Legal Aspects in Tourism and Hospitality

PALARIS COLLEGES
San Carlos City, Pangasinan
COLLEGE OF HOSPITALITY MANAGEMENT

Second Semester 2020-2021
MODULE
in
LEGAL ASPECTS IN TOURISM
AND HOSPITALITY
CHAPTER 1 REVIEW OF THE PHILIPPINE CONSTITUTION AND BUISNESS LAWS
The Case of Patty Robinson’ Drowning
The Robinsons family went on a 3-day sale weekend getaway in a resort in Cebu, the Coral
Resort, which takes pride in its hospitable service, first-rate cuisine, and well-maintained resort
facilities. Martin Robinson, president of an American multinational company based in Manila, took his
wife Angie and children Patty, aged6 and Geoff, aged5, to this beautiful resort to celebrate their
wedding anniversary. . The first day was enjoyable because the children had a great time at the
resort’s refreshing swimming pool despite the lack of a lifeguard on duty. The resort’s chef delighted
the family with local cuisine and every staff was courteous and cheerful . On the second day, there
were not many resort guests. Just before sunset, Angie woke up and started to look for patty who has
been missing for two hours. Geoff was with his dad the whole afternoon walking by the beach. After
searching for 15 minutes with the help of some hotel staff. Party was found in the swimming pool
already dead. One of the staff immediately performed standard CPR but the effort was to no avail.
Questions:
1. Can the Robinson family hold the hotel liable for the death of their daughter?
2. What are the responsibilities of a resort with a swimming pool?
3. Would you consider the resort negligent?
4. What are the rights of the hotel guests?
5. What is the role of the Department of Tourism (DOT) and the local government in
ensuring safety of guests in resorts and hotels?
Objectives:
 Explain the concept of Tourism law, its sources and examples of its application
 Identify vital provisions in the Philippine Constitution related to tourism and travel
 Enumerate the rights of travelers as well as entities engaged in tourism
 Identify the different kinds of obligations and contracts as applied in the tourism industry
 Differentiate the various kinds of partnerships and corporations
 Identify the requirements in the formation and dissolution of partnerships and corporations
 Describe and explain the nature of sales and credit transactions
 Identify the functions and operations of agencies in the tourism industry
Kinds of Law
The different kinds are classified as follows:
As to purpose:
1. Substantive Law- a law that creates, defines, and regulates rights, or which regulates the rights
and duties which give rise to a cause of action.
2. Adjective Law- a law that provides the method of aiding and protecting certain rights.
As to scope:
1. General or Public Law- a law that applies to all the people of a state or to all of a particular class
of persons in a state, with equal force and obligation. Examples are:
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a. Criminal Law- a law dealing with crimes and their punishment, as wel as the procedure for that
purpose.
b. International Law- a body of rules or principles of action governing the relations between States.
c. Political law- law regulating the relations sustained by the inhabitants of a territory to the
sovereign.
2. Special or Private Law- a law which relates to particular persons or things of a class. Examples
are:
a. Civil Law- the mass of precepts which determines and regulates those relations of assistance,
authority, and obedience existing among members of a family and those, which exist among
members of a society for the protection of private interests.
b. Maritime law- the law dealing with commerce by sea, involving regulation of ships and harbors
and the status of seamen.
c. Mercantile Law- the law of commercial transactions derived from the law of merchant which
includes, commercial paper, insurance, and other types of agency.
Concept of Tourism Law

Tourism is defined as the custom or practice of traveling for pleasure, as well as the promotion
by the establishment of countries to attract tourist.
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. It applies to various sectors as hospitality, travel trade, attractions, MICE (meetings,
incentives, conventions, events), academe, labor, and the public sector.
Sources of Law Relevant to the Tourism Industry

1. The Philippine Constitution- It is the fundamental law of the land, to which all other laws must
conform.
2. Statues or legislative enactments- It is the written will of the legislative department rendered
authentic by certain prescribed forms and solemnities, prescribing rules of action, or civil
conduct with respect to persons, things, or both. Examples: Dangerous Act, Public Service Act,
Civil Code of the Philippines, Labor Code of the Philippines, Revised Penal Code, Seatbelt law, and
local government ordinances.
3. Administrative or executive orders, regulations, and rulings- These are issued administrative
officials under legislative authority. Examples: (a) Rules and Regulations promulgated by the
Secretary of Tourism to Govern the Accreditation of Hotels, Tourist Inns, Motel, Apartelles,
Resorts, Pension Houses, and other Accommodation Establishments; (b) BIR circulars and rulings;
Administrative issuances by the Department Foreign of Foreign Affairs; and Omnibus Rules
Implementing the labor Code of the Philippines.
4. Judicial decisions or jurisprudence-These refer to the decisions of the Supreme Court in
interpreting the laws of the Constitution.
5. Custom-It is a rule of conduct which in a given place among given groups of people, has been
followed for an appreciable time.
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6. Other sources- These refer to decisions of foreign tribunals and opinions of textbook writers.
The Philippine Constitution
The Constitution is defined as the original and fundamental principles of law by which a
system of government is created and according to which a country is governed. It is the fundamental
law of the land, to which other laws must conform. It is a written instrument by which the
fundamental powers of the government are established, limited, an defined, and by which those
powers are distributed among several departments for their safe and useful exercise for the benefits
of the body politic.
Article III (Bill of Rights) and Article XII (National and Patrimony) are some of the Constitutional
provisions related to tourism which may be given preferential attention.
The Law
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.
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 pf others.
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 vocation; and for the purpose, to enter
into all contracts which may be proper, necessary, and essential to his carrying out these purposes to
a successful conclusion. Liberty is the freedom to do right and never wrong; it is guided by reason and
the upright and honorable conscience of the individual.
“ 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.
“Equal protection of the law” means that persons similarity situated should be similarly
treated. There should be no favoritism. The benefits of membership in a state as well as the burdens
should be distributed in equal measure. Uniformity of treatment should be the rule.
“Due process of law” is a law which hears before condemns; which proceeds upon inquiry,
and renders judgment after trial. Due process of law does not necessarily mean a judicial proceeding
in the regular courts. The guarantee of due process, viewed in its procedural aspect, requires no
particular form of procedure. It implies due notice to the individual of the proceedings, an
opportunity to defend himself and the problem of the propriety of the deprivations, under the
circumstances presented, must be resolved in a manner consistent with essential fairness. In effect, it
means a fair and impartial and reasonable opportunity for the preparation of the defense.
The essential requirements of procedural due process in courts are as follows: (1) There must
be a court or tribunal clothed with judicial power to hear and determine the manner before it; (2)
jurisdiction must be lawfully acquired over the person of the defendant or over the property which is
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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.
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.
(2) Any evidence obtained in violation of this or the preceding section shall be inadmissible for
any proceeding.

The forms of correspondence and communication that are covered in the provision include
letters, telegrams, telephone calls, messages, and the like.
Republic Act No. 4200, otherwise known as the Anti-Wiretapping Law, provides penalties for
specific violations of the privacy of communication. Under Section 3 of the Act, the court will
authorize wiretaps in certain crimes such as treason, espionage, provoking war and disloyalty in case
of war, piracy, mutiny in the high seas, rebellion, conspiracy and proposal to commit rebellion, inciting
to rebellion, sedition, conspiracy to commit sedition, inciting to sedition, kidnapping, and other
offenses against national security.
Any evidence obtained in violation of the above shall be considered “fruit from the poisonous
tree” and shall not be admitted as evidence in any administrative or criminal proceeding.
The Law
For a labor-intensive industry like the tourism industry, it is common to have disputes between
the labor sector and management. Likewise, the depiction of women and children in an exploitative
manner has happened in the past. Freedom of speech has to be understood in the right context.
Section 4. No law shall be passed, abridging the freedom of speech, of expression, or of the
press, or the right of the people to assemble and petition the government for redress of grievances.

Speech, expression, and press include every form of expression, whether oral, CD, or DVD
recorded. The tourism industry, in some instances, has depicted women as objects of pleasure in
billboards, videos, advertisements, brochures, uniforms and attires they are made to wear on duty
during festivals, and even clandestine services by a number of spas, resorts, clubs, fitness centers,
entertainment bars, and events.
Obscenity is defined as it includes materials which, taken as a whole, appeals to the prurient
interest and lacks serious literacy, 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
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offensive way sexual conduct as prohibited by law; (c) the work as a whole lacks serious literary
artistic, political, or scientific value.
It is worth considering the pronouncement of the Supreme Court on obscenity as in the case
of People of the Philippines v. Padan Y Alova et al., G.R. No. L-7295. Thus:
“We have had occasion to consider offenses like the exhibition of still or moving pictures of
women in the nude, which we have condemned for obscenity and as offensive to morals. On those
cases, one might yet claim that there was involved the element of art; that connoisseurs of the same,
and painters and sculptors might find inspiration in the showing of pictures in the nude, or the human
body exhibited in sheer nakedness, as models in tableaux vivants. But an actual exhibition of the
sexual act, preceded by acts of lasciviousness, can have no redeeming feature. In it, there is no room
for art. One can see nothing in it but clear and unmitigated obscenity, indecency, and offense to
public morals, inspiring and causing as it does, nothing but lust and lewdness, and exerting a
corrupting influence especially on the youth of the land”.
The Law
Every person has the right to travel and reside anywhere he chooses.
Section 6. The liberty of abode and of changing the same within the limits prescribed 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.
The Law
Once again, the labor-intensive nature of the tourism industry elicits the possibility of unions
and associations being formed to protect the rights of employees.
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 them to strike. (See Social Security System Employees Association (SSSEA) et
al. v. The Court of Appeals et al.. G.R. No. 85279, July 28, 1989).
The Law
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Tourism makes use of lot of contract, 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 contacts shall be passed.
Discussion of Law
Under the Civil Code,the contract constitutes the law of the parties unless it violates some
provisions of law or public policy. The parties themselves make the law by which they shall be
governed, and it is the business of the courts to see that the parties to a legal contract comply with its
terms. A law changing the terms of the legal contract between parties, either in the time or mode of
performance, or imposes new conditions, or dispenses with those expressed, or authorizes for its
satisfaction something different from that provided in its terms is a law which impairs the obligation
of a contract, and is null and void. An interference with the terms of a legal contract by legislation is
unwarranted and illegal.
However, not all impairments of the contractual provisions violate the Constitution. The
Supreme Court has pronounced that a valid exercise of police power of the state is superior to the
obligations of contracts.
Police power is a prerogative enjoyed by the state and a limitation on liberty and property by
the bill of rights. It has been identified with the state authority to 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.
National Economy and Patrimony
The Law
It is important to be informed of some of the constitutional provisions on National Economy
and Patrimony because some are applicable to tourism.
Section 10. The Congress shall, upon recommendation of the economic and planning agency,
when the national interest dictates, reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by such citizens, or such
higher percentage as Congress may prescribe, certain areas of investments.
In the grant of rights 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.

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 v. Hernandez, No. L-
7995 , 101 Phil. 1155 (May 31, 1957), Filipinization of business may be done without violating the
equal protection clause.
The patrimony of the nation that should be conserved and developed refers not only to our
rich natural resources but also to the cultural heritage of our race. It also refers to our intelligence in
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arts, sciences, and letter. Therefore, we should develop not only our lands, forests, mines, and other
natural resources but also the mental ability or faculty of our people.
In its plain and ordinary meaning, the term patrimony pertains to heritage. When the
Constitution speaks of national patrimony, it refers not only to the natural resources of the
Philippines, but also to the cultural heritage of the Filipinos.
The term “qualified Filipinos” simply mean 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 of Filipino citizens
or organizations that are incompetent or efficient, since such an indiscriminate preference would be
counterproductive and inimical to the common good. In the granting of economic 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.
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 of the operation of a
public utility shall be granted except to citizens of the Philippines, or to corporations or
associations organized under the laws of the Philippines or at least 60 per centum of whose
capital is owned by such citizens, nor shall such franchise, certificate, or authorization be
exclusive in character for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition tat it shall be subject to amendment, alteration or
repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in
the governing body of any public utilities enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing of such corporation association must
be citizens of the Philippines.

The highlights of the above provision are as follows:
The first sentence provides that public utility franchise will be granted only two citizens on the
Philippines or to corporations at least sixty per centum of the capital of which is owned by citizens.
The second sentence allows the legislature to impair the obligation of franchise “when the
common good” so requires.
The last sentence authorizes the participation of foreign investors to participate as Board of
Directors of these public utility enterprises, but shall be limited to their proportionate share in the
capital as mandated in the first sentence. However, the executive and managing officers of such
public utility enterprise must be citizens of the Philippines
The term “public utility” is defined under Commonwealth Act No. 146 Section 13 (b) which
states:
“(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, subway motor vehicle, either for freight or passenger, or both with or without fixed route and
whether may be its classification, freight or carrier service of any class, express service, steamboat or
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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, and other
similar public services.
The Law
The country takes pride in developing a skilled workforce ranging from blue collar to white
collar jobs, from managerial to entrepreneurial talents, from scientist to artist. There is the reciprocity
especially when certain agreements in the World Trade Organization covering movement of people
and services will be implemented globally.
Section 14. The sustained development 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.

This constitutional provision mandates that the practice of a profession is reserved exclusively
to citizens of the Philippines. The Foreign Investment Negative List specially provides that foreign
investors are prohibited in engaging in much undertaking. In addition, the State shall prioritize
Filipino talents for employment in the country. Aliens may be employed but must obtain a working
visa from the Bureau of Immigration and a working permit at the Department of labor and
Employment (DOLE).
Obligations and Contracts
The Law
A person desiring to engage in a business in the tourism, travel, and hospitality industry will
meet certain obligations. Agreements arising from contracts will have to be made, and potential
breach from these agreements will be encountered. Therefore, there is need to study the
fundamental principles involving the Law on Obligations and Contracts.
Obligations
Article 1156. An obligation is a juridical necessity to give, to do or not to do.

An obligation is a legal duty, however created, the violation of which may become the basis of
an action law.
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 presentation, which is an object or undertaking to give, to do, or not to do; and
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4) The juridical or legal tie, the vinculum which binds the contracting parties. The juridical tie or
vinculum is based on the soures of obligation arising from either the law or contract.
It is vital to identify the prestation in a certain obligation. Once the prestation is idetified, you
can determine who the passive subject is whom the active subject can demand fulfillment of the
obligation.
The following are the obligations of the passive subject:

1) Obligations to give a determine thing:
(a) To deliver the thing which he has obligated himself to give.
(b) To take care of the thing with the proper diligence of a good father of a family.
(c) To deliver all its accessories and accessions.
(d) To pay damages in case of breach of obligation.
2) Obligations to do:
(a) If the debtor fails to do what he is obliged to do, it will be done at his expense.
(b) If the work is done in contravention of the tenor of the obligation, it will be re-done at
debtor’s expense.
(c) If the work is poorly done, it will be re-done at debtors, expense.
The sources of liability (for damages) of a party in an obligation are as follows:

1) Fraud. The fraud is incidental fraud (dolo incidente) which is fraud incident to the performance of
an obligation. In fraud, there is an intent to evade the normal fulfillment of the obligation and to
cause damage.
2) Negligence. The negligence referred here, in the case of contracts ( i.e., common carrier) is culpa
contractual, the lack of diligence, or careless. Negligence consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the
persons, or the time and of the place.
The Law
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-cotracts;
(4) Acts or omissions punishable by law; and
(5) Quasi-delicts.

There are only two (2) sources of obligations, namely: (1) law; and (2) contracts because
obligations arising from quasi-contracts, crimes (No. 4, Article 1157, Civil Code of the Philippines) and
quasi-delicts are really imposed by law. (Leung Ben v. O’Brien, 38 Phil. 182)
A contract is a “meeting of the minds between two persons whereby one binds himself, will
respects to the other, to give something or to render some service.”
Quasi-contract refers to a lawful, and voluntary and unilateral act based on the maxim that
no one shall unjustly enrich himself at the expense of another. The two common forms of quasi-
contract are: (1) Solutio indebiti, which is payment by mistake; and (2) Negotiorum gestio, which
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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; and (2) by the provisions of the Civil Code on Damages (i.e., moral,
exemplary, and nominal damages).
Quasi-delict (also called culpa aquiliana) is any act or omission which causes damage to
another, there are being fault or negligence, and there being no preexisting contractual relation
between the parties.
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 ( Article 1423); and
(d) Legal, conventional, and penal obligations ( Articles 1157, 1159, 1161).

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: Pat promises to pay Joy P1,000.
A conditional obligation is one which consequences are subject in one way or another to the
fulfillment of a condition. Example: Carol promises to pay P1,000 if Darren remains to become an
outstanding employee of the hotel for the month of May.
An obligation with a period is one which consequences are subject in one way or another to
the expiration of the said period or term. Example: Alfredo (the owner of the hotel) promises to pay
Britney ( employee of the hotel ) P 5,000 on or before December 30, 2007, as part of the staff
incentive program.
Joint obligations are those where, although there concur two or more creditors and debtors,
in one and the same obligation, there is no right to demand nor 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 entirely, the prestation constituting the object of the
obligation. The term “joint and several” used in contracts is applied to the object of the obligation.
The term “joint and several” used in contracts is applied to liability in an obligation made by several
obligors when the obligee may at his option hold one or all liable together. However, this situation
arises only when the obligation expressly so states or when the law law or nature of the obligation
requires solidarity.
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Modes of Extinguishing Obligations
The Law
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merge of the rights of the creditor and debtor;
(5) By compensation; and
(6) By novation.
Other causes of extinguishment of obligations such as annulment, rescission, fulfillment of a

resolutory condition, and prescription, are governed elsewhere in this Code (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 event or by will of one of the parties as in some contracts such as partnership and agency.
Parties may stipulate any currency for payment of debts to extinguish obligations. In the
absence of any stipulation, payments must be made in the currency which is the legal tender in the
Philippines (the Philippine Peso). Payment in checks (whether manager’s or cashier’s checks) will
have the effect of payment under Article 1231, Civil Code only when these are already encashed or
cleared by the collecting banks. Payment by way if 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 prayer shall have the rights of reimbursement, acquires the rights of a creditor and may
recover what has actually paid.
Fortuitous event, also known as force majeure or caso fortuito, are terms with exempt an
obligor from liability. These are extraordinary events not forseeable or avoidable, events that could
not be (Article 1174, Civil Code of the Philippines0 foreseen, or which, though foreseen, were
inevitable. It is, therefore, not enough that the event could have been foreseen or anticipated, as is
commonly believed, but it must one impossible to foresee or to avoid.
Fortuitous events may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, tsunami, etc. And (2) by the act of man, such as armed
invasion ( or coup d’ etat), attack by bandits, government prohibitions, robbery, etc. In order that acts
of man may constitute fortuitous event, it is necessary that they have the force of an imposition
which the debtor could not have resisted (3 Salvat 83-84). Thus, the outbreak of war which prevents
performance exempts a party from liability (PNB v. Court of Appeals, 94 SCRA 357). Fortuitous event
includes unavoidable accidents, even if there has been an intervention of human element, provided
fault or negligence cannot be imputed to the debtor. If the thing has been lost through robbery with
violence, the debtor must show that he could not resist the violence. If the thing is lost through theft,
the debtor is considered negligent in having placed the thing within reach of thieves and not in a
secure or safe place; hence, the debtor will be liable for damages.
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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:
(1) Consent, which is manifested by the meeting of the minds of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance must be absolute;
(2) Object certain, which is the subject matter of the contract; and
(3) Cause of the obligation which is established.
A contract of adhesion is defined as one in which almost all the provisions have been drafted
only by one party, usually a corporation or insurance company. The only participation of the other
party is the signing of his signature or his adhesion. Some writers believe that such contracts
suppress the will of one of the contracting parties, hence not a true contract. However, this is not
always juridically true. Normally , the party who adheres to it is in reality free to reject entirely; if he
adheres, then he gives his consent.
Characteristics of a Contract
(1) Mutuality of Contracts. It is validity and performance cannot be left to the will of only one of the
parties.
(2) Autonomy of Contracts. Parties are free to stipulate terms and provisions in a contract, as long as
these and provisions are not contrary to law, morals, good customs, public order, and public policy.
(3) Relativity of Contracts. Contracts are binding only the parties and their successors-in-interest.
Exception: Stipulation in favor of a third person (stipulation pour auturi) as in a beneficiary of an
insurance policy.
(4) Consensuality of Contracts. Contracts are perfected by mere consent, and no form is prescribed
by law for their validity. Exception: (a) real contracts ( such as pledge, chattel mortgage); and (b)
contracts covered under the Statue of Frauds.
(5) Obligatory Force of Contracts. By the obligatory force of contracts, it constitutes the law as
between the parties who are compelled to perform under the threat of being sued in the courts of
law.
Classification of Contracts
(1) According to their relation to other contracts:
(a) Preparatory- or those which have for their object the establishment of a condition in law which
is necessary as a preliminary step toward the celebration of another subsequent contracts.
Examples: partnership, agency, common carrier, insurance
(b) Principal- or those which can subsist independently from other contracts and whose purpose
can be fulfilled by themselves.
Examples: sale, lease, common carrier, insurance
(c) Accessory- or those which can exist only as a consequence of, or in relation with, another prior
contract. Examples: pledge, mortgage
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(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- or those which require no particular form. Example loan
(b) Special or formal- or those which require some particular form. Examples: donation, chattel
mortgage
(4) According to their purpose:
(a) Transfer of ownership. Example: sale
(b) Conveyance of use. Example: commodatum
(c) Rendition of services. Examples: agency, lease of services, labor
(5) According to their subject matter:
(a) Things. Examples: sale, deposit, pledge
(b) Services: Examples: agency, lease of services, labor
(6) According to the nature of the vinculum which they produce:
(a) Unilateral- or those which give rise to an obligation for only one of the parties. Examples:
commodatum, gratuitous deposit
(b) Bilateral- or those which give rise to reciprocal obligations for both parties. Examples: sale,
lease
(7) According to their cause:
(a) Onerous- or those in which each of the parties aspires to procure for himself a benefit through
the giving of an equivalent or compensation. Examples: sale, insurance, common carrier
(b) Gratuitous-or those in which one of the parties propoes 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 pecuniarily appreciable, is not yet determined
at the moment of the celebration of the contract, since it depends upon the happening of an
uncertain event, thus charging the parties with the risk of loss or gain. Example: insurance
(9) According to their names or norms regulating them:
(a) Nominate- or those which have their own individuality and are regulated by special provisions
of law. Examples: sale, lease, common carrier, insurance, deposit, agency
(b) Innominate- or those which lack individuality and are not regulated by special provision of law.
In the Roman Law, the innominate contracts were classified into four groups: do ut des ( I give
and you give ), do ut facias ( I give and you do), facio ut facias ( I do and you do), and facio ut
des ( I do and you do).
In a high-level industry like the tourism sector, it is imperative that one strictly complies with
legal requirements in order to operate as a legitimate business. Start-up operations must have a
strong foundation, and in order to have a strong foundation, you must start with a strong business
organization. Forming a partnership or a corporation is a better choice in forming business
13
organizations in order to enter a competitive industry, like the tourism industry. This section of this
chapter will present an overview of a partnership and a corporation as a business organization.
The Law on Partnership is governed by the Civil Code of the Philippines, while the Law on
Corporation is governed by Batas Pambansa Blg. 68, Corporation Code of the Philippines.
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 prsons to carry on as co-owners of a business
for profit. The definition does not include religious associations, conjugal partnerships, and others of a
similar nature because a partnership as defined by law refers only to associations the purpose of
which is to obtain profits to be distributed among the partners. A partnership contract is based on
trust and confidence. Hence, the fiduciary relation in a partnership stems from the principle of
delectus personae, where in no one can become a partner in apartnership without the consent of all
the partners.
The essential requisites of a partnership are:

(1) An agreement to contribute money, property, industry to a common fund.This is complied
with if:
(a) Each one of the partners brings or is obliged to bring something to the partnership and
(b) That which is brought becomes common property.
(2) Intent to divide the profits among themselves. This is complied with if:
(a) Partnership is established to obtain profits;
(b) Profit must be common to all parties; and
(c) Profit or loss must be divided among the partners.
Advantages of Forming a Partnership

1. Easy to form
2. Improved growth possibilities
3. Freedom from bureaucracy
Disadvantages of Forming a Partnership

1. Instability
2. Difficulty in obtaining large sums of capital
3. Firm is tied to the acts and judgment one of partner as agent
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.
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(b) Particular partnership- a particular partnership has for its object determinate things, their use
of fruits, or a specific undertaking, or the exercise of a profession or vocation.
(2) According to liability:

(a) General partnership- composed of general partners where liabilities extend to their personal
properties.
(b) Limited partnership (usually attaches the word “Ltd” or “Limited” at the end of the company
name, one formed by two or more persons having as members one or more general partners and
one or more limited partners, where the liability of the latter to third persons is limited to their
capital contribution.
(3) According to the duration:

(a) Partnership for a fixed term- is one in which the term of its existence has been agreed upon
expressly ( as when there is a definite period) or impliedly (as when a particular enterprise or
transaction is undertaken). The expiration of the term thus fixed or the accomplishment of the
particular undertaking specified will cause the automatic dissolution of the partnership.
Forms of Partnership
A partnership can be in any form, even if not recorded at the Office of the Securities and
Exchange Commission except:
(1) When it is stipulated;
(2) When immovable property or real rights are contributed, in which case there must be a public
instrument to which is attached an inventory of the immovable properties and signed by the
parties, otherwise the partnership is void.
(3) In case of limited partnership, the parties must:
(a) Sign and swear to a certificate, which shall state, among others the name of the partnership
adding the word “Limited” and the character of the business;
(b) File for record the certificate in the Office of the Securities and Exchange Commission.
Failure to comply with the foregoing formal requirements will only make the partnership a
General Partnership.
Obligations of the Partners
(1) Where contribution is money or property. If a parter promises to continue money during the
celebration of the contract and he fails to do so, he shall pay the interest and damages from the time
he should have complied without need of any demand. If a partner promises to contribute specific
determinate things, he must: (a) preserve the property; (b) deliver the fruits fro 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 capitalists 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.
15
(3) Obligation of the capitalist partner. A capitalist partner ( a partner who contributed money and
property to the common fund) is prohibited from engaging in a business in competition with the
partnership, unless there is stipulation to the contrary, otherwise all profits of such partner belong to
the partnership and all losses shall be for his account.
(4) Responsibility between partnership and partner. The partnership shall be responsible to every
partner for the amounts he may have disbursed on behalf of the partnership. It shall also answer to
each partner for the obligations he may have contributed in good faith in the interest of the
partnership business and for the risk in consequence of its management.
On the other hand, the partner is liable to the partnership: (a) for interest and damages from
the time of conversion for any sum of money which he may have taken from the partnership coffers
and converted to his own use; (b) for damages suffered by the partnership through his fault; (c) for
any benefit derived by him without the consent of the other partners from any transaction
connected with formation conduct, or liquidation of the partnership or from any use by him of its
property.
(5) Sharing the profit and loss among partners. The distribution of profits and losses shall be in
conformity with the agreement. If only the share in the profits is agreed upon, the share in the losses
shall be in the same proportion. A stipulation which excludes one or more partners from any share in
the profits or losses is void, but an industrial partner shall not be liable for losses. In the absence of
stipulation, the share in the profits and losses shall be in proportion to their respective capital
contribution, except the industrial partner who shall receive a share of the profits as may be just
equitable under the circumstances.
The designation of losses and profits cannot be entrusted to one of the partners but may be
left to the third person whose designation is valid unless manifested inequitable. However, it cannot
be impugned by a partner who has begun to execute the same or who fails to impugn within three
months from knowledge.
(6) Property rights of a partner. A partner cannot assign his right with respect to the specific
partnership property for the partner’s individual debts or for legal support. However, a partner can
sign his share in the profits to a third person. 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. However, powers of the managing partner appointed after the formation of the
partnership can be revoked anytime. If two or more partners are appointed managing partners, each
one may separately execute all acts of administration but if apposed, the majority among the
managing partners shall prevail; if there is no majority, the partners owning, controlling interest will
decide.
(7) Liability of individual partners to third persons. All partners, including the industrial partner, are
liable pro rata with all their properties for contracts with third persons provided: (a) they were
entered into in the name and for the account of the partnership; (b) under its signature; (c) by
persons authorized to act for the partnership; (d) the partnership assets are already exhausted.
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All partners are liable solidarily with the partnership for: (a) wrongful acts and omissions causing loss
to a non- partner and (b) conversion or misappropriation of funds belonging to a stranger received in
the usual course of business by partnership.
(8) Liability of the limited partner. A limited partner is liable as a general:

(a) When he allows his surname to appear in the partnership name and
(b) When he takes part in the control of the business. In this case, he shall have all the rights and
powers and be subject to all the restrictions of a general partner except that as to the other
partners, he shall be preferred as to the return in his contribution and share in the profits.
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
(c) By the express will of all the partners who have not assigned their interest or suffered them to
be charged for their separate debts, either before or after the termination of any specified
term or particular undertaking; and
(d) By the expulsion of any partner for the business bona fide in accordance with such power
conferred by the agreement between the partners.
(2) In contravention of the agreement between the partners, where the circumstances do not permit
a dissolution under any other provision of this article, by the express will of any partner at any
time;
(3) By any event which makes its unlawful for the business of the partnership to be carried on or of
the members to carry it on in partnership;
(4) When a specific thing, a partner had promised to contribute to the partnership, perishes before
the delivery; in any case by the loss of the thing, when the partner who contributed it having
reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of
the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after
the partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner of the partnership;
(7) By the civil interdiction of any partner; and
(8) By decree of court under the following article. (1700a and 1701a)
Article 1831. On application by or for a partner, the court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as trends to affect prejudicially by the carrying on of the
business;
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(4) A partner willfully or persistently commits breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership business that it is not reasonably practicable to
carry on the business in partnership with him;
(5) The business of the partnership can be only be carried on at a loss; and
(6) Other circumstances render dissolution equitable.
On the application of the purchase of a partner’s interest under Articles 1813 or 1814:
(1) After th termination of the specific term or particular undertaking and
(2) At any time the partnership was a partnership at will when the interest was assigned or when the
charging order was issued.

In case of a limited partnership, the same is dissolved: (1) in case of retirement, death,
insolvency, insanity or civil interdiction of a general partner; (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 been paid or the
partnership property is insufficient for their payment.
In a limited partnership, the retirement, death, insolvency, insanity or civil interdiction of a
general partner dissolves the partnership unless the business shall be continued by the remaining
general partners. In such a case, an amendment of the certificate of limited partnership shall be
executed and recorded at the Securities and Exchange Commission. On the other hand, the death of
all the limited the partners shall dissolve the partnership unless a substituted partner will be admitted
to all the rights of a limited partner who has died or has assigned his interest in the partnership, 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. Take note that the amendment of the certificate of limited partnership must comply
substantially with requirements set forth in 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 martial 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.
“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 as any
given time.
Examples of misconduct under No. 3 of Article 1831 of the Civil Code of the Philippines
include addiction to alcohol or drug abuse. Examples of other circumstances with render dissolution
equitable under No. 6 of Article 1831 of the Civil Code of the Philippines are abandonment of the
business, fraud in the management of the business, refusal without justifiable cause to render
accounting of partnership affairs, etc.
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Order of Liquidation for a General Partnership
The Law
Article 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed subject to any agreement in the contrary:
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than the partners;
(b) Those owing to partners other than for capital and profit;
(c) Those owing to partners in respect of capital; and
(d)Those owing to partners in respect of profits

Take note that the liquidation process under the above provision applies to a general
partnership. There is a different process for the liquidation of a limited partnership.
The Law
Article 1863. In settling accounts after dissolution the liabilities of the partnership shall be
entitled to payment in the following order:
(1) Those creditors, in the order of priority as provided by law, except those to limited partners on
account of their contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits and other compensation by way of
income on their contributions;
(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.

The said provision expressly provides for priority in the distribution of assets after dissulution
of a limited partnership. Those due to creditors under No. 1 Article are the outside creditors, including
those owing to the limited partners.
In the absence of any statement in the certificate as to the share in the profits for which each
partner shall receive,a limited partner’s share in the profits shall be in proportion to the amount of
the partners’ respective capital contribution. This proportional sharing takes place where the
partnership assets are insufficient to pay each of the partner’s claims.
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.
19
In the Philippines, the law which governs the creation of private corporations is Batas
Pambansa Blg. 68, known as the Corporation Code of the Philippines, and amended by R. A No.
11232.
“Right of Succession” means that a corporation has the capacity to exist regardless of the
death, withdrawal, insolvency,or incapacity of the individual stockholders and regardless of the
transfer of interest or shares of stock.
The powers of all corporations are limited to those mentioned in their charters or inn the
general acts which they are created.
Kinds of Corporation
(1) Stock Corporation- one which has a capital stock divided into shares and is authorized to
distribute to the holders of such shares/dividends or allotments of the surplus profits ( I.e., retained
earning) on the basis of the shares held. A stock corporation is organized for profit. The governing
body of a stock corporation is usually the Board of Directors.
(2) Non-stock Corporation- one where no part of its income is distributable as dividends to its
members, trustees, or officer, subject to the provisions of the Code on dissolution. A non-stock
corporation is one not organized for profit. The governing body is usually the Board of Trustees.
(3) Corporation De Jure- a corporation organized in accordance with the requirements of law.
(4) De Facto Corporation- a corporation where there exists a flaw in incorporation.
(5) Public Corporation- one formed or organized for the government of a portion of the State. It is
created by its own charter for the exercise of a public function. Examples: barangay, city, municipality
(6) Private Corporation- one formed for some private purpose, aim, or end. It is created by
incorporation under the general corporation law. This includes a government-owned and controlled
corporation with an original charter and quasi-public corporation, a private corporation performing
public functions.
(7) Corporation Sole- one organized for the purpose of administering and managing, as trustee, the
affairs, property, and temporalities of any religious denomination, sec, or chruch. In this corporation,
there is only one incorporator.
(8) Eleemosynary- one organized for a charitable purpose.
(9) Domestic Corporation- a corporation formed, organized, and existing under Philippine laws.
(10) Foreign Corporation- a corporation formed, organized or existing under any laws other than
those of the Philippines and whose laws allow Filipino citizens and corporations to do business in their
own country or state.
One Person Corporation

Under Republic Act 11232, also known as the Revised Corporation Code of the Philippines, a
corporation may be formed by only one person, partnership, corporation or association but not more
than 15 in number, provided that if a corporation is to be formed by natural persons, such natural
persons must be of legal age. A corporation shall not have a minimum capital stock and shall be given
a perpetual existence, unless the articles of incorporation provide otherwise.
Advantages of a Corporate Organization
(1) Strong separate juridical personality
(2) Limited liability to inventors
20
(3) Free transferability of units of ownership
(4) Centralized management through the Board of Directors
(5) Professionalism
(6) Easier to sell small amounts of stock to raise capital
Disadvantages of a Corporate Organization

(1) Extensive government regulation
(2) Double taxation
(3) Activities are limited by charter and various laws
Distinction Between a Partnership and a Corporation

(1) A partnership is created by the agreement of the parties, while a corporation is created by law
(B.P.68)
(2) In a partnership, the liability of the partners (except limited partners) extends to their personal
properties, while the liability of the stockholders in a corporation is limited only to the extent of the
shares subscribed by them.
(3) In a partnership, wen the management is not agreed upon, every partner is an agent of te
partnership, while the power to do business and manage the affairs of the corporation is vested in
the board of directors or trustees.
(4) A partnership commences to acquire juridical personality from the moment of the execution of the
contract of partnership; while a corporation commences its corporate existence only from the date of
the issuance of the certificate of incorporation by the Securities and Exchange Commission (SEC).
(5) A partnership may be organized by only two persons; while a corporation may be formed singly or
jointly but not more than 15 incorporators. A partnership has no right of succession; while a
corporation has such right.
(6) In a partnership, a partner cannot transfer his interest in the partnership without the consent of all
the partners because the partnership is based on the principle of delectus personae; while in a stock
corporation, a stockholder has the right to transfer his shares without the prior consent of the other
stockholders.
(7) A partnership is established for any period of time stipulated by the partners while a corporation
may have a perpetual existence.
(8) A partnership may be dissolved at any time by the will of any or all of the partners; while a
corporation can only be dissolved with the consent of the state.
Steps in the Creation and Organization of a Corporation
(1) Promotion;
(2) Incorporation (Section 10, R.A. 11232, Revised Corporation Code of the Philippines); and
(3) Formal organization and commencement of the business operations.
Steps in Incorporation
(1) Drafting and execution of the articles of incorporation by the incorporators. Stock corporations
shall not be required to have a minimum capital stock except as otherwise specifically provided by
law.
(2) Submission of intended corporate name to the SEC for verification
21
(3) Filing with the SEC of the articles of incorporation together with the By-laws, duly certified by a
majority of directors or trustees and countersigned by the secretary of the corporation shall be filed
with the Commission and attached to the original articles of incorporation. The By-laws may be
adopted and filed prior to incorporation; in such case, such By-laws shallbe approved and signed by all
incorporators and submitted to the Commission, together with the articles of incorporation.
(4) Commission determines if the submitted documents and information are fully compliant with the
requirements of the Revised Corporation Code, other relevant laws, rules and regulations.
(5) Payment of the filing fee; and
(6) The issuance by SEC of the certificate of incorporation.
Contents of the Articles of Incorporation

(1) The name of the corporation . No corporate name shall be allowed by the Commission if it is not
distinguishable from that already reserved or registered for the use of another corporation, of if such
name is already protected by law, or when its use is contrary to existing law, rules and regulations.
(2) The specific purpose or purposes for which the corporation was incorporated.
(3) The place where the principal office of the corporation is located, which must be within the
Philippines.
(4) The term for which the corporation is to exist if the corporation has not elected perpetual
existence.
(5) The names, nationalities and residences of the incorporators. An incorporator is defined as one
who institutes the steps necessary to form a corporation, and is an original member of it.
Qualifications of an incorporator are as follows:
(a) A natural person, partnership or corporation
(b) May be formed singly or jointly but not more than 15 incorporators;
(c) Natural persons who are licensed to practice a profession, and partnerships or associations
organized for the purpose of practicing a profession, shall not be allowed t organize as corporation
unless otherwise provided under special laws.
(d) Incorporators who are natural persons must be of legal age; and
(e) Must own at least one (1) share of the capital stock of the corporation.
(6) The number of directors which shall not be more than 15.
(7) The names, nationalities and residences of the incorporating board of directors until the first
regular directors or trustees are duly elected and qualified. Section 26 of the Revised Corporation
Code provides for the grounds for disqualification of a board of director.
(8) The amount of its authorized capital stock, number of shares into which it is divided, the par value
of each, names, nationalities, and residence addresses of the original subscribers, amount subscribed
and paid by each on the subscription, and a statement that some or all of the shares are without par
value, if applicable.
(9) Such other matters consistent with law and which the incorporators may deem necessary and
convenient. An arbitration agreement may be provided in the articles of incorporation pursuant to
Section 181 of the Code.
In the tourism industry, it is important to acquire knowledge on the different provisions

involving sales, agency, and credit transactions as there are many transactions among players in the
industry that apply these laws found in the Civil Code of the Philippines.
22
Law of Sales
In the view of tourism, travel, and hospitality industry, agreements arising from the contracts
will have to be made, and potential breach from these agreements will be encountered. A contract of
sale is one of the usual contracts being encountered by the industry concerned. This will give an
overview of the different sales transactions which may be encountered, including the remedies of the
parties concerned.
The Law
Article 1458. By the contract of sale, one of the contracting parties obligates himself to
transfer ownership of and to deliver a determinate thing, and other to pay therefore a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
Discussion of Law
Characteristics of a Contract of Sale

(1) Consensual- A contract of sale is perfected by mere consent. No form is prescribed for the
perfection in a contract of sale, except in the following instances:
(a) Those covered under the Statue of Frauds which must appear in writing otherwise, the sale is
considered unenforceable (I.e., Sale of real property or any interest therein; and Sale of chattels
or goods for a price not less than P500).
(b) Sale of real property made through an agent, in which case, the agent’s authority must be in
writing; otherwise, the agency and sale made through an agent is void.
(2) Bilateral- because it gives the rise to reciprocal obligations.
(3) Principal-because it can stand by itself without need of another contract.
(4) Onerous- because the consideration for each party is the delivery of the thing or the payment of
the price.
(5) Commutative- because what the vendor (seller) delivers is considered equivalent of the price paid
by the venders (buyer).
(6) Nominate-because it has a designated name under the Civil Code of the Philippines which is
“sale”.
(7) Transmissive of ownership- because the vendor transfers ownership of the subject matter to the
vendee.
Requisites of a Contract of Sale

(1) Consent- Consent is manifested as the meeting of the offer (which must be certain) and the
acceptance (which must be absolute) upon the thing and the cause which are to constitute the
contract.
The following are disqualified to enter into a contract:

(a) Husband and wife- A sale between husband and wife in violation of Article 1940 is existent and
void from the beginning because such contract is expressly prohibited by law.
(b) The following persons cannot acquire by purchase even at public auction or judicial auction, either
in person or through the mediation of another:
(i) The guardian, the property of the person or persons who may be under his guardianship;
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(ii) Agents, the property whose administration or sale or may have been entrusted to them, unless
the consent of the principal has been given;
(iii) Executors and administrators, the property of the estate under administration;
(iv) Public officers and employees, the property of the State or any of the subdivision thereof, or
nay government-owned or controlled corporation, or institution, the administration of which has
been entrusted to them;
(v) Justices, judges, prosecuting attorneys, checks 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 function; and
(vi) Any others especially disqualified by law.
Contracts entered in violation of the above shall render the contracts void by reason of public
policy and because such contracts are also expressly prohibited by law.
Effect of Loss of the Object in a Contract of Sale

The Law
Article 1480. Any injury to or benefit from the thing sold, after the contract has been
perfected, from the moment of the protection of the contract to the time of delivery , shall be
governed by Articles 1262.
Article 1262. An obligation which consists in the delivery of determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and before he has
incurred in delay.
Article 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any number of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.

(1) If the thing is lost before perfection of the contract. The contract is considered inexistent,
therefore the loss is borne by the seller based on the principle of res perit domino (it is the owner of
the thing who bears the consequences of the loss).
(2) If the thing is lost at the time of the perfection of the contract. The contract shall be considered
without any effect. The legal effect is the same as the object is lost before perfection of the contract
of sale.
(3) If the thing is lost after delivery. The buyer bears the risk of loss since delivery transfers
ownership, following the principle of res perit domino.
(4) If the thing is lost after perfection but before delivery. The seller bears risk of loss since there is no
delivery yet, hence, no transfer of ownership to the buyer. This I considered just and equitable, being
more in conformity with the principle of res permit domino. In this case, the buyer may demand the
return of the price, in case payment has been made. The reciprocal nature of a contract of sale
dictates that when there is an obligation to deliver a determined object, there is also correlative
obligation to pay the price. Therefore, once the obligation to deliver is extinguished, the correlative
obligation to pay the price is also extinguished. This rule will apply even if the thing is lost through a
fortuitous event or even without the fault of the debtor.
24
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; and
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s
failure to pay cover two or more installment. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
(1454-A-a)
Discussion of Law
In order for the said provision to apply, the following requisites must concur:
(1) Contract must be sale (absolute sale, not a contract to sell or a contract of loan or a pacto de retro
transaction where redemption is effected in installment).
(2) What is sold is personal property (not real property)
(3) The sale must be on an installment plan (it must contain at least three installments). If the sale os
for cash or on straight terms ( here after an initial payment, the balance is paid in its totality at te time
specified), Article 1484 does not apply.
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, id it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to 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 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.
The Law
Article 1602. Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other
stipulation which may have been agreed upon.(1507.)

As between an absolute sale and sale with the right to repurchase, no difference exists, except
that in the latter, the ownership of the purchaser is subject to the resolutory condition that the vendo
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.
25
The vendee a retro immediately acquires title and possession of the property sold, subject
only to the vendor’s right of redemption. The vendee, who acquires the ownership of, the property,
may dispose of the same as any other owner, he may therefore, alienate, make dispositions mortis
causa or inter vivos, mortgage or encumber the same, without any other limitations than those
imposed upon all owners. Although the right of the vendee is strictly without limitation, it is subject to
a resolutory condition; hence, all acts of disposition pending the condition are, as revocable as, his
right.
The vendee a retro who takes possession of the property sold under a contract of sale with
pacto de retro, is under the obligation to take care of the thing sold during the period of the right to
repurchase as a good father of a family who would take care of his own property.
Period of redemption shall be four years from the date of the contract, in the absence of any
express agreement. Should there be an agreement, the period for redemption cannot exceed 10
years.
Obligation of the Vendor
The Law
Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant
the thing which is the object of the sale.
Article 1496. The ownership of the thing sold is acquired by the vendee from the momentit is
delivered to him.
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 amode of
acquiring dominion and determines the transmission of ownership, the birth of a real right. The fact
that the price of the property delivered has not yet been paid in full is not an obstacle to the
acquisition of the ownership thereof by the vendee, if such condition has not been stipulated in the
contract ( as in a contract to sell).
When goods are delivered to the buyer “on sale or return” to give the buyer an option to
return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he
may 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 goods, or on the expiration of a
reasonable time when no time has been fixed.
26
In COD agreement (cash on delivery) the risk should be borne on the buyer upon delivery of
the thing sold or the beneficial interest has been transferred to him. Under an ordinary CIF ( Cost,
Insurance and Freight) agreement, delivery to the buyer is complete upon the delivery of the goods
to the carrier and tender of the shipping and other documents required by the contract and the
insurance policy taken in the buyer’s behalf. The parties may however agree by making the buyer’s
obligation depend only upon arrival and inspection of the goods, in which case, the risk is thrown
upon the seller until arrival at the port of destination.
FOB (free on board) is a commercial term that signifies a contractual agreement between a
buyer and a seller to have the subject of a sale delivered to a designated place, usually either the
“place of shipment” or the “place destination,” without expense to the buyer. “FOB shipping point”
requires the seller to bear the expense and the risk of putting the subject of the sale into the
possession of the carrier, but the duty to pay the transportation charges from the FOB point is on
the buyer. Where the shipment is “FOB destination point,” the seller is required to bear the
transport until the buyer’s point of destination. If no designation in the FOB agreement is specified,
it is understood that the seller’s factory shall be the place of delivery.
Warranty in Case of Eviction

A warranty in case of eviction is an implied warranty in contracts of sale, by virtue of which if
the vendee is deprived of the whole or a part of the thing purchased by final judgment based on a
right prior to the sale or an act imputable to the vendor, such a vendor shall answer for the eviction
even though nothing has been said in the contract on the subject.
The requisites of eviction are (1)vendee is deprived of the thing purchased wholly or partially;
(2) deprivation is by final judgment; (3) deprivation is based on a right prior to the sale or an act
imputable to the vendor; and (4) vendor was summoned in the suit for eviction of the vendee.
Liability for eviction includes: (1) return of the value at the time of eviction; (2) return of income or
fruits that the buyer had to surrender; (3) costs of the suit; (4) expenses of the contract; and 95)
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 withdrawing from the contract ( accion redhibitorial) and demanding a
proportionate reduction of the price (accion quanti minoris) with damages in either case. Generally,
the period of prescription is six months. However, in redhibitory actions against on the faults or
defects of animals, the period is forty days. The period must be counted from the date of delivery to
the vendee.
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Obligation of the Vendee
The Law
Article 1582. The vendee is bound to accept delivery and pay the price of the thing sold at the
time and place stipulated in the contract.
Actions for Breach of Contract of Sale

Extrajudicial remedies:
(1) Of the buyer:
(a) The buyer need to pay unless there is delivery
(b) The buyer may reject improper deliveries.
(c) The buyer may suspend payment if he is disturbed in the possession or ownership of the thing
or has reasonable grounds to fear such disturbance.
(2) Of the seller:

(a) Vendor is not bound to deliver the thing sold if the vendee has not paid the price.
(b) Installment sales (Recto and Maceda Law)
Judicial remedies:
(1) Of the buyer:
(a) Damages for breach of contract
(2) Of the seller:
(a) Recovery of the price
(b) Damages in case of bad faith
Law on Agency
The hotel, as part of the tourism industry , cannot do away with agencies which will facilitate
various transaction in dealing with third persons. Hence, there is need to understand the operation of
agencies working on behalf of the principal belonging to 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.
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The essential elements of agency are: (1) there is consent, express or implied;
(3) The object is the execution of a juridical act in relation to the third person; (3) the agent acts as a
representative and not for himself; and (4) the agent acts within the scope of his authority.
An agency is distinguished from the lease of work or services 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. The most
distinctive feature of any agency relationship is the agent’s power to bring about business
relationship between his principal and third persons. The agent is destined to execute juridical acts
( creation, modification, or extinction of relation with third parties). Lease of services contemplates
only material (non-juridical) acts.
Liability of the Principal and the Agent
The Law
Article 1883. If a agent act in his own name, the principal has no right of action against the
persons with whom the agent has contracted; neither had such person against the principal.
In such case the agent is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own, except the contract involved things belonging to the
principal.

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. Morever, an agent is personally liable for acts beyonf
the scope of his authority, and for acts in violation of the terms of the written authority. When it is
clear that the agent only in behalf of a disclosed principal, the agent cannot be held personally liable
on the contract entered into in such manner.
Law on Credit Transactions

Companies in the tourism industry face dents; hence, it vital to know various ways of handling
debts in relation to third persons and credit transactions emanating within their respective firms.
The Law
Article 1933. By a contract of loan, one of the parties delivers to another either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum, or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the contract is simply called
loan or mutuum.
Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to

pay interest.
29
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. It is a transaction wherein the owner of the property, called the lender, allows another party,
the borrower, to the property. The borrower customarily promises to return the property after a
specified period with payment for its use, called interest. The documentation of the promise is called
a promissory note when the property is cash.
The credit of an individual means his ability to borrow money by virtue of the confidence and
trust reposed by a lender that he will pay what he may promise. The concession of a “credit”
necessarily involves the granting of “loans” up to the limit of the amount fixed in the credit.
Simple Loan or Mutuum
The Law
Article 1956. No interest shall be due unless it has been expressly stipulated in writing.

(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 contacts of loan, with or without security, that the interest may be stipulated and
Pactum Commisoriumdemanded.
(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.
(4) In all cases, interest sue shall earn legal from the time it is judicially demanded although the
obligation may be silent upon this point. By virtue of Central Bank Circular No. 416 dated July 29,
1974 and No. 905 dated December 10, 1982, the legal rate has been increased from 6% to 12% per
annum.
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)

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.
30
Chapter 2 The Tourism Public Sector
The Law
Department of Tourism
The Department of Tourism (DOT) was created by virtue of Presidential Decree No. 189. It is
the primary policymaking, planning programming, coordinating and administrative entity of the
executive branch of the government in the development of the tourism industry, both domestic and
international.
The DOT has the following major functions:

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

The power to regulate, license, and supervise tour operators and accommodation facilities has
now been devolved to the local government units. However, it must be noted that the “power to
prohibit operation of these establishments” without due process of the law. The word”regulate” as
used in subsection (1), Section 2444 of the Administrative Code, means and includes the power to
control, to govern, and to restrain; but “regulate” should not be construed as synonyms with
“suppress” or “prohibit”.
The Law
By virtue of the enactment of the Tourism Act of 2009, certain tourism public sectors have
been reorganized and renamed.
31
The DOT , under this law, is reorganized and given considerable sources of funding to achieve
its designated mandated and functions, which includes increasing tourist access. Certain areas are to
be designated as Tourism Enterprise Zones (TEZ) and incentives are given to covered tourism
enterprises.
The Philippine Tourism Authority (PTA) is hereby reorganized as the Tourism Infrastructure
and Enterprise Zone Authority (TIEZA).
The Philippine Conventions and Visitors Corporation (PCVC) is hereby reorganized as the
Tourism Promotions Board ( TPB), as hereinafter provided.
The Bureaus for Domestic and International Tourism Promotions, and the Office of Tourism
Information of the Department, are hereby absorbed into the Tourism Promotions Board.

Some of its highlights are as follows:
Under said law. The DOT shall be the primary planning, programming, coordinating,
implementing, and regulatory government agency in the development and promotion of the tourism
industry, both domestic and international, in coordination with attached agencies and other
government and other government instrumentalities.
The TIEZA shall be attached to the DOT for purposes of program and policy coordination.
Accordingly, the TIEZA shall be a body corporate which shall designate, regulate and supervise the
TIEZs, as well as develop, manage and supervise tourism infrastructure projects in the country. It shall
supervise and regulate the cultural, economic and environmentally sustainable development of TEZs
toward the primary objective of encouraging, investments therein. It shall ensure strict compliance of
the TEZ operator with the approved development plan. Pursiant thereto, the TIEZA shall have the
power to impose penalties for failure or refusal of the tourism enterprises to comply with the
approved development plan, which shall also be considered a violation of the terms of accreditation.
The TIEZA remains to be the principal agency responsible for the timely, effective and efficient
collection of travel taxes. The amounts collected by the TIEZA shall be distributed as follows:
(a) 50%- TIEZA;
(b) 40%- CHED Higher Education Development Fund; and
(c) 10%- National Commission and Arts (NCAA).
The TPB shall formulate and implement an integrated domestic and international promotions
and marketing program for the DOT. The TPB shall be responsible for marketing ad promoting the
Philippines domestically and internationally as a major global tourism destination, highlighting the
uniqueness and assisting the development of its tourism products and services, with the end in view
of increasing tourist arrivals and tourism investment. Specifically, it shall market the Philippines as a
major convention destination in Asia. To this end, it shall take charge of attracting, promoting,
facilitating, and servicing large-scale events, international fairs and conventions, congresses, sports
competitions, expositions, and the like. It shall also ensure the regular advertisement abroad of the
country’s major tourism destinations and other tourism products, not limited to TEZs. It may also
32
provide incentives to travel agencies abroad which are able to draw tourists and tourism investments
to the country.
The Intramuros Administration, the National parks Development Committee and the Nayong
Pilipino Foundation shall continue to be attached to the DOT and shall operate under their respective
charters. They may be authorized to operate TEZs, under the supervision of the TIEZA, within their
respective jurisdictions.
The Duty Free Philippines Corporation (DFPC) shall have exclusive authority to operate and/
or franchise out the operation of stores and shops that shall sell, among others, duty and tax-free
merchandise, goods and articles in international airports and seaports, other ports of entry
throughout the country and in TEZs. Any geographic aea whereva TEZ may be established shall
conform with the following general criteria to ensure that they will not proliferate in a manner that
diminishes their strategic economic and developmental value to the national economy: (a) area is
capable of being defined into one contiguous territory; (b) It has historical and cultural significance,
environmental beauty, or existing or potential integrated leisure facilities within its bounds or
reasonable distances from it; (c) It has: or it may have, strategic access through transportation
infrastructure, and reasonable connection wuthin utilities infrastructure systems; (d) It is sufficient in
size, such that it may be further utilized for bringing in new investments in tourism establishments
and services; and (e) It is an a strategic location such as to catalyze the socioeconomic development of
neighboring communities.
The Law
Tourism Infrastructure and Enterprise Zone Authority (TIEZA)

The former Philippine Tourism Authority has now been renamed and converted in to the
Tourism Infrastructure and Enterprise Zone Authority (TIEZA). Its main thrusts include maximizing
revenue-generating to achieve national and organizational goals and objectives; upgrading
management information systems to improve operational competence; implementing approved
reorganization plan of PTA as TIEZA; effective managing of all Tourism Enterprise Zones around the
country; developing and managing tourism infrastructures in areas having strong tourism potentials;
hastening privatization of disposable operating and non-operating properties; and continuously
improving personnel efficiency and competency through relevant personnel development programs.
Presidential Decree 564 (October 2, 1974) was enacted revising the charter of the Philippine
Tourism Authority (PTA) which was originally created under Presidential Decree No. 189 dated May
11, 1973. Strengthening the PTA was needed in order to be in a better position to effectively unify
and integrate related activities and services of both government and private entities pertaining to
tourism development projects.
Travel tax collection is PTA’s main source of income. Travel tax is a levy imposed by the
government on individuals (citizens of the Philippines, permanent resident aliens who have stayed in
the country for more than a year) who are leaving the country irrespective of the place where the air
ticket is issued as provided for P.D. 1183 as amended by P.D. 1205, Batas Pambansa Blg. 38, and E.O.
283 on travel tax. Travel taxes are coursed thru the Bureau of Internal Revenue.
33
The mandate of the TIEZA under R.A. No. 9593 includes the following:
(a) To designate, regulate, and supervise tourism enterprise zones established under R.A. 9593;
(b) To develop, manage, and supervise tourism infrastructure projects nationwide;
(c) To provide technical and financial assistance to qualified tourism projects,investors and
prosponents (both government and private);
(d) To generate revenues to fund both national and corporate development needs and/ or
undertaking; and
(e) To exercise PTA functions under P.D.564
A Tourism Enterprise Zone is defined as follows:
Any entity duly incorporated under the Corporation Code and other relevant laws, or any LGU
or any other instrumentality of government in the pursuit of their mandate may qualify as an
applicant for the designation of an area as a TEZ.
TEZs can be any geographical area in the country that conforms to the following criteria:
(a) The area is capable of being into one contiguous territory;

(b) It has historical and cultural significance, environmental beauty, exercising or potential integrated
Leisure facilities within its bound reasonable distance from it;
(c) It has, or it may have, strategic access through transportation infrastructure, and reasonable
connection with utilities infrastructure systems;
(d) It must be at least five 95) hectares and sufficient in size, such that it may be further utilized for
bringing in new investments in tourism establishments and services;
(e) It is in a strategic location such as to stimulate the sustainable socio-economic development of
neighboring communities; and
(f) The area must be situated where controls can easily be established to curtail illegal activities.
Based on the particular purpose stated in the applicant’s development plan, the TEZs to be
created shall be classified as follows:
(a) Cultural Heritage Tourism Zone- areas that will allow the tourist experience the places, artifacts,
and activities that authentically represent the stories of the people living in the area, past or
present.
The area may include, but will not be limited to:

(1) Cultural landscapes;
(2) Historic sites, areas, and precints;
(3) Ruins, archaeological and maritime sites;
(4) Sites associated with industrial, scientific and agricultural heritage;
(5) Collections that house or collectively promote objects of heritage significance;
(6) Historic places and areas; including villages, small towns, cities and pasrts of larger urban
areas with significant cultural and heritage assets; and
(7) Museums Art Galleries, Cultural Centers, Art & Crafts Shops, and Antique Shops, and Cultural
Sites.
34
(b) Health and Wellness Tourism Zone- areas that will allow visitors to avail of quality but affordable
mainstream, traditional, or alternative healthcare services for treatment of illnesses and health
problems in order to maintain one’s health and well-being.
The area may include, but will not be limited to enterprises that are, or offer:
(1) Medical and Allied Services;
(2) Spas;
(3) Health farms;
(4) Counseling and Rehabilitation Services; and
(5) Traditional Filipino Touch Therapy.
(c) Eco Tourism Zone- areas that will allow visitors to experience a form of suitable tourism within a
given natural and/or cultural area where community participation, conversation and management of
biodiversity,respect for culture and indigenous knowledge systems and practices, environmental
education, and ethics as well as economic benefits are fostered and pursued for the enrichment of
host communities and satisfaction of visitors.

(1) Sites of scenic or rural beauty;
(2) Areas for observing wildlife;
(3) Areas for low impact activities such as camping, trekking, climbing, spelunking, diving, surfing, and
other similar activities; and
(4) Sites for observing and interacting with traditional or indigenous practices in relation to the
environment
(d) General Leisure Tourism Zone-areas that may offer recreational facilities that will have high visitor
density.

(1) Golf Parks/Resorts;
(2) Theme Parks and Amusement Centers;
(3) Convention and Meeting Centers;
(4) Sports Complexes/Resorts;
(5) Event Centers/ Resorts;
(6) Department Stores/ Restaurants/ Shops; and
(7) Zoos.
(e) Mixed-use Tourism Zone- areas that will allow a combination of some or all of the features of the
aforementioned zones within one area.
Retirement communities and facilities duly accredited by the Philippine Retirement Authority
may be located in general Leisure Tourism Zones, Health and Wellness Tourism Zones, and Mixed-use
Tourism Zones.
In accordance with the Tourism Act of 2009 or R.A No. 9593, TIEZA started to accept
applications for designation of Tourism Enterprise Zone (TEZs) and registration of existing
35
accommodation establishments which will undertake substantial expansion. The TIEZA Guidelines for
Designation and Supervision of Tourism Enterprise Zone and Administration of Incentives under R.
A. No. 9593 which took effect on August 1, 2011:
Schedule of Fees
TEZ Operator Filing Fee P 200,000
Publication Fee P 100,000
Registered Tourism Enterprise RTE (New) 0.1% of the Capital Investment
but not exceed P200,000
RTE (Existing) 0.1% of the Capital Investment
but not exceed P 100,000
Publication Fee P 10,000
The detailed steps in applying for TEZ are as follows:
Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
HOW TO APPLY FOR TOURISM ZONE DESIGNATION

Where to get Application Forms:
 Download at http://www.tieza.com.ph.
 Get a copy at Room 602 Office of the Corporate Secretary.
Step: 1 Submit Application Form, and Pre-Qualification Documents at the Office of the Corporate
Secretary.
Step 2: Get Authority to Accept Payment from the Office of the Corporate Secretary
Step 3: Pay Filing Fee at the Treasury Division.
Step 4: Present Official Receipt to the Office of the Corporate Secretary
Step 5: Wait for TEZ to Secretariat to issue Notice to Proceed Application.
It is also good to know that the previous PTA had the following general powers:
(a) To implement policies and programs of the DOT pertaining to the development, promotion, and
supervision of tourism projects in the Philippines;
(b) To promote the development into integrated resort complexes of selected and well-defined
geographic areas with potential tourism value. Known otherwise as “tourist zones;”
(c) To extend all forms of assistance to private enterprise in undertaking tourism projects;
(d) To undertake for its own account or in joint venture with the private sector the operation and
maintenance of essential tourist facilities which private enterprise alone is not prepared or willing
to undertake;
(e) To assure availability of land at reasonable prices or rental rates for private investors in hotels and
other tourist facilities; and
(f) To coordinate, assist and implement tourism-related plans or operations of local governments,
governmental agencies, public corporation, and where clearly necessary and feasible, those of
private entities so as to make possible the accelerated and balanced growth and development of
36
tourism in the Philippines which is responsive to the needs of targeted travel markets here and
abroad.
By virtue of R.A. No. 11262 which was signed into law on April 10, 2019, the TIEZA will have
the sole and exclusive jurisdiction to grant incentives to tourism enterprise zone (TEZs) until
December 31, 2029. Some of these incentives include the following:
1. Fiscal incentives
a. Income tax holiday
b. Exempted from payment of all national and local taxes
c. 5% on gross income
d. Exemption from customs duties
2. Non-fiscal incentives
a. Employment of foreign nationals for the following positions: executive, supervisor, technical and
adviser/consultant positions
b. Special Investor’s Resident Visa (SIRV) and Working Visas
c. Buildings and lands in a TEZ may be leased to foreign investors for 50 years and renewable of no
more than 25 year. This is also known as the Investor’s Lease Act of R.A. No. 7652.
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) created the Intramuros Administration to be charged with such vital role and responsibility.
Intramuros Administration (IA) shall be responsible for the orderly restoration and
development of Intramuros as a monument to the Hispanic period of the Philippine history. It shall
also ensure that the general appearance of Intramuros shall conform to the Philippine-Spanish
architecture of the 16th to the 19th century.
The IA has the following functions:

(a) Formulates, coordinates, and/or executes policies on the implementation of all programs, projects
and activities of the government affecting or relating to Intramuros.
(b) Enters into contracts with any private persons or entity or any government agency, either
domestic or foreign, whenever necessary for the effective discharge of its functions and
responsibilities under such terms and conditions as it may deem proper and reasonable;
(c) Acquires through sale, expropriation, or other means, holds real and personal property as it may
deem necessary or convenient in the successful prosecution of its work, and leases, mortgages, sells,
alienates or otherwise disposes of such personal and real property;
(d) Receives, takes, and holds by bequest, device, donation, gift, purchase or lease, from foreign or
domestic sources, either absolutely or in trust for any of its purposes, any asset, grant or property,
37
real or personal, subject to such limitations as are provided in existing laws and regulations; to
convey such assets, grant or property; invest and reinvest the same and deal with and expand its
assets and income in such manner as will best promote its objectives;
(e) Initiates, plans, undertakes, and supervises the restoration, upkeep and maintenance of the
Intramuros Walls, including the ravelins, moat, Sunken harden and public places or areas, plazas,
streets and other government-owned or managed properties situated within Intramuros; and
(f) Prepares, adopts, revises, and enforce such rules and regulations, implementing guidelines and
standards as are necessary for the effective regulation of the land use and development activities in
Intramuros of both the government and private entities and for the implementation of the
Intramuros Plan, including, but not limited to development rules and regulations pertaining to the
following:
(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 exyernal 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 or
archaelogical findings and discoveries.
(g) Expropriates properties within Intramuros;
(h) Sponsors, conducts, or otherwise assists and support festivals and cultural activities in Intramuros,
and charges and collects admission fees to the restored gates and other attractions operated by the
Administration;
(i) Gives grants, contributions, and donations for the restoration, repair or maintenance of historic
structures in Intramuros, including San Agustin Church, and lot of structures outside of intramuros
which are of similar natur and haracter as those which existed in Intramuros, for the conduct of
historical, architectural, archaeological and other research, and for the other purpose in furtherance
of its objectives; and
(j) Prescribes and collects reasonable amounts to be charged as filing fees, inspection fees, permit
fees, and other administrative or service fees necessary for the effective enforcement of its laws and
regulatory measures to be used and disbursed by it in the manner determined by it to promote its
objectives.

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.
Other Government Agencies

1. National Parks Development Committee (NPDC)
2. National Historical Institute (NHI)
3. National Commission for Culture and the Arts (NCCA)
4. Tourism Promotions Board (TPB)
38
5. Bangko Sentral ng Pilipinas (BSP)
6. National Economic Development Authority (NEDA)
7. Anti-Money Laundering Counciln (AMLC)
8. Philippine Amusement and Gaming Corporation (PAGCOR)
9. Department of Environment ad natural Resources (DENR)
10. Department of Labor and Employment (DOLE)
11. Department of Public Works and Highways (DPWH)
12. Department of Transportation and Communication (DOTC)
The following are attached agencies of the DOTC:
a. Land Transportation Franchising and Regulatory Board (LTFRB)
b. Maritime Industry Authority (MARINA)
c. Civil Aeronautics Board (CAB)
d. Light Rail Transit Authority (LRTA)
e. Metro Rail Transit Corporation (MRTC)
f. Philippine National Railways
13. Department of Trade and Industry (DTI)
14. Board of Investments
15. Philippine Economic Zone Authority (PEZA)
16. Department of Foreign Affairs (DFA)
17. Bureau of Food and Drugs (BFAD)
18. Bureau of Internal Revenue (BIR)
19. Bureau of Customs (BoC)
20. The Philippine Coast Guard
21. Professional Regulatory Board for Customs Brokers
22. Nayong Pilipino Foundation (NPF)
23. Philippine Sports Commission
24. Philippine National Police (PNP)
25. Anti-Graft and Corruption Law in Government
39
CASE STUDIES
Boracay Shutdown
Boracay Island was closed for 6 months in 2018 by the government due to excessive
pollution and degradation of the environment. All flights and boat trips to and from the island
accrying tourists were suspended. An inter-agency task force comprised of the DOT, DENR, and DILG
spearheaded the rehabilitation of the island. Thousands of workers were displaced as a result of the
closure of over 400 tourist establishments.
1. Was the government right in pursuing the total shutdown of the island for 6 months?
2. What are the advantages and disadvantages of such action?
3. What law supports the action of the government?
Guimaras Oil Spill
When an oil tanker had an accident in 2006 causing massive oil spill, affecting adversely the
province of Guimaras, many were skeptical whether tourism in the island could ever recover.
1. What are the liabilities of the shipping line that owns the oil tanker?
2. What is the impact of such a massive oil to tourism and the economy?
Quirino Grandstand Shooting
On August 23, 2010, dismissed PNP Officer Rolando Mendoza hijacked a Hong Thai Travel Services
tourist bus in Rizal park, Ermita, Manila. It Carried 20 Chinese tourists, a tour guide from Honf Kong,
and 4 Filipinos. He demanded reinstatement to his previous post with benefits as police captain and
claimed he was framed. The hostage situation in front of the Quirino Grandstand lasted over 8 hours
as covered by TV networks and broadcast nationwide. It resulted in the death of 8 people and many
injured. Government authorities were criticized for a botched rescue operation.
1. Was the travel and tour agency liable for the deaths of its tourist-clients?
2. Were the government authorities liable for their alleged incompetence?
40

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PALARIS COLLEGES

San Carlos City, Pangasinan

COLLEGE OF HOSPITALITY MANAGEMENT

The Case of Patty Robinson’ Drowning

Concept of Tourism Law

Sources of Law Relevant to the Tourism Industry

The Bill of Rights

Discussion of the Law

Discussion of the Law

Discussion of the Law

Discussion of the Law

Discussion of the Law

National Economy and Patrimony

Discussion of the Law

Discussion of the Law

Discussion of the Law

Obligations and Contracts

Discussion of the Law

The following are the obligations of the passive subject:

The sources of liability (for damages) of a party in an obligation are as follows:

Discussion of the Law

Discussion of the Law

Other causes of extinguishment of obligations such as annulment, rescission, fulfillment of a

Discussion of the Law

Discussion of the Law

Discussion of the Law

The essential requisites of a partnership are:

Advantages of Forming a Partnership

Disadvantages of Forming a Partnership

(2) According to liability:

(3) According to the duration:

Obligations of the Partners

(8) Liability of the limited partner. A limited partner is liable as a general:

Dissolution and Winding Up of a Partnership

Article 1830. Dissolution is caused:

(1) Without violation of the agreement between the partners:

Discussion of the Law

Discussion of the Law

Discussion of the Law

Sec. 2 Corporation defined.- A corporation is an artificial being created by operation of law,

One Person Corporation

Disadvantages of a Corporate Organization

Distinction Between a Partnership and a Corporation

Steps in the Creation and Organization of a Corporation

Contents of the Articles of Incorporation

In the tourism industry, it is important to acquire knowledge on the different provisions

A contract of sale may be absolute or conditional.

Characteristics of a Contract of Sale

Requisites of a Contract of Sale

The following are disqualified to enter into a contract:

Effect of Loss of the Object in a Contract of Sale

Discussion of the Law

Discussion of the Law

Discussion of the Law

Obligation of the Vendor

Discussion of the Law