya 39. Uzbekistan
12. Estonia 26. Lithuania 40. Fed. Rep. of
Yugoslavia
13. Macedonia 27. Modova (Serbia/Montenegro)
14. Nigeria 28. North Korea
Entry visas shall also be required of the following: (1) Palestinians; (2) Holders of Taiwan
passports; (3) Holders of Hong Kong Document of Identity (DI) and Certificate of Identity (CI);
(4) Holders of Malaysian Certificates of Identity (CI); and (5) Stateless persons.
Holders of HK-UK or Macau-Portuguese passports are allowed to enter the Philippines
with a visa for a stay not exceeding seven (7) days. Temporary visitors from Sierra Leone are
required to secure entry visas to the Philippines.17 Holders of Hong Kong Special Administrative
Region (SAR) passports, British National Overseas passports, Macau-Portuguese passports,
and Macau SAR passports are allowed to enter the Philippines without a visa for a stay not
exceeding seven (7) days.18
Nationals from countries not listed above shall be allowed to enter the Philippines without
visas nor a stay not exceeding 21 days, provided they are holders of passports that are valid
for at least 6 months and valid tickets for return journey to the country of origin or to the next
country of destination.
In addition, nationals from countries not listed above may also be allowed to enter the
Philippines for a period of 59 days, provided, they have valid visas under Section 9(a) issued
by the Philippine consulate from the port of departure.
Treaty Trader or Treaty Investor

A treaty trader is a foreigner who is entering the Philippines solely to carry on substantial
trade or commerce between the Philippines and the country of which he is a national pursuant
to an existing treaty of commerce and navigation.
A treaty investor is a foreigner who seeks admission for the purpose of developing and
directing the operations of an enterprise in the Philippines where (a) he has invested or is
actively in the process of investing a substantial amount of capital or where (b) his employer
has invested or is actively in the process of investing a substantial amount of capital, provided
that such employer is a foreign person or organization of the same nationality as the applicant
and that the applicant is an overall supervisor or executive.
An applicant for treaty investor visa must establish, among others that (a) he seeks to
enter the Philippines solely for the purpose of developing and directing the operations of an
enterprise in the Philippines; (b) he seeks to enter the Philippines as a spouse or child of an
alien; (c) he is not applying for a non-immigrant visa in an effort to evade the quota or other
restrictions which are applicable to immigrants; (d) he intends in good faith, and will be able to
17
DFA Advisory of 19 January 2000.
18
Ibid.
319
depart from the Philippines upon the termination of his status; (e) the enterprise is one which
actually exists or is in active process of formation, and is not a fictitious paper organization.
In addition to a written request for the issuance of visa, the alien shall submit proof
that: (i) he has not been convicted of any crime, (ii) he has never been ordered deported from
the Philippines, (iii) he is not afflicted with any loathsome, contagious or dangerous disease,
(iv) the name of his guarantor in the Philippines, and (v) and accomplished application form
supplied by the Bureau of Immigration shall be required.
Upon proper application, a duly approved application under Section 9(d) (Treaty Trade/
Investor) shall be for one (1) year.
The following countries have agreements for the promotion and protection of investments
with the Philippines: (1) Australia; (2) Bangladesh; (3) Belgo-Luxemburg; (4) Canada; (5)
Chile; (6) China; (7) Czech Republic; (8) Denmark, (9) Finland; (10) France; (11) Germany;
(12) Greece; (13) India; (14) Iran; (15) Italy; (16) Korea; (17) Kuwait; (18) Laos; (19) Myanmar,
(20) Netherlands, (21) Pakistan, (22) Romania, (23) Russian Federation, (24) Saudi Arabia, (25)
Spain, (26) Swiss Confederation, (27) Taiwan, (28), Thailand, (29) Turkey, (30) United Kingdom,
(31) United States, and (32) Vietnam.
As of now, only German, Japanese and American nationals who can carry on substantial
trade or have made substantial investment in the Philippines are eligible for this visa.
Subic Special Investors Visa under R.A. 7227

Foreign nationals, not categorized as “restricted as determined by the Department of
Foreign Affairs, visiting the Subic Freeport Zone for business and/or tourism purposes may be
allowed to enter all ports of entry of the Zone and stay therein without a visa for a maximum
period of 14 days: Provided, That upon arrival, they present their passports, Certificates of
Identity or travel documents valid for at least six months beyond the intended stay in the Zone
and confirmed onward Flight tickets.19
Foreign nationals who enter the Zone shall be subject to the following restrictions:
a) they shall leave or depart from the Philippines only through the Subic Bay International
Airport.
b) they shall not be allowed outside the Secured Area of the Zone, except to visit areas
outside the Secured Area but within the Zone, Provided that they are escorted by BI
officers and/or Subic Bay Metropolitan Authority (SBMA) officers duly deputized by the BI.
c) for those who intend to visit areas outside the Zone and/or extend their stay in the Zone
for any reason beyond the 14-day period must secure a visa waiver from the Department
of Foreign Affairs, provided that upon securing such visa waiver, the restrictions as
provided herein shall no longer be applicable.20
Special Economic Zone Visa under R.A. 7916

Any investor within the ECOZONE, whose initial investment shall not be less than
US$150,000.00, his/her spouses and dependent children under 21 years of age shall be granted
permanent resident status within the ECOZONE. They shall have the freedom of ingress and
egress to and from the ECOZONE without any need of special authorization from the Bureau
of Immigration.21
19
Executive Order No. 271 (Series of 1995), Section 1.
20
Ibid., Section 2.
21
R.A. No. 7916, The Special Economic Zone Act of 1995, Section 10.
320
The PEZA shall issue working visas renewable every two years to foreign executives
and other aliens, possessing highly technical skills that no Filipino within the ECOZONE
possesses, as certified by the Department of Labor and Employment. The names of aliens
granted permanent resident status and working visas by the PEZA shall be reported to the
Bureau of Immigration within 30 days after the issuance thereof.22 Employment of foreign
nationals hired by ECOZONE enterprises in a supervisory, technical or advisory capacity shall
not exceed five percent (5%) of its workforce without the express authorization of the Secretary
of Labor and Employment.23
“Special economic zones” 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, export-processing zones,
free trade zones and tourist/recreational centers.24
Special Clark Economic Zone Visas under Executive Order No. 80

(s. of 1993) and Executive Order No. 80 (s. of 1993)
Foreign nationals, not categorized as restricted as determined by the Department of
Foreign Affairs, visiting the Clark EcoZone for business and/or tourism purposes may be
allowed to enter all ports of entry of the Clark EcoZone and stay therein without visa for
a maximum period of 14 days; provided, that upon arrival, they present their passports,
certificates of authority or travel documents, valid for at least 6 months beyond the intended
stay in the Clark EcoZone and confirmed onward flight tickets.25
Aliens admitted in the Clark EcoZone may be permitted to visit areas within the Clark
EcoZone but outside the Main Zone, such as the Sub-Zone, for business or tourism purposes,
subject to the following conditions:
(a) Insofar as practicable, the Bureau of Immigration (BI) shall be duly informed by the alien
or his representative, at least 24 hours in advance, of the intended visit. Whenever such
24-hour is not possible, the Clark Development Corporation (CDC) shall be informed in
writing;
(b) The alien concerned shall be escorted by authorized BI personnel;
(c) At least one BI Officer shall be detailed to escort every group of not more than 10 visiting
aliens.26
An alien admitted in the Zone may extend his temporary stay beyond the 14-day limit to
visit areas outside the Zone; provided, however, that the alien shall secure a visa waiver from
the BI, upon written endorsement from the CDC.27
Cagayan Economic Zone and Free Port Visa under R.A. 7922
Any foreign investor who establishes a business enterprise within the Zone and who
maintains a capital investment of not less than $150,000.00 shall be granted, along within his or
her spouse, dependents, and unmarried children below 21 years of age, a permanent resident
22
Ibid.
23
Ibid., Section 40.
24
Ibid., Section 4 (a).
25
Executive Order No. 464. (s. of 1998), Sec. 1.
26
CDC – BI Memorandum of Agreement (s. of 1999), Section 2 (c).
27
Ibid., Section 2(d).
321
status within the Zone.28 Such foreign investor and his/her spouse, dependents, and unmarried
children below the age of 21 years, shall have the freedom of ingress and egress to and from the
Zone without need of any special authorization from the Bureau of Immigration.
Likewise, the Cagayan Economic Zone Authority (CEZA) shall issue working visas
renewable every two years to foreign executives and foreign technicians with highly specialized
skills that no Filipino possesses, as certified by the Department of Labor and Employment.
The names of foreigners granted permanent resident status and working visas by the
CEZA shall be reported to the BI within 30 days from such grant.
The foregoing is without prejudice to a foreigner acquiring permanent resident status in
the Philippines in accordance with applicable immigration, retirement and other related laws.29
Investor in Tourist-Related Project or Tourist Establishment Under Executive Order No. 63

The investor, his wife, and unmarried minor children shall be permitted to enter and
reside in the Philippines as special investor residents for as long as the investment of US$50,000
subsists. Provided that (1) they have not been convicted of a crime involving moral turpitude,
(2) they are not afflicted with any loathsome, contagious or dangerous disease, and (3) they
have not been institutionalized for any mental disorder or disability; and Provided further
that said investor visits the country at least twice a year and stays in the country at least 7
days for each visit. The said investor, his spouses and unmarried children shall be issued a
multiple entry special investors resident visa to enter and leave the Philippines without further
documentary requirements other than valid passports or other travel documents in the nature
of passports. They shall be exempted from payment of alien immigration and registration fees
and from securing alien certificates of registration.30
Should the investor withdraw his investment from the Philippines or transfer his
investment to any other area without the prior approval of the Committee created therein, the
special investors residents visas issued to him, his wife and unmarried minor children may be
revoked by the Philippine Government. For this purpose, he shall submit an annual report for
the purpose of proving that he has maintained his investment in the country. 31

Case: On May 7, 1999 at about 11 p.m., the National Bureau of Investigation (NBI) in coordination
with the Department of Labor and Employment (DOLE) and the Bureau of Immigration (BI)
conducted simultaneous raids at the Royal Flame Club, Space World and Narcissus Club which
are all located in Ermita, Manila as a result of which 20 female Chinese nationals were caught
“in the act of entertaining customers and guests.” A charge sheet was filed on May 14, 1999 against
these 20 female Chinese for violation of Section 37 (a) (7) of the Philippine Immigration Act of 1940
(violation of any limitations under which they were admitted as non-immigrants).
Chinese National Ma Jing was one of the 20 apprehended Chinese. It appears that she
is not really an undocumented alien as she has a valid PROC passport No. 1437777 and Visa
No. 1201 issued by the Philippine Embassy on March 18, 1999. Her stay in the Philippines has
been duly extended up to June 30, 1999 under O.R. No. M 7922945. She was not notified of the
charges against her nor was she afforded due process. No commitment order was issued by the
Commissioner of Immigration or any competent authority to justify her continued detention.
Discuss the validity of the arrest and detention of Ma Jing.
28
29
R.A. No. 7922, Section 3.
30
Executive Order 63, Section 2 (a).
31
Executive Order 63, Section 3.
322
Legal Opinion: The detention and arrest of Ma Jing is illegal. Accusation is not synonymous
with guilt. The strongest suspicion must not be permitted to sway judgment. The illegal arrest
of Ma Jing without warrant of arrest or seizure on 07 May 1999 and her arbitrary detention is
not remedied by the supposed filing in a Charge Sheet which was filed only on 14 May 1999.
Ma Jing had been detained without any valid charge from 07 May 1999 to 14 May 1999. The
filing of the Charge Sheet did not cure the illegal detention of Ma Jing.32
Additional Requirements Prior to Entry

For non-immigrants, a valid ticket for a return journey to the country of origin or to
the next country of destination is required for presentation. Certificates of Residence must be
secured by the following categories of non-immigrants from the Bureau of Immigration: (a)
temporary visitors, (b) students; and (c) prearranged employment.33
Foreigners entering as non-immigrants may also be required to register in accordance
with the provisions of the Alien Registration Act as follows:
(a) Any alien who is in the Philippines at the time of the approval of the Alien Registration
Act and who is 14 years of age or more and will remain in the Philippines for 30 days or
longer;
(b) any alien who enters the Philippines after approval of the Alien Registration Act of
1950 and who is 14 years of age or more and who will remain in the Philippines for 30
days or longer, Provided that this provision shall not apply to an alien admitted into the
Philippines for 60 days or longer.
(c) Every parent or legal guardian of any alien child who is in the Philippines at the time of
the approval of the Alien Registration Act of 1950 and who is below 14 years of age and
will remain in the Philippines for 30 days or longer.
(d) Every parent or legal guardian of any alien child who enters the Philippines after the
approval of said Act and who is below 14 years of age and who will remain in the
Philippines for 30 days or longer. Provided however, that this provision shall not apply to
an alien child admitted into the Philippines as a temporary visitor or transient, unless said
child will remain in the Philippines for 60 days or more.
(e) Every parent or legal guardian of any alien child born in the Philippines.
(f) Whenever an alien attains his 14th birthday in the Philippines.34
Lastly, it is imperative for government medical officers, immigration officers and the
board of special inquiry to conduct a sufficient medical examination of all aliens arriving in
the Philippines. Such examination is focused on physical and mental health, or may extend
on the inquiry on the character of the arriving alien. Any alien who fails to meet the health
and character standards established by immigration laws, rules and regulations for entry and
admission shall be excluded under Section 29 of the Immigration Law.35
Extension of Stay
In the case of non immigrant visa holders whose stay in the Philippines will exceed 59
days, the consular officer shall advise them that they should secure extensions of stay and
register with the Bureau of Immigration, and pay the necessary immigration fees.36
32
Commissioner Rufus Rodriguez vs. Judge Rodolfo R. Bonifacio, A.M. No. RTJ-99-1510, November 6, 2000.
33
Instructions for Accomplishing the Master Card for Registered Aliens, Item 8 (November 2, 1955).
34
Article I, Alien Registration Act.
35
Section 28, Commonwealth Act No. 613, Philippine Immigration Act of 1940.
36
DFA Regulations (Foreign Service Institute, September 1995), Section 752.
323
The entry and admission of an alien are matters of privilege37 and there is no ministerial
duty on the part of the Commissioner of Immigration to extend the stay of a temporary visitor.38
The power of the Commissioner of Immigration to extend the stay of a temporary visitor
is plenary. He is vested with the power and authority to grant such extension.
Therefore, the Secretary of Foreign Affairs is not authorized to admit into the Philippines
aliens for temporary stay, or to extend the temporary stay of alien visitors in this country, as the
law vests such power in the Commissioner of Immigration.39

Case: Chang Yung Fa was admitted to the Philippines on prearranged employment as
immigrant under Section 13(a) of the Philippine Immigration Act of 1940, with the express
condition that his stay shall be limited to two years and should he fail to comply with said
condition after the expiration of that period, he shall be subject to deportation. Chang Yung
Fa consented to such condition. Is such condition within the power of the Commissioner of
Immigration to impose?
Legal Opinion: Yes, such condition is within the power of the Commissioner of Immigration to
impose. The power of the Commissioner of Immigration under Section 20 of Commonwealth
Act No. 613 should include the authority to impose such limitation, for if the Commissioner
has the power to deny completely the admission of an alien who seeks to enter this country on
a prearranged employment by withholding the issuance of an immigration visa on the ground
of public interest, with more reason can he impose a condition which is less onerous such
as limiting the duration of his stay in the country. Having consented to his admission under
such condition, Chang Yung Fa cannot now be heard to complain that the Commissioner of
Immigration acted in excess of his power in imposing that limitation. Chang Yung Fa is now
under estoppel from disputing such power.40
Exclusion of Foreigners
The Law
Section 29. (a) The following classes of aliens shall be excluded from entry into the
Philippines.
1. Idiots or insane persons and persons who have been insane;
2. Persons afflicted with a loathsome or dangerous and contagious disease, as epilepsy;
3. Persons who have been convicted of a crime involving moral turpitude;
4. Prostitute, or procurers, or persons coming for any immoral purpose;
5. Persons likely to become public charge;
6. Paupers, vagrants, and beggars;
7. Persons who practice polygamy or who believe in or advocate the practice of polygamy;
8. Persons who believe in or advocate the overthrow by force and violence of the
Government of the Philippines, or of constituted law and authority or who disbelieve in
or are opposed to organized government, or who advocate the assault or assassination
of public officials because of their office, or who advocate or teach principles, theories, or
37
Ngo Chiao Lim vs. Commissioner on Immigration, 16 SCRA 317.
38
Guam vs. Commissioner on Immigration, 15 SCRA 451.
39
Ang Liong vs. Commissioner of Immigration, 51 O.G. 2893.
40
Chang Yung Fa et al. vs. Hon. Roberto A. Gianzon, G.R. No. L-7785, November 25, 1955.
324
ideas contrary to the Constitution of the Philippines or advocate or teach the unlawful
destruction of property, or who are members of or affiliated with any organization
entertaining or teaching such doctrines;
9. Persons over fifteen years of age, physically capable of reading, who cannot read printed
matter in ordinary use in a language selected by the alien, x x x;
10. Persons who are members of a family accompanying an excluded alien, unless in the opinion
of the Commissioner of Immigration no hardship would result from their admission;
11. Persons accompanying an excluded person who is helpless from mental or physical
disability or infancy, when the protection or guardianship of such accompanying
person or persons is required by the excluded person, as shall be determined by the
Commissioner of Immigration, if otherwise admissible;
12. Children under fifteen years of age, unaccompanied by a parent, except that any such
children may be admitted in the discretion of the Commissioner of Immigration, if
otherwise admissible;
13. Stowaways, except that any stowaway may be admitted in the discretion of the
Commissioner of Immigration, if otherwise admissible;
14. Persons coming to perform unskilled manual labor in pursuance of a promise or offer of
employment, express or implied, but this provision shall not apply to persons bearing
passport visas authorized by section twenty of this Act; [As amended by Republic No.
503, Sec.10]
15. Persons who have been excluded or deported from the Philippines, but this provision
may be waived in the discretion of the Commissioner of Immigration: Provided, however,
that the Commissioner of Immigration shall not exercise his discretion in favor of
aliens excluded or deported on the ground of conviction for any crime involving moral
turpitude or for any crime penalized under sections forty-five and forty-six of this
Act or on the ground of having engaged in hoarding, black-marketing or profiteering
unless such aliens have previously resided in the Philippines immediately before their
exclusion or deportation for a period of ten years or more or are married to a native
Filipino woman; [As amended by Republic Act No. 503, Sec. 10]
16. Persons who have been removed from the Philippines at the expense of the Government
of the Philippines, as indigent aliens, under the provisions of section forty-three of this
Act, and who have not obtained the consent of the Board of Commissioners to apply
for readmission; and
17. Persons not properly documented for admission as may be required under the provisions
of this Act.41

International law affords sovereign states absolute discretion to determine whether or
not an alien is disqualified for entry into its territory. As a general rule, an alien’s fitness for
entry depends on whether he or she poses a risk to the general welfare. If an alien’s entry will
threaten national security, public safety, public health and public morals, then the state can
declare such alien as being ineligible for entry.
Exclusion is defined as the authority to deny entry to aliens who are barred by immigration
laws, rules and regulations. The purpose of exclusion is to ensure that aliens who are allowed
entry into the Philippines do not pose as threats to any of the three major categories of exclusion
grounds, namely: (1) public safety; (2) public health; (3) national security.
41
Commonwealth Act No. 613, Philippine Immigration Act of 1940.
325
As a general rule, an order of exclusion is final and executory, and bars the alien from
entry or admission into the Philippines unless waived by the Commissioner of Immigration
under Section 29 of the Philippine Immigration Act of 1940. In all cases, the burden of proof
is upon the alien to establish under oath before the immigration officer or the board of special
inquiry that he does not fall in any of the categories of excludable aliens under Section 29.42

Case: The three petitioners Dolores, Felix and Manuel, all surnamed Neria, arrived in Manila
from Hong Kong on board Cathay Pacific Airways on July 9, 1961. The matter of the admission
of Dolores, Felix and Manuel Neria was referred to the Board of Special Inquiry No. 1 which, on
August 2, 1961, after investigation, found Dolores Neria to be a Filipino citizen and Felix and
Manuel Neria to be her illegitimate minor children by a Chinese national, Gan Chong Bing, and
accordingly voted to admit them. Pursuant to Section 27(b) 1 of the Philippine Immigration Act
of 1940, the decision admitting Dolores, Felix and Manuel Neria was forwarded for review to
the Board of Immigration Commissioners. There was no evidence of any hearing by the Board
of Commissioners. However, the identification certificates issued to Dolores, Manuel, and Felix
Neria on September 1, 1961 explicitly and uniformly recite that they had been admitted as
“citizens of the Philippines as per Decision of the Board of Special Inquiry dated August 2, 1961
duly affirmed by the majority members of the Board of Commissioners.”
On August 8, 1962 (or a period of one-year from the Decision of the Board of Commissioners
has lapsed) a new Board of Immigration Commissioners reviewed the proceedings of the board
of special inquiry with respect to Dolores, Felix and Manuel Neria and, finding that they have
not “satisfactorily established their claim to Philippine citizenship,” ordered them excluded
“as aliens not properly documented for admission pursuant to the provisions of Section 29(a)
(17) of the Philippine Immigration Act of 1940, and returned to the port where they came or to
the country of which they are nationals.” On July 23, 1965 the Commissioner of Immigration
issued a warrant of exclusion under Section 27 (b) of the Philippine Immigration Act of 1940
for the apprehension and eventual deportation of the petitioners.
Discuss the validity of the issuance of the warrant of exclusion by the Commissioner of
Immigration against Petitioners Neria.
Legal Opinion: Such warrant of exclusion is null and void. It has been ruled that decisions
of the board of special inquiry becomes final if it is not appealed to, reviewed or reversed by
the Board of Commissioners within one (1) year from its promulgation.43 Since the Board of
Commissioners promulgated a new decision only after a period of 1 year has lapsed, it is but
proper to commence deportation proceedings under Section 37 of the Philippine Immigration
Act of 1940. Accordingly, no warrant of arrest should be issued by immigration authorities
before a final order of deportation is made. For until it is established that an alien lawfully
admitted gained entry into the country through illegal means and his expulsion is finally
decreed, his arrest cannot be ordered. The issuance of warrants of arrest by the Commissioner
of Immigration, solely for purposes of investigation and before a final order of deportation is
issued, conflicts with Article III Bill of Rights of our Constitution providing the rights of people
to be secure in their persons against unreasonable searches and seizures.44
42
Section 30, Commonwealth Act No. 613, Philippine Immigration Act of 1940.
43
Dayata vs. de la Cruz, G.R. No. L-8775, May 30, 1956.
44
Dolores Neria et al. vs. Martiniano P. Vivo, G.R. No. L-26611-12, September 30, 1969.
326
Deportation of Foreigners
The Law
Section 37. (a) The following aliens shall be arrested upon the warrant of the
Commissioner of Immigration or of any other officer designated by him for the purpose and
deported upon the warrant of the Commissioner of Immigration after a determination by the
Board of Commissioners of the existence of the grounds for deportation as charges against
the alien.
1. Any alien who enters the Philippines after the effective date of this Act by means of false
and misleading statements or without inspection and admission by the immigration
authorities at a designated port of entry or at any place other than at a designated port
of entry; [As amended by Republic Act No. 503, Sec. 13]
2. Any alien who enters the Philippines after the effective date of this Act, who was not
lawfully admissible at the time of entry;
3. Any alien who, after the effective date of this Act, is convicted in the Philippines
and sentenced for a term of one year or more for a crime involving moral turpitude
committed within five years after his entry to the Philippines, or who, at any time after
such entry, is so convicted and sentenced more than once;
4. Any alien who is convicted and sentenced for violation of the law governing prohibited
drugs; [As amended by Republic Act No. 503, Sec. 13]
5. Any alien who practices prostitution or is an inmate of a house of prostitution or is
connected with the management of a house of prostitution, or is a procurer;
6. Any alien who becomes a public charge within five years after entry from causes not
affirmatively shown to have arisen subsequent to entry;
7. Any alien who remains in the Philippines in violation of any limitation or condition
under which he was admitted as a non-immigrant;
8. Any alien who believes in, advises, advocates or teaches the overthrow by force and
violence of the Government of the Philippines, or of constituted law and authority or
who disbelieves in or is opposed to organized government, or who advises, advocates
or teaches the assault or assassination of public officials because of their office, or who
advises, advocates, or teaches the unlawful destruction of property, or who is a member
of or affiliated with any organization entertaining, advocating or teaching such
doctrines, or who in any manner whatsoever lends assistance, financial or otherwise,
to the dissemination of such doctrines;
9. Any alien who commits any of the acts described in sections forty-five of this Act,
independent of criminal action which may be brought against him: Provided, that in the
case of alien who, for any reason, is convicted and sentenced to suffer both imprisonment
and deportation, said alien shall first serve the entire period of his imprisonment before
he is actually deported: Provided, however, that the imprisonment may be waived by
the Commissioner of Immigration with the consent of the Department Head, and upon
payment by the alien concerned of such amount as the Commissioner may fix and
approved by the Department Head; [Paragraph added pursuant to Republic Act No.
144, Sec. 3]
10. Any alien who, at any time within five years after entry, shall have been convicted
of violating the provisions of the Philippine Commonwealth Act Numbered Six
hundred and fifty-three, otherwise known as the Philippine Alien Registration Act of
1941**(now Alien Registration Act of 1950, Republic Act No. 562, as amended) or
who, at any time after entry, shall have been convicted more than once of violating the
provisions of the same Act; [Added pursuant to Republic Act No. 503, Sec. 13]
327
11. Any alien who engages in profiteering, hoarding, or black-marketing, independent of
any criminal action which may be brought against him; [Added pursuant to Republic
Act No. 503, Sec. 13]
12. Any alien who is convicted of any offense penalized under Commonwealth Act
Numbered Four hundred and seventy-three, otherwise known as the Revised
Naturalization Laws of the Philippines, or any law relating to acquisition of Philippine
citizenship; [Added pursuant to Republic Act No. 503, Sec. 13]
13. Any alien who defrauds his creditor by absconding or alienating properties to prevent them
from being attached or executed. [Added pursuant to Republic Act No. 503, Sec. 13]45

The above charges are grounds for deportation under the Philippine Immigration Act.
Deportation is the expulsion of a foreigner from the territory of a State. It contemplates
a foreigner who initially gained legal entry, admission or residence in a country but whose
presence therein has become untenable because of some serious infractions of the municipal
law of such country.
The right of the state to admit aliens includes the right to expel them. The right is absolute
and unqualified. The power to deport aliens is an attribute of sovereignty, and is based on the
accepted maxim of international law that every sovereign nation has the inherent power to
forbid the entrance of foreigners within its dominions.46
Deportation of foreigners may be effected in two ways: (1) by order of the President, after
due investigation, pursuant to the old 1917 Administrative Code, Section 69; and (2) through
the Commissioner of Immigration upon recommendation by the Board of Commissioners
under the Philippine Immigration Act of 1940, Section 37 (a).47
In our jurisdiction, the power to deport lies with the President of the Philippines or
through its authorized agent (i.e., Commissioner of Immigration). The power to deport is
plenary in nature and is free from any interference on the part of judicial power.
No alien shall be deported without being informed of the specific grounds for
deportation nor without being given a hearing under rules of procedure to be prescribed by
the Commissioner of Immigration. In deportation proceeding involving the entry of an alien
the burden of proof shall be upon the alien to show that he entered the Philippines lawfully,
and the time, place, and manner of such entry, and for this purpose he shall be entitled to a
statement of the facts in connection with his arrival as shown by any record in the custody of
the Bureau of Immigration.48

Case: Petitioners Andrew Harvey and John Sherman, 52 and 72 years, respectively, are both
American nationals residing in Pagsanjan, Laguna, while Adriaan Van Elshout, 58 years old, is
a Dutch citizen also residing in Pagsanjan, Laguna.
45
46
Morano vs. Vivo, 20 SCRA 562.
47
Go Tek v. Deportation Board, L-23846, 79 SCRA 17, September 9, 1977.
48
Section 37 (c) and (d), Commonwealth Act No. 613, Philippine Immigration Act of 1940.
328
The case stems from the apprehension of petitioners on 27 February 1988 from their
respective residences by agents of the Commission on Immigration and Deportation (CID)
by virtue of Mission Orders issued by Commissioner Miriam Defensor-Santiago of the CID.
Petitioners were among the twenty-two (22) suspected alien pedophiles who were apprehended
after three months of close surveillance by CID agents in Pagsanjan, Laguna. Seized during
petitioners’ apprehension were rolls of photo negatives and photos of the suspected child
prostitutes shown in salacious poses as well as boys and girls engaged in the sex act. There
were also posters and other literature advertising the child prostitutes.
On March 4, 1988, deportation proceedings were instituted against petitioners for being
undesirable aliens under Section 69 of the Revised Administrative Code (Deportation Case
No. 88-13). On March 7, 1988, Warrants of Arrest were issued by CID Commissioner Santiago
against petitioners for violation of Sections 37, 45 and 46 of the Immigration Act and Section 69
of the Revised Administrative Code. On the same date, the Board of Special Inquiry commenced
trial against petitioners.
Is the issuance of the warrant of arrest by Commissioner Santiago pending the existence
of probable cause in an administrative deportation proceeding valid?
Legal Opinion: The issuance of the warrant of arrest by Commissioner Santiago is considered
valid. Probable cause has been defined as referring to “such facts and circumstances antecedent
to the issuance of the warrant that in themselves are sufficient to induce a cautious man to rely
on them and act in pursuance thereof.” (People vs. Syjuco 64 Phil. 667 [1937]; Alverez vs. CFI,
64 Phil. 33 [1937])
In this case, the arrest of petitioners was based on probable cause determined after
close surveillance for three (3) months during which period their activities were monitored.
The existence of probable cause justified the arrest and the seizure of the photo negatives,
photographs and posters without warrant. Those articles were seized as an incident to a lawful
arrest and, are therefore, admissible in evidence (Section 12, Rule 126,1985 Rules on Criminal
Procedure).
Assuming that the arrest of petitioners was not valid at its inception, the records show
that formal deportation charges have been filed against them, as undesirable aliens, on 4 March
1988. Warrants of arrest were issued against them on 7 March 1988 “for violation of Sections
37, 45 and 46 of the Immigration Act and Section 69 of the Administrative Code.” A hearing is
presently being conducted by a Board of Special Inquiry. The restraint against their persons,
therefore, has become legal. The Writ has served its purpose. The process of the law is being
followed.49
Detention of Foreign Travelers
The Law
Section 25. For the purpose of determining whether aliens arriving in the Philippines
belong to any of the classes excluded by the immigration laws, the examining immigration
officers may order such aliens detained on board the vessel bringing them or in such other
place as the officers may designate, such detention to be for a sufficient length of time to
enable the officers to determine whether they belong to an excluded class, and their removal
to such other place to be at the expense of the vessel bringing them.50
49
In the Matter of the Petition for Habeas Corpus of: Andrew Harvey, John Sherman, and Adriaan Van del Elshout vs. Hon. Commissioner
Miriam Santiago, G.R. No. 82544, June 28, 1988.
50 Commonwealth Act No. 613, Philippine Immigration Act of 1940.
329
Under Section 6 of the Philippine Immigration Act of 1940, immigration officers may
detain aliens on board the vessel conveying them into the Philippines. The detention shall be
for a sufficient period of time to enable the immigration officers to determine whether:
(a) the aliens concerned belong to any of the excludable classes in Section 29; or
(b) the aliens concerned may apply and qualify for waivers of their exclusion from the
Commissioner of Immigration.
In the event the aliens are excludable, the vessel conveying them shall answer for their
transportation charges. Under Section 28, government medical and quarantine officers are
also allowed to observe, examine and determine whether or not arriving aliens are afflicted
with any of the diseases or mental or physical defects or disabilities that render them unfit for
entry or admission into the Philippines. They shall certify their findings for the information
of immigration authorities. In the absence of government medical or quarantine officers,
immigration authorities may seek the assistance and services of private physicians.

Case: On December 30, 2000, a series of bombs went off in Metro Manila later labeled as the Rizal
Day bombings. A total of 22 people died including a very young boy named Emmanuel. In this
regard, the immigration authorities issued a red-alert instruction for the temporary detention
of foreigners arriving in the Philippines to enable immigration officers to determine whether
these foreigners belong to the excludable classes covered under Section 29 of the Philippine
Immigration Act. All of the foreigners, including Al-Ghoz, a soft-spoken Indonesian, were
temporarily detained by Immigration authorities pending his entry in the Philippines. Upon
inspection of his bags, Al-Ghoz had in his possession bomb components.
Can Al-Ghoz, by reason of the bomb components found in his bags, be declared unfit for
entry or admission into the Philippines?
Legal Opinion: Yes, by virtue of the Philippine Immigration Act of 1940. Al-Ghoz may
be classified as an excludable alien who may pose a risk to the general welfare or will threaten
national security and public safety.51
Exit Requirements
The Law
Section 22-A. Any alien about to depart from the Philippines temporarily or for
permanent residence abroad shall, before leaving the country, apply to the Commissioner of
Immigration for a clearance certificate. If the Commissioner finds that the applicant has no
pending obligation with the Government, its instrumentalities, agencies and subdivisions,
and that there is no pending criminal, civil or administrative action which by law requires
his presence in the Philippines, the Commissioner shall issue the certificate upon surrender
of the alien of all other certificates previously issued to him by the Bureau of Immigration,
showing his admission and/or residence in the Philippines. [Added pursuant to Republic
Act No. 144, Sec. 2]52
51
Section 29 (a), the Philippine Immigration Act of 1940.
52
330
No foreigner shall depart from the Philippines except at a port of departure and unless
there has been issued a valid emigration clearance certificate or a certificate of exemption in his
favor.53 Failure to comply is penalized by the Immigration Act.54
The emigration clearance certificate allows immigration authorities to monitor all the
departure of aliens from the Philippines, and is one major source of income for the efficient
administration and enforcement of immigration laws, rules and regulations.
The following are exempted from securing emigration clearance certificates: (1) aliens
deported from the Philippines or aliens under deportation proceedings who are given
permission to depart at their own expense in lieu of deportation to a specified destination
and are departing to such destination; (2) alien minors under 14 years of age; and (3) alien
transients or temporary visitors staying in the Philippine for less than 15 days.55
No emigration clearance certificate or certificate of exemption shall be issued to an alien
who has a pending obligation with the Philippine Government, its instrumentalities, agencies,
and subdivisions, and whose presence in the Philippines is required by law in any pending
criminal, civil or administrative action.56
Aliens with hold departure orders cannot be issued emigration clearance certificates,
unless lifted by competent authorities. Any departure-control officer shall prevent the
departure of an alien even if such alien has an emigration clearance certificate or a certificate
of exemption if the departure-control officer received reliable information that said alien, after
the issuance of an emigration clearance certificate or a certificate of exemption, has become
disqualified to hold the same under Section 4, or that the same was obtained through fraud or
misrepresentation.57
Hold Departure Guidelines (Letter of Instruction No. 5, as amended by DOJ Circular

No. 17, March 19, 1998)
The following grounds for the issuance of a hold departure order are applicable to both
Filipinos and foreigners:
(a) pursuant to a court order in a criminal/habeas corpus case;
(b) pursuant to a standing warrant/order of arrests;
(c) when the aggrieved/adverse party is the government or any of its agencies;
(d) subject to the provision of existing laws, where the national interest, national security,
public safety or public health is involved; and
(e) when a criminal or deportation case is pending against the aliens.
Hence, a hold departure order against a Filipino or foreigner will restrict the right to
travel unless lifted by the Bureau of Immigration.
53
Rules and Regulations Governing the Control of Persons Leaving the Philippines pursuant to Republic Act 144, October 30, 1944, Section 2.
54
Section 45 (g), Commonwealth Act No. 613, Philippine Immigration Act of 1940.
55
See Section 3, Rules and Regulations Governing the Control of Persons Leaving the Philippines pursuant to Republic Act 144, October 30,
1944.
56
Section 4, Rules and Regulations Governing the Control of Persons Leaving the Philippines pursuant to Republic Act 144, October 30, 1944.
57
Section 5, Rules and Regulations Governing the Control of Persons Leaving the Philippines pursuant to Republic Act 144, October 30, 1944.
331
Policy Guidelines for all Departing Passengers (Office Memorandum Order No. 33-93,
March 18, 1993)
1) Philippine Passport Holders shall, in addition to their passports, present the following
documents:
a) For contract workers – they must present an Overseas Employment Certificate
(OEC) from the Philippine Overseas Employment Agency (POEA).
b) For tourists – the immigration officer must ensure that the passenger has a round
trip ticket aside from a valid and genuine passport.
c) For government employees – they shall present an approved authority to travel.
2) Foreign Passport Holders
a) Tourists who stayed for more than 6 months must present a regular Emigration
Clearance Certificate issued by the Bureau of Immigration.
b) Permanent/Temporary Residents – they shall present Emigration Clearance
Certificate and Reentry Permit (RP) for permanent residents or Special Return
Certificate (SRC) for temporary residents.
Non-compliance with the foregoing requirement shall be a ground for denying clearance
to a departing passenger.
Republic Act No. 9225 (Dual Citizenship Law)

Under this law, natural born citizens of the Philippines who became citizens of another
country shall be deemed not to have lost their Philippine citizenship. Consequently, they
must file a petition under oath to the Commissioner of Immigration for the issuance of an
Identification Certificate. Former natural born citizens living abroad may file the petition to the
nearest Philippine Foreign Post. A copy of the birth certificate authenticated by the National
Statistics Office is required to be submitted as proof of being a natural born citizen of the
Philippines.
1. What is a passport? Why is it important when traveling?

2. What is a visa? What are the different kinds of visas which the Philippine government
can issue to foreigners?
3. What are the requirements before a foreigner can be issued a prearranged employment
visa in the Philippines?
4. What is the difference between a Philippine passport and a travel document issued by
the Philippine government?
5. What would you advise a Filipino who needs to travel soon and has lost his
passport?
6. What is a fantasy passport? What is a camouflage passport?
7. Enumerate some countries whose citizens need not secure a visa prior to arrival in the
Philippines.
8. Enumerate some countries whose citizen need to secure visa prior to arrival in the
Philippines.
332
9. What is a treaty trader? What is a treaty investor?
10. With what countries does the Philippines have an agreement with regarding protection
and promotion of investments within the Philippines?
11. What is the Subic Special Investors Visa? What is the Special Economic Zone Visa?
What is the Special Clark Economic Zone Visa? What is the Cagayan Economic Zone
and Free Port Visa?
12. What kinds of aliens are excluded from entering the Philippines?
13. What is the concept of deportation? How is it enforced in the Philippines?
14. What are the possible valid reasons for deportation of a foreigner in the Philippines?
15. What is the difference between an exclusion proceeding and a deportation
proceeding?
16. What are the grounds for detaining a foreigner in the Philippines?
17. What is the rationale of R.A. 9225 or the Dual Citizenship Law?
18. What are the exit requirements for foreigners in the Philippines?
Philippine Visas Anyone?

Divide the class into four groups. Two groups will brainstorm
on the different kinds of visas that may be given to foreigners
desiring to travel to or live in the Philippines. The other two groups
will brainstorm on what kinds of aliens should be disallowed in
entering the country. Share your answers to the class.
Detention of Foreigners
Below are examples of foreigners with misdemeanors. Should
they be detained? Why or why not? Discuss your answers in class.
• Khalil, an Iranian, who is beating his Filipina wife
• Sonia, a Spaniard businesswoman, who issued NSF
cheques and refuses to pay her suppliers
• Ibrahim, an Indonesian, who is in the most wanted list for terrorism
• Malcolm, a British national, who is suspected to be practicing pedophilia in the
country
• Norah, a Jamaican, convicted of drug-trafficking
Kindness Towards Refugees

In the past 4 decades, we have seen many refugees displaced
in war-torn countries like Vietnam, Laos, Cambodia, Romania,
Namibia, etc. Why are governments more lenient in granting visas
to refugees from these countries? Write a 100-word essay on the
topic.
333
RESEARCH PROJECT
Rod Strunk, an American, was a suspect in the Nida Blanca
murder case. During the trial of the case, he was allowed by the
Philippine courts to travel to the United States despite the seriousness
of the case. Research on the case and answer the following questions:
What were the circumstances that led to the court’s decision to allow
him to travel? Do you agree with the court’s decision? Were there
lapses in the case? Do you know of other foreigners who were suspects
to heinous crimes? How do their cases differ from Rod Strunk’s case?
334
Chapter 17 Special Topics
“The implementation of the laws of a country rests on the firm resolve of its leaders. As to the Philippines,
the Filipinos deserve the officials they elect.” (Former Malaysian Prime Minister Ibrahim Mahathir)
Case of the Cyber King

Dr. Lance Briones is the vice-president of a company that publishes a number
of lewd publications. He managed to seek employment in two schools, an exclusive
religious boys’ school and a co-ed university. Because of his reputation, the boys’
school dismissed his employment but the university retained him for fear by the
administrators of his threat to go to the media. He reversed the tables by filing cases
against the administrators for besmirching his reputation. His printed magazines
feature different kinds of obscenities and perversions
and are circulated abroad wherein tourists get the
impression that sex tours are flourishing in Manila.
And because there is a pending case, he deliberately went underground for
a while even to the extent of stopping the printing of his lewd magazines
for 6 months. Now Dr. Briones continues to teach in the same university
and has a new twist in his business. He has gone high-tech. He now owns
and operates several cybersex sites where he features student recruits from
the university where he is teaching. This has been reported to the NBI but
to date, the authorities are reluctant to pursue the case. What laws did Dr.
Briones violate? If the university officials, the NBI and other authorities
are reluctant to pursue this case, what impressions can you make on the
justice system in this country? How can Dr. Briones be put to justice?
Learning Objectives
• Discuss the various special laws affecting the tourism industry
• Identify situations and problems where these special laws may be applied as a solution
• Identify some tourism establishments that implement as well as not implement these special laws
This chapter discusses special topics and special laws that will be useful in managing and
operating a tourism-related establishment.
Senior Citizen Law

Republic Act No. 9257 (also known as the Senior Citizen Law of 2004) was enacted to
provide senior citizens the following:
a) grant of twenty percent (20%) discount on all prices of goods and services offered to the
general public regardless of the amount purchased from establishment, irrespective of
classification, relative to the utilization of services for the exclusive use of a senior citizen
in the following: hotels and similar lodging establishments, restaurants and recreational
centers; 1
1
Rule V, Article 7, Section 4 of the Implementing Rules and Regulations of Republic Act No. 9257.
335
b) a minimum of twenty percent (20%) discount on admission fees charged by theaters,
cinema houses and concert halls, circuses, carnivals and other similar places of culture,
leisure and amusement for the exclusive use or enjoyment of senior citizens; 2
c) at least twenty percent (20%) discount in fare for domestic air and sea travel based on the
actual fare, including the promotional fare, advance booking and similar discounted fare
for the exclusive use and enjoyment of a senior citizen;3
d) twenty percent (20%) discount in public railways, including LRT, MRT, PNR, Skyways
and fares in buses (PUB), jeepneys (PUJ), taxi and shuttle services (AUV) for the exclusive
use and enjoyment of senior citizens. 4

“Senior citizen” or “elderly” shall mean any resident citizen of the Philippines at least sixty
(60) years old.5 In addition, the Department of Tourism has issued Memorandum Circular No.
2006-02 which directed all DOT accredited restaurants, hotels, tourist inns, apartels, pension
houses, resorts and similar lodging establishments, sports and recreational clubs/centers,
museums, galleries, tourist land, water and air transport operators to grant twenty percent
(20%) discount on prices of goods, admission fees and services to all senior citizens who shall
avail of such goods and services and/or use of said establishments.

Case: Engr. Charles Torres and his wife celebrated their 64th and 61st birthdays, respectively,
during the month of November 2007. They wanted to celebrate it quietly in the beautiful Pearl
Farm Resort in Samal Island for three days and two nights. At checkout, the total gross bill
amounted to 532,500. What amount should they pay the resort?
Legal Opinion: The couple, being senior citizens, can avail of the 20% discount upon presentation
of their senior citizen’s identification card. Therefore, Engr. and Mrs. Torres should be given
by the resort a discount of 20% or 56,500. Thus, at checkout, the amount that they should pay
is only 526,000.
Laws on Security/Anti-Terrorism Law

Republic Act 9372, also known as the Human Security Act of 2007 (March 6, 2007),
implements the policy of the State of protecting life, liberty and property from acts of terrorism,
condemning terrorism as inimical and dangerous to national security, and making terrorism an
act against humanity and law of nations.6
An act of terrorism is committed by any person who commits the following acts under
the Revised Penal Code:
(a) piracy in general and mutiny in the high seas or Philippine waters;
(b) rebellion or insurrection;
(c) coup d’etat;
(d) murder;
(e) kidnapping and serious illegal detention;
2
Rule V, Article 7, Section 5 of the Implementing Rules and Regulations of R.A. No. 9257.
3
4
5
Sec. 2(a), R.A. 9257.
6
336
(f) crimes against destruction such as arson; violation under Toxic Substances and Hazardous
and Nuclear Waste Control Act of 1990, Atomic Energy Regulatory and Liability Act of
1968, Anti-Hijacking Law, and Anti-Piracy and Anti-Robbery Highway Law; illegal and
unlawful possession, manufacture, dealing in, acquisition or disposition of firearms,
ammunitions and explosives.
Provided that the commission of the above acts creates a condition of widespread and
extraordinary fear and panic among the populace, in order to coerce the government to give in
to an unlawful demand.7

In this regard, a police officer or law enforcement official may, upon written order of
the Court of Appeals, listen to, intercept and record, with the use of any mode, form, kind
or type of electronic or other surveillance equipment or intercepting and tracking devices,
any communication, message, conversation, discussion or spoken and written words between
members of a judicially declared and outlawed terrorist organization, association or group of
persons or of any person charged with or suspected of the crime of terrorism or conspiracy to
commit terrorism.8

Case: On December 30, 2000, a series of bombs went off in Metro Manila later labeled as the
Rizal Day bombings. A total of 22 people died including a very young boy named Emmanuel.
The specter of terrorism in the 21st century announced its ugly arrival in the country with
shocking violence–and without a law punishing it. The perpetrator, Fathur Rohman Al-Ghozi,
a soft-spoken Indonesian, was captured thereafter after as the financier and bomb maker. The
Department of Justice successfully prosecuted him for two sets of charges: one for possession
of fake passports issued in Cagayan de Oro City and Zamboanga City and another for illegal
possession of explosives. He was never convicted for any of the bombings.9
In case the bombings were committed today, will Fathur Rohman Al-Ghozi be held
criminally liable?
Legal Opinion: Yes, by virtue of Republic Act 9372, also known as the Human Security Act of
2007.
Consumer Act of the Philippines (R.A. 7394, April 13, 1992)

The main objective of the law is to protect the interest of the consumer, promote his
general welfare and establish standards of conduct for business and industry. The law has
implemented measures to achieve the following:
a) protection against hazards to health and safety;
b) protection against deceptive, unfair and unconscionable sales acts and practices;
c) provision of information and education to facilitate sound choice and the proper exercise
of rights by the consumer;
d) provision of adequate rights and means of redress; and
e) involvement of consumer representatives in the formulation of social and economic policies.
7
8
9
Article taken from www.manilatimes.net, July 11, 2007.
337
The following government agencies are tasked in the enforcement thereof:
a) the Department of Health with respect to food, drugs, cosmetics, devices and substances;
b) the Department of Agriculture with respect to products related to agriculture, and;
c) the Department of Trade and Industry with respect to other consumer products not
specified above.10
In the enforcement of the said law, the government agencies mentioned above are tasked
with the following functions:
a) to develop and provide safety and quality standards for consumer products, including
performance or use-oriented standards, codes of practice and methods of tests;
b) to assist the consumer in evaluating the quality, including safety, performance and
comparative utility of consumer products;
c) to protect the public against unreasonable risks of injury associated with consumer
products;
d) to undertake research on quality improvement of products and investigation into causes
and prevention of product related deaths, illness and injuries;
e) to assure the public of the consistency of standardized products.11
In this regard, the concerned department shall establish consumer product quality and
safety standards which shall consist one or more of the following:
a) requirements to performance, composition, contents, design, construction, finish,
packaging of a consumer product;
b) requirements as to kind, class, grade, dimensions, weights, material;
c) requirements as to the methods of sampling, tests and codes used to check the quality of
the products;
d) requirements as to precautions in storage, transporting and packaging;
e) requirements that a consumer product be marked with or accompanied by clear and adequate
safety warnings or instructions, or requirements respecting the form of warnings or
instructions.12

Case: Mona Lisa Beauty Salon is a concessionaire in a deluxe hotel in Manila providing salon
services to hotel guests. One of the salon attendants carelessly damaged the feet of a female
Norwegian client availing of a pedicure service. What are the liabilities of the salon in this
situation?
Legal Opinion: Mona Lisa Beauty Salon is liable under Article 69 of the Consumer Act of the
Philippines which states:
Article 69. Warranties in Supply of Services. - a) In every contract for the supply of services
to a consumer made by a seller in the course of a business, there is an implied warranty that the
service will be rendered with due care and skill and that any material supplied in connection
with such services will be reasonably fit for the purpose for which it is supplied.
10
Article 6, R.A. 7394.
11
12
338
Failure to exercise due care and skill makes Mona Lisa Beauty Salon criminally liable
under the Consumer Act of the Philippines. Accordingly, the salon and negligent employee
committing the prohibited act in Chapter III thereof (Consumer Product and Service Warranties),
shall be liable for a fine of not less than One thousand pesos (51,000) but not more than Fifty
thousand pesos (550,000) or imprisonment for a period of at least one (1) year but not more
than five (5) years, or both, at the discretion of the court. The imposition of any of the penalties
herein is without prejudice to any liability incurred under the warranty provided under the
Civil Code of the Philippines.13
Cultural Minorities, Protected Areas, Wildlife, and

Heritage and Cultural Presentations
The Law
Republic Act No. 8371, Indigenous Peoples Rights Act of 1997 (October 29, 1997)
The said law implements the state’s recognition and promotion of all the rights of the
Indigenous Cultural Communities/Indigenous Peoples (ICCs/IPs) within the framework of
the Constitution. It further enforces the following state policies:
a) Recognition and promotion of the rights of the ICCs/IPs within the framework of national
unity and development;
b) Protection of the rights of ICCs/IPs to their ancestral domains to ensure their economic,
social and cultural well-being and shall recognize the applicability of customary laws
governing property rights or relations in determining the ownership and extent of
ancestral domain;
c) Recognition, respect and protection of the rights of ICCs/IPs to preserve and develop
their cultures, traditions and institutions;
d) The State’s guarantee that members of the ICC/IP regardless of sex, shall equally enjoy
the full measure of human rights and freedom without distinction or discrimination;
e) The State’s commitment to take measures, with the participation of the ICCs/IPs concerned,
to protect their rights and guarantee respect for their cultural integrity, and to ensure that
members of the ICC/IP benefit on an equal footing from the rights and opportunities
which national laws and regulations grant to other members of the population; and
f) The State’s recognition of the obligations to respond to the strong expression of the ICCs/
IPs for cultural integrity to assuring maximum ICC/IP participation in the direction of
education, health, as well as other services of ICCs/IPs, in order to render such services
more responsive to the needs and desires of the communities.

It is in this regard that there shall be a mechanism to enforce and guarantee the realization
of these rights, taking into consideration their customs, traditions, values, beliefs, interests and
institutions, and to adopt and implement measures to protect their rights to their ancestral
domains.14
13
Article 73, Consumer Act of the Philippines.
14
339
The Law
UAI Draft Charter on the Rights of Minorities15
The Lawyers’ Associations have a role play in promoting and defending the individual
and collective rights of minorities and their members. Hence, the Lawyers’ Associations, at
an international meeting in San Francisco have decided to adopt an International Charter for the
purpose of seeking to ensure that the principles set below are complied with:
Article 1. No individual may be subject to disadvantage of any kind because he/she is a
member of a particular national, ethnic, linguistic, cultural or religious minority, or because
of his/her sexual leanings.
Article 2. The Lawyers’ Associations will take steps to encourage teaching relating
to the rights of minorities in Law Schools and Institutions for Continuing Education with
which they are concerned, including teaching as to the nature of such rights and as to the
ways in which lawyers may effectively defend them.
Article 3. An individual on trial who belongs to a minority group is entitled to be tried
in accordance with principles guaranteed by International law. He/she is entitled to be tried
before an independent and impartial court.

This simply shows that the advocacy to protect rights of minority communities are
supported by the legal profession as manifested in declarations by international organizations.
International Law is applied when a member of a minority community is unjustly tried in a
partial local court of justice.
The Law
R.A. No. 9072, “National Caves and Cave Resources Management Protection Act,” April 8, 2001
The law implements the policy of the State to conserve, protect, and manage caves
and cave resources as part of the country’s natural wealth. Towards this end, the State shall
strengthen cooperation and exchange of information between governmental authorities and
people who utilize caves and cave resources for scientific, educational, recreational, tourism
and other purposes.16

“Cave” means any naturally occurring void, cavity, recess or system of interconnected
passages beneath the surface of the earth or within a cliff or ledge and which is large enough
to permit an individual to enter, whether or not the entrance, located either in private or public
land, is naturally formed or man-made. It shall include any natural pit, sinkhole, or other
feature which is an extension of the entrance. The term also includes cave resources, but not
any vug, mine tunnel, aqueduct, and other man-made excavation.17 “Cave resources” includes
any material or substance occurring naturally in caves, such as animal life, plant life, including
paleontological and archeological deposits, cultural artifacts, or products of human activities,
sediments, minerals, speleogens and speleothems.18
15
Proposed at the Union of Internationale Des Advocats XXXVII Congress, San Francisco, U.S.A., September 2, 1993, published on “Lawyers
Review,” October 31, 1993, p. 52.
16
Sec. 2, R.A. No. 9072.
17
Sec. 3(a), R.A. No. 9072.
18
Sec. 3(b), R.A. No. 9072.
340
In the implementation of this Act, the Department of Environment and Natural Resources
shall formulate, develop and implement a national program for the management, protection
and conservation of caves and cave resources and issue permits for the collection and removal of
guano and other cave resources which shall be determined in coordination with the Department
of Tourism, the National Museum, concerned local government units, the scientific community
and the academe, with regard to specific caves taking into consideration bio-diversity as well
as the aesthetic and archeological value of the cave.19
The Law
Republic Act 9147, Wildlife Resources Conservation and Protection Act, July 30, 2001
The law implements the policy of the State to conserve the country’s wildlife resources
and their habitats for sustainability. The law shall have the following objectives:
(a) to conserve and protect wildlife species and their habitats to promote ecological balance
and enhance biological diversity;
(b) to regulate the collection and trade of wildlife;
(c) to pursue, with due regard to the national interest, the Philippine commitment to
international conventions, protection of wildlife and their habitats;
(d) to initiate or support scientific studies on the conservation of biological diversity.20

Wildlife means wild forms and varieties of flora and fauna, in all developmental stages,
including those which are in captivity or are being bred or propagated.21
The Department of Environment and Natural Resources shall have jurisdiction over all
terrestrial plain and animal species, all turtles and tortoises and wetland species, including but
not limited to crocodiles, waterbirds and all amphibians and dugong. On the other hand, the
Department of Agriculture 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.22
Accordingly, it shall be unlawful for any person to willfully and knowingly exploit wildlife
resources and their habitats.23 No person or entity shall be allowed possession of wildlife unless
such person or entity can prove financial and technical capability and facility to maintain said
wildlife.24 Collection of wildlife may be allowed upon proper evaluation of best available
information or scientific data showing that the activity is for a purpose, not detrimental to
the survival of the species or subspecies involved and/or their habitat.25 Collection of wildlife
by the indigenous people may be allowed for traditional use and not primarily for trade
provided that it shall not cover threatened species.26 Threatened species are those considered
and determined as critically endangered, vulnerable or other accepted categories of wildlife
whose population is at risk of extinction.27 Commercial breeding of wildlife shall be allowed
through issuance of wildlife farm/culture permit.28
19
Sec. 5, R.A. No. 9072.
20
21
Section 5 (x), Republic Act 9147.
22
23
24
25
Secs. 6 and 7, Republic Act 9147.
26
27
Section 5(s), Republic Act 9147.
28
341
The Law
Republic Act 7586, National Integrated Protected Areas System Act of 1992 (June 1, 1992)
This law is based on the policy of the State to secure for the Filipino people of present and
future generations the perpetual existence of all native plants and animals through establishment
of a comprehensive system of integrated protected areas within the classification of national
parks as provided for in the Constitution. The establishment of a National Integrated Protected
Areas System (NIPAS) shall encompass outstandingly remarkable areas and biologically
important public lands that are habitats of rare and endangered species of plants and animals,
biogeographic zones and related ecosystems, whether terrestrial, wetland or marine, all of
which shall be designated as “protected areas.”29

“National Integrated Protected Areas System (NIPAS)” is the classification and
administration of all designated protected areas to maintain essential ecological process and
life-support systems, to preserve genetic diversity, to ensure sustainable use of resources found
therein, and to maintain their natural conditions to the greatest extent possible.30
The following categories of protected areas are hereby established:
(a) Strict nature reserve;
(b) Natural park;
(c) Natural monument;
(d) Wildlife sanctuary;
(e) Protected landscapes and seascapes;
(f) Resource reserve;
(g) Natural biotic areas;
(h) Other categories established by law.31

Case: In Palawan, Tawi-Tawi, Jolo and Basilan, there are Chinese ‘tourists’ spending time
in fishing villages, befriending locals and placing orders for endangered aquatic and land
animals, according to Lory Tan, World Wildlife Fund-Philippines executive director. To date,
rangers across the country arrested close to 600 Chinese nationals for poaching in the last nine
years.32 Discuss the liability of the tourists who are caught poaching endangered aquatic and
land animals in the country.
Legal Opinion: The tourists who are caught poaching endangered aquatic and land animals
in the country may suffer imprisonment and or fine under Republic Act 9147, also known as
the Wildlife Resources Conservation and Protection Act. In addition, said law would allow
deportation of the tourists and payment of fine without any further proceedings.33
29
30
Sec. 4 (a), Republic Act 7586.
31
32
www.manilatimes.net, published on January 13, 2007.
33
342
Law on Intellectual Property Rights
(R.A. 8293, Intellectual Property Code of the Philippines)
The Law
The law is enacted to streamline administrative procedures of registering patents,
trademarks, and copyright, to liberalize the registration on the transfer of technology, and to
enhance the enforcement of intellectual property rights in the Philippines.

The Law on Intellectual Property Rights is important in ensuring that the rights of
inventors of machines, equipment and gadgetry; authors of published materials; composers of
musical compositions; originators of ideas, concepts, models, and systems; artists or designers
of logos, artwork, diagrams and designs are protected.
For example, an entrepreneur planning to build a hotel using the brand name Italiannis
cannot pursue this because the brand name already exists. There is a chain of restaurants known
as Italiannis. A hotel and a restaurant are in the same line of business, i.e., hospitality.

Case: Michael and Ana Parsons are a husband and wife team of entrepreneurs planning to
open a restaurant using the brand name Mandarin. Their love for Chinese cuisine motivated
them to practice their profession as chefs. They have already identified the site, have a ready
feasible business plan, and have enough financial backing to start-up and sustain the business
for, at least, three years. Do you see any problem with their business?
Legal Opinion: Yes, there will be a problem when they insist on using Mandarin as brand
name for their Chinese restaurant. There is a deluxe hotel in Makati known for many decades
now as The Mandarin Oriental. While a hotel and restaurant may not be exactly the same, they
are, however, similar in the light that both establishments serve food and beverage. Allowing
the Parsons couple to use the brand name Mandarin may confuse the customers of the hotel.
Anti-Child Abuse Law

(R.A. 7610 Special Protection of Children against Child Abuse, Exploitation and Discrimination Act,
as amended by R.A. 9231 in 2003)
The Law
This law implements the policy of the State to provide special protection to children from
all forms of abuse, neglect, cruelty, exploitation, discrimination and other conditions prejudicial
to their development including child labor and worst crimes; and provide sanctions for their
commission.34

Accordingly, children below 15 years of age shall not be employed, except:
(1) When the child works directly under the sole responsibility of his/her parents or legal
guardian and where only members of his/her family are employed provided that his/
her employment neither endangers his/her life, safety, health, and morals nor impairs
his/her normal development.
34
Sec. 1, R.A. 9231.
343
(2) Where a child’s employment or participation in public entertainment or information
through cinema, theater, radio, television, or other forms of media is essential; provided,
that the employment contract is concluded by the child’s parents or legal guardian with
the express agreement of the child concerned and the approval of the Department of
Labor and Employment.35
The following are the mandatory hours of work of a working child:

(1) A child below 15 years of age may be allowed to work for not more than 20 hours a week,
provided that the work shall not be more than 4 hours at any given time.
(2) A child 15 years of age but below 18 shall not be allowed to work for more than 8 hours a
day, and in no case beyond 40 hours a week.
(3) No child below 15 years of age shall be allowed to work between 8 o’clock in the evening
and 6 o’clock in the morning the following day and no child 15 years of age but below 18
shall be allowed to work between 10 o’clock in the evening and 6 o’clock in the morning
the following day.36
No child (person under 18 years of age) shall be employed as a model in any advertisement
directly or indirectly promoting alcoholic beverages, intoxicating drinks, tobacco, and its by-
products, gambling or any form of violence or pornography.37
All establishments and enterprises which promote or facilitate child prostitution, and
other sexual abuse, child trafficking, obscene publications and indecent shows, and other acts
of abuse shall be immediately closed and their authority or license to operate shall be cancelled.
An enterprise such as sauna, travel agency, or recruitment agency which promotes the above
acts as part of a tour for foreign tourists, exhibits children in a lewd or indecent show, provides
child masseurs for adults of the same or opposite sex, and services which include any lascivious
conduct with the customer are deemed to have committed the acts penalized under this law.38

Case: Elena Reyes, 17 years old, is a working student at a fastfood restaurant. She needs to
work because her parents could no longer support the entire family. Due to the demands of the
work in the restaurant and the severe shortage of manpower especially during peak hours and
peak days, Elena is oftentimes asked to render overtime and work beyond 8 hours. Is Elena’s
situation justifiable?
Legal Opinion: Elena may work due to her family situation. But working beyond 8 hours a day
may constitute a violation of the Anti-Child Abuse Law or R.A. 7610. Elena”s employer should
be made aware of the limitations of hiring a minor, i.e., someone who is below 18 years old.
Anti-Prostitution Law
The Law
Article 202. x x x.
5. Prostitutes.
For purposes of this article, women who, for money or profit, habitually indulge in
sexual intercourse or lascivious conduct, are deemed prostitutes.39
35
Sec. 2, R.A. 9231.
36
Sec. 3, R.A. 9231.
37
Sec. 5, R.A. 9231.
38
Sec. 11, R.A. 7610 as amended.
39
Act. No. 3815, Revised Penal Code, as amended.
344
Discussion
A woman is considered a prostitute when she:
(1) habitually indulges in sexual intercourse or lascivious conduct.
(2) for money or profit.
Hence, one sexual intercourse with a man for money or profit does not make a woman a
prostitute. Several intercourses with different men does not make her a prostitute, if there is no
evidence that she indulged in sexual intercourse for money or profit. Sexual intercourse is not
absolutely necessary. Lascivious conduct is sufficient.40 The penalty for committing prostitution
is imprisonment or a fine, or both, in the discretion of the court.41

Case: Charmaine Gonzales is a hotel reception staff in a deluxe hotel in Makati who has been
receiving offers from male foreign guests for intimate dates. Marian Rivera is Charmaine’s
supervisor who chanced on seeing Charmaine with a foreign guest checking in another hotel
in Makati. Charmaine has been seen on many occasions by other colleagues going out with
several male foreigners. The rumor that she was prostituting herself was confirmed when two
of the male guests of their hotel confirmed having sex for money with Charmaine on three
separate occasions. Did Charmaine violate any law? If she did, what is the possible penalty?
Legal Opinion: Yes, Ms. Charmaine Gonzales may be classified as a prostitute who may be
held criminally liable under the Revised Penal Code. Accordingly, the crime shall be punished
by arresto menor or a fine not exceeding 200 pesos, and in case of recidivism, by arresto mayor
in its medium period to prision correccional in its minimum perior or a fine ranging from 200
to 2,000 pesos, or both, in the discretion of the court.42
Anti-Pornography Law
The Law
Art. 201. Immoral doctrines, obscene publications and exhibitions, and indecent shows:
The penalty x x x shall be imposed upon:
1. Those who shall publicly expound or proclaim doctrines openly contrary to public morals;
2. (a) The authors of obscene literature, published with their knowledge in any form; the
editors publishing such literature; and the owners/operators of the establishment
selling the same;
(b) Those who, in the theaters, fairs, cinematographs or other place, exhibit indecent
or immoral plays, scenes, acts or shows, it being understood that the obscene
literature or indecent or immoral plays, scenes, acts or shows, whether live or in
film, which are prescribed by virtue hereof, shall include those which:
(1) glorify criminals or condone crimes;
(2) serve no other purpose but to justify the market for violence, lust or
pornography;
(3) offend any race or religion;
(4) tend to abet traffic in and use of prohibited drugs; and
(5) are contrary to law, public order, morals, good customs, established
policies, lawful orders, decrees and edicts.
40
The Revised Penal Code Book II, by Luis B. Reyes 12th Edition, p. 343.
41
Art. 202, Revised Penal Code.
42
Art. 202, Revised Penal Code.
345
3. Those who shall sell, give away or exhibit films, prints, engravings, sculptures, or
literature which are offensive to morals. (As amended by P.D. Nos. 960 & 969, July 24,
1976)43

This offense in any of the forms mentioned is committed only when there is publicity. The
word “obscene” means something offensive to chastity, decency or delicacy. The test of obscenity
is whether the tendency of the matter charged as obscene is to deprave or corrupt those whose
minds are open to such immoral influences, and into whose hands such a publication may fall
and also whether or not such publication or act shocks the ordinary and common sense of men
as an indecency. “Indecency” is an act against the good behavior and a just delicacy.44

Case: Some hotels in Metro Manila have cable channels and pay-per view channels available in
the guestrooms. These pay-per view channels are accessible to everyone checked-in including
minors. One of the pay-per view channels in a particular hotel are dedicated to adult viewing
showing very obscene depictions of couples engaged in sordid sex, close-up penetration scenes
and lewd sex acts in 90% of the entirety of each film. While a few guests of the hotel may
patronize these type of viewing, a larger majority feel repulsed by such viewing. Does this
constitute a violation of the Anti-Pornography Law?
Legal Opinion: Yes, these indecent shows are considered obscene and may be considered
violation under Art. 201 of the Revised Penal Code.
Anti-Hijacking Law
The Law
Under Republic Act No. 6235 (June 19, 1971), anti-hijacking is committed by any person
who compels a change in the course or destination of an aircraft of Philippine registry, or
seizes or usurps the control thereof, while it is in flight. An aircraft is in flight from the moment
all its external doors are closed following embarkation until any of such doors is opened for
disembarkation.

It is also committed by any person who compels an aircraft of foreign registry to land in
Philippine territory or to seize or usurp the control thereof while it is within said territory.45
A higher penalty shall be imposed whenever the person has fired upon the pilot, member
of the crew or passenger of the aircraft; whenever he has exploded or attempted to explode any
bomb or explosive to destroy the aircraft; or whenever the crime is accompanied by murder,
homicide, serious physical injuries or rape.46

Case: Philippine Airlines BAC 111 was on its way for a flight to Manila, not knowing that on
the same flight, members of the Moro National Liberation Front (MNLF) with grenades, two
43
Act. No. 3815, Revised Penal Code, as amended.
44
The Revised Penal Code Book II, by Luis B. Reyes 12th Edition, pp. 336-337.
45
Section 1, Republic Act 6235, Acts Inimical to Civil Aviation.
46
Section 2, Republic Act 6235, Acts Inimical to Civil Aviation.
346
(2) with .45 caliber pistols, and one with a .22 caliber pistol, were the passengers. Ten (10)
minutes after take off at about 2:30 in the afternoon, the hijackers brandishing their respective
firearms announced the hijacking of the aircraft and directed its pilot to fly to Libya. With
the pilot explaining to them especially to its leader, Commander Zapata, of the inherent fuel
limitations of the plane and that they are not rated for international flights, the hijackers
directed the pilot to fly to Sabah. With the same explanation, they relented and directed the
aircraft to land at Zamboanga Airport, Zamboanga City for refueling. The aircraft landed at
3:00 o’clock in the afternoon of May 21, 1976 at Zamboanga Airport. When the plane began to
taxi at the runway, it was met by two armored cars of the military with machine guns pointed
at the plane. The rebels thru its commander demanded that a DC-aircraft take them to Libya
with the President of Philippine Airlines as hostage and that they be given $375,000 and six
(6) armalites, otherwise they will blow up the plane if their demands will not be met by the
government and Philippine Air Lines.
Were the members of the Moro National Liberation Front (MNLF) through its leader,
Commander Zapata, guilty of hijacking?
Legal Opinion: Yes, the members of the MNLF through its leader, Commander Zapata were
guilty of hijacking, having seized or usurped the control of an aircraft of Philippine registry,
while it was in flight.
Dangerous Drugs Law

(Republic Act No. 9165, also known as the Comprehensive
Dangerous Drugs Act of 2002)
The Law
This law implements the policy of the State to safeguard the integrity of its territory and
the well-being of its citizenry particularly the youth, from the harmful effects of dangerous
drugs on their physical and mental well-being, and defend the same against acts or omissions
detrimental to their development and preservation. In view of the foregoing, the State needs to
enhance further the efficacy of the law against dangerous drugs, it being one of today’s more
serious social ills.
Toward this end, the government shall pursue an intensive and unrelenting campaign
against the trafficking and use of dangerous drugs and other similar substances through an
integrated system of planning, implementation and enforcement of anti-drug abuse policies,
programs and projects. The government shall however aim to achieve a balance in the national
drug control program so that people with legitimate medical needs are not prevented from
being treated with adequate amounts of appropriate medications, which include the use of
dangerous drugs.

It is further declared the policy of the state to provide effective mechanisms or measures
to re-integrate into society individuals who have fallen victims to drug abuse or dangerous
drug dependence through sustainable programs of treatment and rehabilitation.47

Case: In the 1990s, the Human Resources Director of a deluxe hotel in Metro Manila had a serious
concern about the rampant use of prohibited drugs by a number of the hotel’s employees. The
employees, who had been receiving a substantial amount of service charge monthly, developed
47
347
substance abuse as an uncontrollable vice. What measures can the HR director implement to
curtail the rapidly growing incidence of substance abuse among hotel employees?
Legal Opinion: As the HR director, he must adopt a drug abuse prevention program in the
workplace which includes mandatory drafting and adoption of company policies against drug
use in the workplace in close consultation and coordination with the Department of Labor
and Employment.48 He may also coordinate with labor unions, federations, associations and
organizations for joint continuing programs and information campaign for the employees with
the end in view of achieving a drug-free workplace.49 Lastly, the HR director may secure the
technical assistance, seminars and information dissemination campaigns from the appropriate
government and law enforcement agencies.50
Anti-Smoking Law
(Republic Act 8749, Philippine Clean Air Act of 1999)
The Law
This law implements the policy of the State to pursue a policy of balancing development
and environmental protection. To achieve this end, the framework for sustainable development
shall be pursued. It is in this regard that the policy of the State shall be based on the following
objectives:
a) Formulate a holistic national program of air pollution management that shall be
implemented by the government through proper delegation and effective coordination
of functions and activities;
b) Encourage cooperation and self-regulation among citizens and industries through the
application of market-based instruments;
c) Focus primarily on pollution prevention rather than on control and provide for a
comprehensive management program for air pollution;
d) Promote public information and education and to encourage the participation of an
informed and active public in air quality planning and monitoring; and
e) Formulate and enforce a system of accountability for short and long-term adverse
environmental impact of a project, program or activity. This shall include the setting up
of a funding or guarantee mechanism for clean-up and environmental rehabilitation and
compensation for personal damages.51

It seeks to recognize the right of citizens and guarantee enjoyment of the right to breathe
clean air.52 Smoking inside a public building or an enclosed public place including public
vehicles and other means of transport or in any enclosed area outside of one’s private residence,
private place of work or any duly designated smoking area is prohibited. This provision shall
be implemented by the local government units concerned.53
48
Sec. 47, Comprehensive Dangerous Drugs Act of 2002.
49
50
51
52
53
348
Case: Some restaurants in Metro Manila now have a separate area for smoking patrons. A few
have a total ban on smoking inside their premises, especially in Makati City. Can a restaurant
owner seeking to open a branch in Ayala Center allow its customers to smoke in the restaurant?
In what way is he violating the law?
Legal Opinion: No, the restaurant owner cannot allow its customers to smoke inside the
restaurant. Smoking inside a public building or an enclosed public place or in any enclosed
area outside of one’s private residence or private place of work shall be prohibited under the
Philippine Clean Air Act of 1999.54 Besides, it is imperative that the restaurant must also comply
with the local ordinances of Makati City (being a non-smoking city) in order to put up the
restaurant within the vicinity. Otherwise, no permit will be issued to put up such restaurant.
Anti-Smuggling Law
The Law
Sec. 3601. Unlawful Importation – Any person who shall fraudulently import or
bring into the Philippines, or assist in so doing, any article, contrary to law, or shall receive,
conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of
such article after importation, knowing the same to have been imported contrary law, shall
be guilty of smuggling.
xxx
When upon trial for violation of this section, the defendant is shown to have had
possession of the article in question, possession shall be deemed sufficient evidence to
authorize conviction unless the defendant shall explain the possession to the satisfaction
of the court: Provided, however, That payment of the tax due after apprehension shall not
constitute a valid defense in any prosecution under this section.55

Smuggling is committed by any person who: (1) fraudulently imports or brings into the
Philippines any article contrary to law; (2) assists in so doing any article contrary to law; or (3)
receives, conceals, buys, sells or in any manner facilitate the transportation, concealment or
sale of such goods after importation, knowing that the same to have been imported contrary
to law.56
The law penalizes the importation of any merchandise in any manner contrary to law.
Importation consists of bringing an article into the country from the outside. The crime of
unlawful importation is complete, in the absence of a bona fide intent to make entry and pay
duties when the prohibited article enters Philippine territory. Importation is complete when
the taxable, dutiable commodity is brought within the limits of the port of entry.
The fraud contemplated by law must be intentional fraud, consisting of deception,
willfully and deliberately dared or resorted to in order to give up some right. Fraudulent
concealment presupposes a duty to disclose the truth and that disclosure was not made when
opportunity to speak and inform was present.
54
55
Tariff and Customs Code.
56
Rodriguez vs. Court of Appeals, G.R. No. 115218, September 18, 1995.
349
The term “entry” has triple meaning. It means (1) the documents filed at the Customs
house; (2) the submission and acceptance of the documents; and (3) the procedure of passing
goods through the Customs house. Customs declaration forms or customs entry forms required
to be accomplished by passengers of incoming vessels or passenger planes are envisaged in the
section.57

Case: On February 28, 1997, Maribel Jardeleza, a flight attendant of Philippine Airlines Flight
PR 502 approached the arrival area of Ninoy Aquino International Airport Lane 1, which was
exclusively for crew members of incoming passenger planes including flight attendants. She
had two pieces of hand-carried luggage for inspection, a black bag and black hanger bag. She
approached the Customs Examiner Estelita Nario to have the bags examined and showed the
Customs Declaration form she had accomplished and signed. Ms. Nario asked Jardeleza if
she had anything to declare, and the latter replied, “No.” Ms. Nario checked the Customs
declaration form and found nothing that was written or marked on the form. Upon inspection
of the bags, Ms. Nario found pieces of jewelry which had an assessed value of 52,979,021.50
and with dutiable value at 54,583,000. Is Maribel Jardeleza guilty of smuggling under the
Tariff and Customs Code?
Legal Opinion: Yes, Maribel Jardeleza is guilty of smuggling under the Tariff and Customs
Code. In this case, the burden of proof beyond reasonable doubt was complied with as it was
able to prove that Ms. Jardeleza possessed the jewelry in question when Nario examined her
luggage. Under the last paragraph of Sec. 3601 of the Tariff and Customs Code, such evidence
shall be deemed sufficient evidence to authorize conviction. If Ms. Jardeleza had no intention to
fraudulently import the jewelry and defraud the government of the duties/taxes due thereon,
she should have indicated in the Customs Declaration Form that she was carrying jewelry
valued at more than US$350.00 and accomplished the Customs Entry Form. Ms. Jardeleza
failed to do so. She even deliberately concealed her possession of the jewelry, and told Nario
that she had nothing to declare.58
Law on Violence Against Women and Children

(Republic Act 9262, Anti-Violence Against Women
and Their Children Act of 2004)
The Law
Sec. 3 (a). “Violence against women and children” refers to any act or a series of
acts committed by any person against a woman who is his wife, former wife, or against a
woman with whom the person has or had a sexual or dating relationship, or with whom he
has a common child whether legitimate or illegitimate, within or without the family abode,
which result in or is likely to result in physical, sexual, psychological harm or suffering,
or economic abuse including threats of such acts, battery, assault, coercion, harassment or
arbitrary deprivation of liberty.
(e) “dating relationship” refers to a situation wherein the parties live as husband and
wife without the benefit of marriage or are romantically involved over time and on a continuing
basis during the course of the relationship. A casual acquaintance or ordinary socialization
between two individuals in a business or social context is not a dating relationship.59
57
Maribel B. Jardeleza vs. People of the Philippines, G.R. No. 165265, February 6, 2006.
58
Maribel Jardeleza vs. People of the Philippines, G.R. 165265, February 6, 2006.
59
Republic Act 9262.
350
The acts which constitute violence against women and their children include the
following:
(1) Physical violence – which refers to acts that include bodily or physical harm;
(2) Sexual violence – which refers to an act which is sexual in nature, committed against
a woman or her child. It includes, but not limited to, forcing her to watch obscene
publications and indecent shows or forcing the woman or her child to do indecent acts
and/or make films thereof.60

Case: Willy Mariano is a manager of a hotel who is married to Gina with whom he has 3
children. Willy also has a mistress, Rowena Aquino, who happens to be his secretary. This illicit
relationship has been going on for 4 years until Willy and Gina agreed to go separate ways.
Willy started to live with Rowena from 1997 until 2007. At present, Willy, who is no longer with
the same hotel, is dating another woman. Because of this, Rowena is always upset and, in a fit
of jealousy, would throw tantrums at Willy almost every night. Being fed up, Willy would beat
up Rowena black and blue. Can Rowena file a case against her live-in partner Willy?
Legal Opinion: Yes, Rowena can file a criminal case against her live-in partner Willy under
Republic Act 9262 also known as the Anti-Violence Against Women and Their Children Act
of 2004. Accordingly, Willy committed an act of violence against Rowena which resulted in
physical harm or suffering, battery, assault, coercion or harassment.61
Laws on Human Trafficking

(Republic Act 9208, Anti-Trafficking in Persons Act of 2003, May 26, 2003).
The Law
Section 3 (a) Trafficking in Persons – refers to the recruitment, transportation, transfer
or harboring, or receipt of persons with or without the victim’s consent or knowledge,
within or across national borders by means of threat or use of force, or other forms of
coercion, abduction, fraud, deception, abuse of power or of position, taking advantage of the
vulnerability of the person, or the giving or receiving of payments or benefits to achieve the
consent of a person having control over another person for the purpose of exploitation which
includes at a minimum, the exploitation or the prostitution of others or other forms of sexual
exploitation, forced labor or services, slavery, servitude or the removal or sale of organs.
The recruitment, transportation, transfer, harboring or receipt of a child for the purpose
of exploitation shall also be considered as “trafficking in persons.”
(e) Sex tourism – refers to a program organized by travel and tourism-related
establishments and individuals which consists of tourism packages or activities, utilizing and
offering escort and sexual services as enticement for tourists. This includes sexual services
and practices offered during rest and recreation periods for members of the military.62
60
61
Section 3(a), Republic Act 9262.
62
R.A. 9208, Anti-Trafficking in Persons Act of 2003, May 26, 2003.
351
Trafficking in persons is committed by a person, natural or juridical, who performs the
following acts:
(a) To recruit, transport, transfer, harbor, provide, or receive a person by any means,
including those done under the pretext of domestic or overseas employment or training
or apprenticeship, for the purpose of prostitution, pornography, sexual exploitation,
forced labor, slavery, involuntary servitude or debt bondage;
(b) To introduce or match for money, profit, material, economic or other consideration,
any person or, as provided for under Republic Act 6955, a Filipino woman to a foreign
national, for marriage for the purpose of acquiring, buying, offering, selling or trading
him/her to engage in prostitution, pornography, sexual exploitation, forced labor, slavery,
involuntary servitude or debt bondage;
(c) To offer or contract marriage, real or simulated, for the purpose of acquiring, buying,
offering, selling, or trading them to engage in prostitution, pornography, sexual
exploitation, forced labor or slavery, involuntary servitude or debt bondage;
(d) To undertake or organize tours and travel plans consisting of tourism packages or
activities for the purpose of utilizing and offering persons for prostitution, pornography
or sexual exploitation;
(e) To maintain or hire a person to engage in prostitution or pornography;
(f) To adopt or facilitate the adoption of persons for the purpose of prostitution, pornography,
sexual exploitation, forced labor, slavery, involuntary servitude or debt bondage;
(g) To recruit, hire, adopt, transport or abduct a person, by means of threat or use of force,
fraud, deceit, violence, coercion, or intimidation for the purpose of removal or sale of
organs to said person; and
(h) To recruit, transport or adopt a child to engage in armed activities in the Philippines or
abroad.63
The United Nations Convention on the Rights of the Child64

The Convention on the Rights of the Child was carefully drafted over the course of 10
years (1979-1989) with the input of representatives from all societies, all religions, and all
cultures. On November 20, 1989, the General Assembly of the United Nations unanimously
adopted the Convention on the Rights of the Child. This is probably the most significant of
all international instruments because many of the signatory countries base their legislation
against child sexual exploitation. The Convention expressly condemns the sexual exploitation
of minors in prostitution and illegal sexual practices.
The member states of the United Nations, convinced that the exploitation of children
is a paramount concern, set forth procedures that protected children against continuing and
evolving violations to their rights.
The Convention consists of 54 Articles, all regarding the rights of a child. The excerpts
noted below are Articles from the Convention directly related to the sexual exploitation of
children.
Article 1
For the purposes of the present Convention, a child means every human being younger
than 18 years unless, under the law applicable to the child, majority is attained earlier.
63
Section 4, R.A. 9208, Anti-Trafficking in Persons Act of 2003, May 26, 2003.
64
http://www.unicef.org/crc
352
Article 19
1. States Parties shall take all appropriate legislative, administrative, social, and educational
measures to protect the child from all forms of physical or mental violence, injury, abuse,
neglect or negligent treatment, maltreatment or exploitation, including sexual abuse,
while in the care of parents, legal guardians, or any other person who has the care of the
child.
2. Such protective measures should, as appropriate, include effective procedures for the
establishment of social programs to provide necessary support for the child and for
those who have the care of the child, as well as for other forms of prevention and for
identification, reporting, referral, investigation, treatment, and follow-up of instances of
child maltreatment described heretofore, and, as appropriate, for judicial involvement.
Article 34
States Parties undertake to protect the child from all forms of sexual exploitation and
sexual abuse. For these purposes, States Parties shall in particular take all appropriate national,
bilateral, and multilateral measures to prevent
(a) The inducement or coercion of a child to engage in any unlawful sexual activity;
(b) The exploitative use of children in prostitution or other unlawful sexual practices;
(c) The exploitative use of children in pornographic performances and materials.
Article 35
Obligates states to prevent the abduction, sale, and trafficking of children.
World Congress Against Commercial Sexual Exploitation of Children65

In 1996 the First World Congress Against Commercial Sexual Exploitation of Children was
convened in Stockholm, Sweden, as a forum to develop strategies for an international response.
The World Congress adopted a Declaration and Agenda for Action that highlights existing
international commitments, identifies priorities for action, and assists in the implementation
of relevant international instruments. It calls for action from governments, all sectors of
society, and national, regional, and international organizations against the commercial-sexual
exploitation of children. It emphasizes cooperation, prevention, and protection of children,
recovery and rehabilitation. In addition it promotes the participation of children in developing
and implementing governmental programs designed to help them.
In December 2001 the Second World Congress on Commercial Sexual Exploitation of
Children, hosted by the Japanese Government in association with the Prefecture of Yokohama,
took place in Yokohama.
The objectives of the Second World Congress were to enhance political commitment to
the implementation of the Agenda for Action adopted at the First World Congress; review
progress in the implementation of this Agenda; share expertise and good practices; identify
main problem areas and/or gaps in the fight against commercial sexual exploitation of children;
and strengthen the follow-up process of the World Congress.

Case: Mommy Elaine is a businesswoman who recruits young women, aged 15 to 24, from
far-flung provinces with the promise of work in Manila as factory workers, housemaids, and
waitresses. When the girls arrive in Manila, they are kept in a safehouse where food, sanitation
and ventilation are inadequate. After a few days upon arrival, some are brought to nightclubs
65
http://www.ecpat.net/eng/index.asp
353
in Manila, Pasay City and Quezon City and forced to work as bar girls. In most cases, they
are required to have sex with male customers. Does this constitute trafficking? What are the
consequences of being caught with this crime?
Legal Opinion: Yes, such action of Mommy Elaine constitutes trafficking in persons. Mommy
Elaine has specifically violated Section 3(a) Republic Act 9208 for having recruited, transported,
transferred, harbored, provided or received a person by any means, including those under the
pretext of domestic employment, or training or apprenticeship for the purpose of prostitution
and sexual exploitation.
International Law on Tourism66
The Law
World Tourism Organization
The World Tourism Organization (UNWTO) is a specialized agency of the United
Nations and the leading international organization in the field of tourism. It serves as a global
forum for tourism policy issues and a practical source of tourism know-how. It plays a central
and decisive role in promoting the development of responsible, sustainable and universally
accessible tourism, paying particular attention to the interests of developing countries.
The Organization encourages the implementation of the Global Code of Ethics for Tourism,
with a view to ensuring that member countries, tourist destinations and businesses maximize
the positive economic, social and cultural effects of tourism and fully reap its benefits, while
minimizing its negative social and environmental impact.
Its membership includes 157 countries (including the Philippines) and territories and
more than 300 affiliate members representing the private sector, educational institutions,
tourism associations and local tourism authorities. UNWTO is committed to the United Nations
Millennium Development Goals, geared towards reducing poverty and fostering sustainable
development.
The Global Code of Ethics for Tourism

The Global Code of Ethics for Tourism sets a frame of reference for the responsible and
sustainable development of world tourism. It draws inspiration from many similar declarations
and industry codes that have come before and it adds new thinking that reflects our changing
society at the beginning of the 21st century. With international tourism forecast to nearly triple
in volume over the next 20 years, members of the World Tourism Organization believe that the
Global Code of Ethics for Tourism is needed to help minimize the negative impacts of tourism
on the environment and on cultural heritage while maximizing the benefits for residents of
tourism destinations.67

The Global Code of Ethics for Tourism (GCET) is a comprehensive set of principles whose
purpose is to guide stakeholders in tourism development, central and local governments, local
communities, the tourism industry and its professionals, as well as visitors, both international
and domestic.
66
World Trade Organization, www.unwto.org
67
Francesco Frangialli, Secretary-General of the World Tourism Organization.
354
The Code was called for in a resolution of the UNWTO General Assembly meeting in
Istanbul in 1997. Over the following two years, a special committee for the preparation of
the Global Code of Ethics was formed and a draft document was prepared by the Secretary-
General and the legal adviser to UNWTO in consultation with UNWTO Business Council,
UNWTO’s Regional Commissions, and the UNWTO Executive Council.
The United Nations Commission on Sustainable Development meeting in New York in
April, 1999 endorsed the concept of the Code and requested UNWTO to seek further input
from the private sector, non-governmental organizations and labor organizations. Written
comments on the code were received from more than 70 UNWTO Member States and other
entities. The resulting 10 point Global Code of Ethics for Tourism – the culmination of an
extensive consultative process- was approved unanimously by the UNWTO General Assembly
meeting in Santiago in October 1999.
The United Nations Economic and Social Council (ECOSOC) adopted a draft resolution on
the Code of Ethics and called on the UN General Assembly to give recognition to the Code. The
official recognition by the UN General Assembly to the Global Code of Ethics for Tourism came
on 21 December 2001, through its resolution A/RES/56/212 by which it further encouraged
the World Tourism Organization to promote an effective follow-up of the Code.
UNESCO World Heritage

The United Nations Educational, Scientific and Cultural Organization (UNESCO) seeks
to encourage the identification, protection and preservation of cultural and natural heritage
around the world. This is embodied in an international treaty called the Convention concerning
the Protection of the World Cultural and Natural Heritage, adopted by UNESCO in 1972.
The mission of UNESCO’s World Heritage is to:
• encourage countries to sign the World Heritage Convention and to ensure the protection
of their natural and cultural heritage;
• encourage States Parties to the Convention to nominate sites within their national territory
for inclusion on the World Heritage List;
• encourage States Parties to establish management plans and set up reporting systems on
the state of conservation of their World Heritage sites;
• help States Parties safeguard World Heritage properties by providing technical assistance
and professional training;
• provide emergency assistance for World Heritage sites in immediate danger;
• support States Parties’ public awareness-building activities for World Heritage
conservation;
• encourage participation of the local population in the preservation of their cultural and
natural heritage;
• encourage international cooperation in the conservation of our world’s cultural and
natural heritage.
States Parties are countries which have adhered to the World Heritage Convention.They
thereby agree to identify and nominate properties on their national territory to be considered
for inscription on the World Heritage List. When a State Party nominates a property, it gives
details of how a property is protected and provides a management plan for its upkeep. States
Parties are also expected to protect the World Heritage values of the properties inscribed and
are encouraged to report periodically on their condition. The Philippines is one of the members
of the States Parties adhering to the World Heritage Convention. As incentive, sites awarded
as World Heritage may seek international assistance from the UNESCO for the preservation of
these sites upon submission of written requirements through the States Party concerned.
355
In the Philippines, the following have been awarded as UNESCO World Heritage:
(a) Baroque Churches of the Philippines – These are the Immaculate Conception, District
of Intramuros, City of Manila; Nuestra Señora, Municipality of Santa Maria, Province
of Ilocos Sur; San Agustin, Municipality of Paoay, Province of Ilocos Norte; and Santo
Tomas, Municipality of Miagao, Province of Iloilo. Their unique architectural style is a
reinterpretation of European Baroque by Chinese and Filipino craftsmen.
(b) Tubbataha Reef Marine Park – This covers 33,200 ha, including the North and South
Reefs. It is a unique example of an atoll reef with a very high density of marine species.
(c) Rice Terraces of the Philippine Cordilleras – For 2,000 years, the high rice fields of the
Ifugao have followed the contours of the mountains. The fruit knowledge handed down
from one generation to the next, and the expression of sacred traditions and a delicate
social balance, they have helped to create a landscape of great beauty that expresses the
harmony between humankind and the environment.
(d) Historic Town of Vigan – Established in the 16th century, Vigan is the best-preserved
example of a planned Spanish colonial town in Asia. Its architecture reflects the coming
together of cultural elements from elsewhere in the Philippines, from China and from
Europe, resulting in a culture and townscape that have no parallel anywhere in East and
South-East Asia.
(e) Puerto Princesa Subterranean River National Park – This park features a spectacular
limestone karst landscape with an underground river. One of the river’s distinguishing
features is that it emerges directly into the sea, and its lower portion is subject to tidal
influences. The area also represents a significant habitat for biodiversity conservation.
The site contains a full “mountain-to-sea” ecosystem and has some of the most forests in
Asia.

Case: Haring Ibon, a publication of Haribon Foundation, recently reported that the famous
tourist spot, Banaue Rice Terraces, has been threatened by “giant earthworms” aside from
other pests which are dissipating and destroying the terrace walls. Hence, a resolution has
been urged to conduct a comprehensive report on the degradation of the Banaue Rice Terraces,
a world heritage site, due to pestilence. The unprecedented pestilence of the terraces have
resulted in the extinction of its traditionally present biodiversity and ecological equilibrium.
In addition, there has been propagation of the golden kuhol (snails) in the paddies of the
Banaue Rice Terraces. Such propagation was introduced by the Department of Agriculture
to augment food supply of the residents in the area. However, such propagation is a major
problem threatening the “eighth wonder of the world” because no successful interventions to
control biological pests have been introduced by relevant government agencies including the
Department of Agriculture (DA) and the Department of Environment and Natural Resources.
What are the possible remedies which may be instituted by the government to save the
Rice Terraces from extinction?
Legal Opinion: Since the Rice Terraces has been cited as a World Heritage site by UNESCO,
the Philippine government may seek intervention from UNESCO to help save the Rice Terraces
from extinction. In this regard, the Philippine government may create a government-agency
in charge of supervising the restoration of the rice terraces and would monitor its situation.
The Philippine government may also seek international assistance from the UNESCO World
Heritage fund for conservation and management of the Rice Terraces.
356
Health Tourism
The Law
Health tourism is tourism associated with travel to health spas or resort destinations
where the primary purpose is to improve the traveler’s physical well-being through a regimen
of physical exercise and therapy, dietary control, and medical services relevant to health
maintenance.68

It is in this regard that the Department of the Tourism has the following objectives related
to health tourism:
(a) To position the Philippines as a competitive health vacation destination in Asia;
(b) To broaden the marketability of the Philippines as a destination by way of diversifying its
tourism products; and
(c) To increase awareness on Philippine Medical Tourism in target markets through aggressive
marketing and promotion programs.
The components of health tourism are as follows:

(a) Spa Tourism
(b) Medical Tourism
Spa tourism is a component of health tourism in the Philippines which comprises a wide
range of body pampering, health and beauty treatments which will integrate and promote
traditional Filipino healing modalities and use of local herbs, oils and essences.
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.69
The concept of Philippine medical tourism is to offer cost-effective medical treatments while
simultaneously showcasing tourist attractions in the Philippines. Special itineraries shall be
available for both domestic and international patients who are interested to combine treatment
with leisure.
Some of the advantages of developing medical tourism in the Philippines are as follows:
(a) Competitive medical costs
(b) Filipino doctors are trained with western medical orientation
(c) The Philippines is recognized as having highly skilled medical professionals
(d) Filipino medical practitioners have a nurturing and caring attitude
(e) Fluency in the English language
The following have been classified as accredited hospitals for medical tourism by the
Department of Tourism:
(a) St. Luke’s Hospital
(b) Asian Hospital
(c) The Medical City
68
World Tourism Organization.
69
Rules and Regulations to Govern the Accreditation of Tertiary Hospitals for Medical Tourism, June 27, 2003.
357
(d) Makati Medical Center
(e) Capitol Medical Center
(f) University of Sto. Tomas Hospital
(g) St. Frances Cabrini Hospital
The incentives in terms of investments in health tourism are as follows:

(a) For spa tourism, reduced import tariff on selected Spa Equipment.
(b) For medical tourism, income tax holidays and reduced tariff (1%) on selected medical
equipment.
Please refer to Chapter 10 (Laws Regulating Restaurants and Other Tourism Related
Establishments) for the accreditation of Spas and tertiary hospitals for medical tourism.

Case: Vikesh Manel is a Chamorro native of Guam seeking medical treatment in the Philippines
because of the country’s proximity and relatively cheaper cost of hospitalization and treatment.
His travel agent recommended some hospitals not known to be accredited by the Department
of Tourism for medical tourism. Should Mr. Manel follow his travel agent’s advice? Why or
why not?
Legal Opinion: No, Mr. Manel should not follow his travel agent’s advice because of the risk
that the hospital might not improve his physical well-being in the long run. The objective of
Philippine 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. Mr. Manel should consider looking for tertiary hospitals accredited by the Department
Tourism to make sure that his physical health and well-being will improve. Besides, the offer
of cost-effective medical treatments while simultaneously showcasing tourist attractions in the
Philippines will be a better alternative for Mr. Manel. It will also be good for the marketability
of the Philippines as a competitive health vacation destination in Asia.
Tourism Research
The Law
The growth and development of the tourism industry is imperative in the context of
regional and countryside development. It generates employment (roughly 2.3 million jobs),
trade and business opportunities. It also promotes strong backward and forward linkages with
other industries such as transport, real estate and property development hotels/resorts, gift
shops, restaurants, jewelry, construction, among others.
The passage of the Local Government Code of 1991 started the decentralization process
by devolving the tourism functions on promotion and planning to the Local Government Units
(LGUs). Towards this end, the Department of Tourism has organized Regional Tourism Councils
(RTCs) composed mostly of private sector representatives as well as government counterparts
from the LGUs and Regional Tourism Councils. These RTCs are mandated to coordinate all
efforts in the planning and promotion of tourism activities at the regional level.
As part of the function of the Department of Tourism, the Tourism Planning, Product
Development and Coordination Sector (which includes tourism research) is responsible
for the formulation and updating of the Tourism Master Plan, together with its component
programs. The sector monitors the effective implementation of the Tourism Master Plan and,
358
in coordination with the private sector and other government institutions, develops and
conceptualizes new products and investment opportunities designed to enhance tourist sites
and facilities.70
Any individual, partnership, association or corporation may engage in tourism research.
A research output shall be protected by the law on copyright under Republic Act 8293 known
as the Intellectual Property Code of the Philippines. A research output may be considered
either as an:
(a) Original intellectual creation in the literary domain protected from the moment of their
creation. Such work is protected by the sole fact of its creation, irrespective of its mode or
form of expression, as well as of its content, quality and purpose; or
(b) Derivative work which is a collection of scholarly works, and compilation of data and other
materials which are original by reason of the selection or coordination or arrangement of
their contents.71
In case of work created by an author during and in the course of his employment, the
copyright shall belong to:
(a) the employee if the creation of the object of copyright is not a part of his regular duties
even if the employee uses the time, facilities and materials of the employer;
(b) the employer, if the work is the result of the performance of his regularly-assigned duties,
unless there is an agreement, express or implied, to the contrary.72 The work which is
the result of the performance of his regularly assigned duties may be done by a regular
employee who performs activities which are usually necessary or desirable in the usual
trade or business of the employer.73

In the case of work commissioned by a person other than an employer of the author
and who pays for it and the work is made in pursuance of the commission, the person who
commissioned the work shall have ownership of the work, but the copyright thereto shall
remain with the creator, unless there is a written stipulation to the contrary.74 This is a kind of
project employment covered under Article 280 of the Labor Code of the Philippines.
In this regard, an exclusive license for the copyright may be filed in duplicate with the
National Library upon payment of the prescribed fee for registration in books and records kept
for the purpose.75

Case: Asia Pacific Projects, Inc. is a sought-after reputable tourism research company that
has handled major accounts around the country and outside the Philippines. Who would
have the right to claim ownership to the written outputs or research reports produced by its
researchers?
Legal Opinion: It depends on the employment arrangement inside Asia Pacific Projects, Inc.
70
www.lawphil.net
71
Sec. 172-173, R.A. 8293.
72
Sec. 178.3, R.A. 8293.
73
Article 280, Labor Code of the Philippines, as amended.
74
Sec. 178.4. R.A. 8293.
75
Sec. 182, R.A. 8293.
359
(a) If Asia Pacific Projects, Inc. considers its researchers as regular employees performing
tasks which are necessary and desirable in the usual business of the company, the
copyright and ownership of the written outputs produced by the researchers shall belong
the employer (APPI), unless there is an agreement, express or implied, to the contrary.76
(b) If Asia Pacific Projects, Inc. is not considered an employer of the researcher but merely pays
for every research output done by the researcher, and the work is made in pursuance of
the commission, Asia Pacific Projects, Inc. (the person who commissioned the work) shall
have ownership of the work, but the copyright thereto shall remain with the researcher,
unless there is a written stipulation to the contrary.77 This is usually in the form of a
written agreement between the research outfit and the researcher. If there is an agreement
that the client company of APPI will eventually take ownership of the output, then that
shall prevail.
1. Who is regarded a senior citizen?

2. What are the benefits of senior citizens when they present their senior citizen ID card
to tourism-related establishments?
3. What are the salient points of the Human Act of 2007?
4. What are the functions of the government agencies tasked to implement the Consumer
Act of the Philippines?
5. What are the rights of Indigenous Cultural Communities (ICCs)?
6. What are examples of items which foreign tourists cannot take out of the country in
relation to R.A. 9147?
7. What is the importance of a company logo in relation to R.A. 8293?
8. What is the rationale of the Anti-Child Abuse Law or R.A. 7610?
9. Why are male prostitutes not covered by the Anti-Prostitution Law?
10. What is the test of obscenity in relation to P.D. 960 and 969?
11. What are the salient points of the Anti-Hijacking Law?
12. What is the rationale of the Dangerous Drugs Law?
13. Some people are saying that smoking is fast becoming an anti-social habit. Explain what
this means to you.
14. How would you differentiate human trafficking from prostitution?
15. Why is the Philippine government putting a lot of focus now on health tourism? What
did they realize?
16. Why is the Global Code of Ethics on Tourism important?
17. How would you characterize the way companies treat tourism research in the
Philippines?
18. In what sectors of tourism can you apply the Anti-Smuggling Law?
76
Sec. 178.3, R.A. 8293.
77
Sec. 178.4. R.A. 8293.
360
Senior Citizen Market

Talk to senior citizens who have the senior citizen’s ID card.
Ask them if they have used their privileges in tourism-related
establishments like restaurants, hospitals, hotels, transportation,
cinemas, shopping malls, etc. Were there establishments that refused
to recognize their ID cards and not extend their privileges? Discuss
in class.
PWD-Friendly Establishments
Do a walking tour of 5 to 10 tourism-oriented establishments
in your community.
• Checkout if they have facilities that would allow
persons with disabilities to avail of their products and
services.
• Consider all kinds of disabilities, e.g. deafness, blindness, physical disabilities, etc.
• Rate establishments from 1 to 5 (5 being the most complete and PWD-friendly and
1 being the least).
• Discuss your findings in class.
Impromptu Speech Contest

Organize an impromptu speech contest within the class with the following topics: (a)
ban on smoking in restaurants, (b) proliferation of spas, (c) regular medical check-up on
sex workers, (d) security systems in hotels, (e) displacement of the Mangyans of Mindoro, (f)
extinction of the tamaraws. The teacher may add more topics.
RESEARCH PROJECT
In the 1990s, a row arose between Shangri-la Hotel and Resorts,
the international deluxe chain of hotels, and Shangri-la Restaurant,
a local Chinese restaurant, on the use of the brand name “Shangri-la.”
Research on the case and find out what was the verdict of the court.
Do you agree with the decision of the court? Why or why not? What
is the rationale behind the intellectual property rights law? How
important is registering a company’s business name? What are the
possible consequences of violating the IPR law?
361
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363
www.hotelinformation.com
www.pata.org
www.sunstar.com.ph
www.pinoytravelblog.com
www.orientalheart.com
www.flickr.com
www.yahoo.com
www.google.com
364
Index
A Bureau of Food and Drugs, 108
Access Device, 229 role, 185
frauds on, 231
Adjective Law, 2 C
Animal Transportation Policies, 129 Cagayan Economic Zone and Free Port
Visa, 321
Anti-Child Abuse Law, 343
Calesa
Anti-Hijacking Law, 346
regulating laws, 135
Anti-Pornography Law, 345
accreditation, 135
Anti-Prostitution Law, 344
Camouflage Passports, 318
Anti-Smoking Law, 348
Capitalist Partner, 39
Anti-Smuggling Law, 349
Casual Employee, 256
Anti-Terrorism Law, 336
Caterer, 183
Apartel, 140
Cave, 340
Apprentice, 259
Check, 216
Apprenticeship Agreement, 259
Civil Interdiction, 43
Arresto menor, 191
Code on Sanitation of the Philippines, 146
Articles of Incorporation (Sample), 51-63
Collateral Forms, 225
sample treasurer’s affidavit, 55
Collective Bargaining, 260
sample incorporation by-laws, 56
Commercial Documents, 231
Articles of Partnership (Sample), 35-39
Commission on Higher Education (CHED)
Autonomous Region of Muslim Mindanao
List, 234 guidelines on HRM/Tourism courses,
297
B on apprenticeship of HRM/Tourism
students, 298
Bangko Sentral ng Pilipinas, 95
on accreditation/deregulation of
Bank, 224
schools, 304
Barangay Micro Business Enterprise, 249
on processing of foreign students, 310
registration procedures, 250
Commodatum, 84
Beneficiary, 280
Common Carrier, 113
Bill of Exchange, 216
responsibilities, 114
Bill of Lading, 220
enforcement of liabilities against
Board of Investments, 101 carriers, 117
Build, Operate and Transfer Law damages recoverable from carriers, 117
state policy, 210 Conditional Obligation, 23
schemes, 210 Consumer Act of the Philippines, 337
qualification limitations, 211 agencies attached, 338
government undertakings, 213 Consumer Products, 185
Bureau of Customs, 108 Contract of Adhesion, 27
365
Contract of Agency, 79 documents required, 126
Contract of Carriage (nature), 114 accreditation of motorized boats,
Contract of Sale 127
characteristics, 70 accreditation of accommodation
establishments, 143
requisites, 70
constituted guidelines on security and
actions for breach, 78
safety, 158
Contract, 22, 27
accreditation requirements, 182
elements, 27
Department of Trade and Industry, 100
characteristics, 27
Department of Transportation and
classifications, 29 Communication, 99
Convention, 195 as a regulating body, 119
Corporation, 48 attached agencies, 99
kinds, 48 Land Transportation Office
advantages and disadvantages, 49 Land Transportation Franchising
distinctions with partnership, 49 and Regulatory Board
incorporation procedures, 50 functions, 123
dissolution and liquidation, 65 Maritime Industry Authority
government requirements, 66 functions, 122
Credit (of an individual), 84 Air Transportation Office
Credit Card, 229 Civil Aeronautics Board
Crimes (in tourism-related establishments), as a regulating body, 120
190-192 Light Rail Transit Authority
Metro Rail Transit Corporation
D
Philippine National Railways
Dangerous Drugs Law, 347
Department Store, 172
Department of Environment and Natural
minimum requirements for DOT
Resources, 96
accreditation, 173
power and functions, 96
guidelines on operation and
on conservation of caves, 341 maintenance, 181
jurisdiction over wildlife resources, 341 Deportation, 328
Department of Foreign Affairs, 105 Devolution, 184
Department of Interior and Local Domestic Market Enterprise, 202
Government, 107
Domestic Ship Owner or Operator (scope),
on formulation of waste management 123
programs, 156
Dual Citizenship Law, 332
Department of Labor and Employment, 98
Due Process of the Law, 7
Department of Public Works and
procedural due process requirements, 7
Highways, 99
Duty Free Philippines, 248
Department of Tourism, 90
functions, 90
E
accreditation of transport vehicles, 124
Ecological Solid Waste Management Act
standard requisites of accreditation,
125 purpose, 157
366
waste segregation standards, 157 H
prohibited acts, 157 Handicapped Workers, 259
Electronic Document, 169 Health Tourism, 357
Employee Classifications, 255 Hold Departure Guidelines, 331
Employees of a Fixed Term, 258 Hotel, 140
Employment Contract, 263 classifications, 141
Environmental Code of the Philippines responsibilities on deposits of
law on waste management, 156 occupants, 154
Equal Protection of the Law, 7
I
E-Ticketing (significance), 169
Indigenous Peoples Rights Act of 1997, 339
Eviction
Industrial Partner, 39
requisites, 78
Insolvency, 43
liability, 78
Insurable Interest, 282
Excise Taxes, 245
Insurance Contract, 280
Exclusion, 325
Insured, 280
Export Enterprise, 202
Insurer, 280
Extraordinary Diligence, 114
Intellectual Property Rights
scope of the term, 243
F
law, 343
Fantasy Passports, 317
International Law on Tourism, 354
Filipino Citizen (scope), 120
Intramuros Administration, 92
Fire Code of the Philippines, 146
functions of the agency, 93
Fire Insurance, 287
Investment Priorities Plan, 233
Food Caterers Association of the
Philippines, 183 incentives, 235
Foreign Exchange, 222 Invoice, 219
regulations, 223
J-K
Fortuitous Event (force majeure or caso
Joint Obligation, 23
fortuito), 25
Joint Venture, 239
Franchise, 242
Karaoke Bar, 172
Free on Board, 77
accreditation, 175
G
Gallery, 172
L
minimum requirements for DOT Labor
accreditation, 175
constitutional provisions, 253
guidelines on operation and
maintenance, 181 benefits (health and death), 265
General Banking Law (state policies), 223 retirement, 265
General or Public Law, 2 compensation (SSS, PAG-IBIG and
PhilHealth), 266
Global Code of Ethics for Tourism, 354
termination, 267
Gross Philippine Billings, 245
best labor practices in tourism-related
establishments, 275
367
Labor Discrimination (governing laws on), liability of a party in obligation, 19
272 sources, 22
Labor Dispute, 262 classifications, 22
Labor Management Council, 261 Obscenity, 9
Land Transportation Operator, 289 guidelines of determination, 9
Law on Human Trafficking, 351 Open-End-Credit Plan, 229
acts constituting human trafficking, 352 Overseas Filipino Workers (Migrant
Law on Violence Against Women and Workers), 259
Children, 350
Law, 1 P
kinds and classifications, 2 Pactum Commissorium, 34
Learners, 259 Partnership, 34
Legal Tender, 222 requisites, 34
Legislative Enactments, 3 advantages and disadvantages, 34
Letter of Credit, 221 classifications, 34
Liberty, 7 forms, 35
Light and Ventilation, 151 obligations of partners, 39
Loan (necessary documents for), 226 dissolution, 41
Local Government Units liquidation, 44-45
on tourism-related establishments, 184 government requirements, 66
on alcohol regulation, 187 Passenger, 289
Passport, 315
M types, 316
Malicious Mischief, 190 policies, 317
Management Contracts, 241 Patrimony of the Nation, 13
Manila Hotel, 13 Pension House, 140
Marine Insurance, 285 Percentage Taxes, 245
Maternity Leave, 261 Philippine Amusement and Gaming
Medical Tourism, 357 Corporation (PAGCOR), 95, 179
Minimum Wage, 260 taxes and exemptions, 180
Motor Vehicle, 289 prohibitions, 181
compulsory liability insurance, 289 Philippine Coast Guard, 109
Motorists Hotel (Motel), 140 Philippine Constitution, 3, 6
operation and management rules, 143 Philippine Convention and Visitors
Museum, 172 Corporation, 95
minimum requirements for DOT Philippine Economic Zone Authority, 103
accreditation, 174 Philippine Immigration Policies
guidelines on operation and visa categories for non-immigrants, 314
maintenance, 181 admission policies, 314
on non-immigrant Chinese and
O Indians, 315
Obligation with a Period, 23 additional requirements prior to entry,
Obligation, 19 323
elements, 19 extension of stay, 323
368
exclusion of foreigners, 324 accreditation, 173
deportation of foreigners, 327 guidelines on operation and
detention of foreigners, 329 maintenance, 181
departure requirements, 330 Retail Trade, 185
policy guidelines, 332 qualifications, 185
Philippine National (as defined in Foreign Right of Succession, 48
Investments Act), 201 Right to Control of Contractor, 83
Philippine Tourism Authority (general
powers), 91 S
Poisoning, 191 Sales Invoice, 219
Police Power, 12 Seasonal Employee, 256
Private Carrier, 113 Seatbelt Law, 128
Probationary Employee, 257 Senior Citizen Law, 335
governing rules, 257 Senior Citizen, 336
Probationary Employment Contract Sex Tourism, 351
(sample), 264 Sexual Harassment (in Schools), 306
Professional Congress Organizer, 195 Sexual Harassment (in Workplaces), 274
accreditation, 196 Shop, 172
safety duties, 197 minimum requirements for DOT
Project Employee, 256 accreditation, 173
Promissory Note, 216 guidelines on operation and
Property, 7 maintenance, 181
Public Utilities, 131 Simple Loan or Mutuum, 84
Public Utility, 14 Solidary Obligation, 23
Purchase Order, 220 Spa Tourism, 357
Pure Obligation, 23 Spa, 172
classifications, 176
Q minimum requirements for DOT
Qualified Filipinos, 13 accreditation, 177
Quasi-contract, 22 guidelines on operation and
maintenance, 181
Quasi-delict (culpa-aquilana), 22
Special Clark Economic Zone Visa, 321
R Special Economic Zone Visa, 320
Real Estate Mortgagee, 85 Special Economic Zones, 104
distinctions with Chattel Mortgage, 86 Special or Private Law, 2
Redhibitory Defects, 78 Sports and Recreational Club, 172
Regulate (in Subsection I, Section 2444 of minimum requirements for DOT
Administrative Code), 90, 184 accreditation, 174
Resort, 140 guidelines on operation and
maintenance, 181
classifications, 141
States Parties, 355
operation and management rules, 142
Strike, 262
Restaurant, 172
Subic Special Investors Visa, 320
369
Substantial Capital or Investment, 82 Travel Tax, 91
Substantive Law, 2 Travel Taxes, 246
Swindling, 232 exemption, 247
Treaty Investor, 319
T Treaty Trader, 319
Technology Transfer Arrangements, 243 Trust Receipt, 220
Tertiary Hospitals (for Medical Tourism),
172 U
minimum requirements for DOT UAI Draft Charter on the Rights of the
accreditation, 176 Minorities, 340
guidelines on operation and UNESCO World Heritage Sites (in the
maintenance, 181 Philippines), 356
Theft, 192 UNESCO World Heritage, 355
Timesharing, 243 United Nations Convention on the Rights
Tour Guide, 163 of Child, 352
accreditation, 166
responsibilities, 167 V
Tour Operator, 163 Value Added Tax, 244
accreditation, 163-165, 207 Vehicle Importation Laws, 130
responsibilities, 167 Vendor (obligations), 77
Tourism Competitiveness, 139 Visa, 318
Tourism Enterprise Zone Authority, 110
W
Tourism Law, 2
War Risk Insurance, 291
Tourism, 2
Warehouse Receipt, 220
Tourist Inn, 140
Wildlife Resources Conservation and
Traffic Laws, 132
Protection Act, 341
regulating laws on tricycles, pedicabs,
Wildlife, 341
bicycles and calesa, 135
Women Employment (state policies), 273
Travel Document, 316
World Tourism Organization, 354
Travel Sales Intermediary, 165
370

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Philippine Tourism Laws

Dean Danny Araneta Cabulay

Atty. Christine Palafox Carpio

Printed by Rex Printng Company, Inc.

Dean Danny Cabulay would like to dedicate this

Congratulations and Godspeed!

Chapter 2 The Philippine Constitution ................................................................. 6

Chapter 3 Law on Obligations and Contracts .................................................... 18

Chapter 4 Law on Partnership and Corporation ............................................... 33

Chapter 5 Law on Sales, Agency and Credit Transactions............................... 69

Chapter 6 The Tourism Public Sector .................................................................. 89

Chapter 7 Laws Regulating Transportation Establishments...........................112

Chapter 8 Laws Regulating Accommodation Establishments ...................... 139

Chapter 9 Laws Regulating Travel and Tour Services .................................... 162

Chapter 10 Laws Regulating Restaurants and other ........................................ 171

Chapter 11 Laws Regulating Professional Congress Organizers .................... 195

Chapter 12 Law Related to Tourism Investments and Finance ....................... 200

Chapter 13 Labor Law ........................................................................................... 253

Chapter 14 Insurance Law .................................................................................... 279

Chapter 15 Tourism and Hospitality Management Education........................ 295

Chapter 17 Special Topics...................................................................................... 335

Index ............................................................................................................................................... 365

The Case of the Coral Resort Drowning

Concept of Tourism Law

Importance and Application of Tourism Law

Sources of Law Relevant to the Tourism, Travel and Hospitality Industry

1. How would you define the law?

Fabrizio and Fiona

Sofija Feldman is an Israeli beauty queen participating in

The Case of the Kill Joy Administrator

The Bill of Rights

Discussion of the Law

Section 3. (1) The privacy of communication and correspondence shall be inviolable

Discussion of the Law

Section 4. No law shall be passed, abridging the freedom of speech, of expression, or of

Discussion of the Law

Discussion of the Law

Application of the Law

Discussion of the Law

Application of the Law

Section 10. No law impairing the obligations of contracts shall be passed.

Application of the Law

National Economy and Patrimony

Application of the Law

“The Manila Hotel has become a landmark - a living testimonial of Philippine

Discussion of the Law

Section 14. The sustained development of a reservoir of national talents consisting of

Application of the Law

The Case of the Disastrous Conference

Application of the Law

Application of the Law

(2) Secondary classification of obligations under the Civil Code:

Application of the Law

Modes of Extinguishing Obligations

Discussion of the Law

Discussion of the Law

Application of the Law

“Undertaking for the Use of Safety Deposit Box,”

1. What are the different kinds of obligations?

Hired and Fired

Case of Invest and Divest Strategy

Discussion of the Law

Advantages of forming a partnership:

WITNESS MY HAND AND SEAL this ____ at _,

WITNESS MY HAND AND SEAL this _ at _, Philippines.