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 stich higher percentage as Congress may prescribe, certain areas of investments. XXX In the grant of rights, privileges and concessions covering national economy and patrimony, the State shall give preference to qualified Filipinos. The State shall regulate and exercise authorit) over foreign investments within its national jurisdiction and in accordance with its national goals and priorities. Discussion of the Law The provision allowing the nationalization of certain businesses covering national economy and patrimony has not been considered a new doctrine. In the caseof Ichong v. Hernandez, No. L-7995,101 Phil. 1155 (May 31, 1957), Filipinization of business may be done without violating the equal protection clause. The patrimony of the nation that should be conserved and developed refers not only to our rich natural resources but also to the cultural heritage of our race. It also refers to our intelligence in arts, sciences, and letters. Therefore, we should develop not only our lands, forests, mines, and other natural resources but also the mental ability or faculty of our people.'* In its plain and ordinary meaning, the term patrimony pertains to heritage. When the Constitution speaks of national patrimony, it refers not only to the natural resources of the Philippines, but also to the cultural heritage of the Filipinos.” The term “qualified Filipinos” simply means that preference shall be given to those citizens who can make a viable contribution to the common good, because of credible competence and efficiency. It certainly does not mandate the pampering and preferential treatment to Filipino citizens or organizations that are incompetent or efficient, since such an indiscriminate preference would be counterproductive and inimical to the common good. In the granting of economic 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 that it shall be subject to amendment, alteration or-repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utilities enterprise shall be limited to their proportionate share in its capital, and all the executive and managing of such corporation association must be citizens of the Philippines.Discussion of the Law The highlights of the above provision are as follows: The first sentence provides that public utility franchise will be granted only two citizens on the Philippines or to corporations at least sixty per centum of the capital of which is owned by citizens. The second sentence allows the legislature to impair the obligation of franchise “when the common good” so requires. The last sentence authorizes the participation of foreign investors to participate as Board of Directors of these public utility enterprises, but shall be limited to their proportionate share in the capital as mandated in the first sentence. However, the executive and managing officers of such public utility enterprise must be citizens of the Philippines. The term “public utility” is defined under Commonwealth Act No. 146 Section 13 (b) which states: “(b) The term “public service” includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, x x x, subway motor vehicle, either for freight or passenger, or both with or without fixed route and whether may be its classification, freight or carrier service of any class, express service, steamboat or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine railways, marine repair shop, [warehouse] wharf or dock, x x x and other similar public services: x x x.”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 ofa reservoir of national talents consisting of Filipino scientists, entrepreneurs, professionals, managers, high-level technical manpower and skilled workers and craftsmen in all fields shall be promoted by the State. The State shall encourage appropriate technology and regulate its transfer for the national benefit. The practice of all professions in the Philippines shall be limited to Filipino citizens, save in cases prescribed by law. Discussion of the Law This constitutional provision mandates that the practice of a profession is reserved exclusively to citizens of the Philippines. The Foreign Investment Negative List specially provides that foreign investors are prohibited in engaging in much undertaking. In addition, the State shall prioritize Filipino talents for employment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 Aperson desiring to engage ina business in the tourism, travel, and hospitality industry will meet certain obligations. Agreements arising from contracts will have to be made, and potential breach from these agreements will be encountered. Therefore, there is a need to study the fundamental principles involving the Law on Obligations and Contracts. Obligations Article 1156. An obligation is a juridical necessity to give, to do or not to do. Discussion of the Law An obligation is a legal duty, however created, the violation of which may become the basis of an action of law.”Every obligation has four definite elements, without which no obligation cap exist, to wit: qd) (2) 3) (4) an active subject, also known as the obligee or creditor, who has the power to demand the prestation: a passive subject, also known as the debtor, who is bound to perform the prestation: an object or prestation, which is an object or undertaking to give, to do, or not to do; and the juridical or legal tie, the vinculum which binds the contracting parties. The juridical tie or vinculum is based on the sources of obligation arising from either the law or contract. It is vital to identify the prestation in a certain obligation. Once the prestation is identified, you can determine who the passive subject is whom the active subject can demand fulfillment of the obligation. The following are the obligations of the passive subject: (1) Obligations to give a determine thing: (2) (a) To deliver the thing which he has obligated himself to give.” (0) 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.°5 (d) To pay damages in case of breach of obligation.» 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 debtor’s expense.”The sources of liability (for damages)" of a party in an obligation are as follows: ad) 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. Negligence. The negligence referred here, in the case of contracts (i.¢., 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: qd) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punishable by law; and (5) Quasi-delicts. Discussion of the Law There are only two (2) sources of obligations, namely: (1) law; and (2) contracts because obligations arising from quasi-contracts, crimes (No.4, Article 1157, Civil Code of the Philippines) and quasi-delicts are really imposed by law. (Leung Ben v. O’Brien, 38 Phil. 182). Acontract is a “meeting of the minds between two persons whereby one binds himself, will respect to the other, to give something or to render some service.”** Quasi-contract refers to a lawful, and voluntary and unilateral act based on the maxim that no one shall unjustly enrich himself at the expense of another. The two common forms of quasi-contract are: (1) Solutio indebiti, which is payment by mistake; and (2) Negotiorum gestio, which takes place when a person without the consent of the owner, assumes the management of an abandoned business. Civil obligations arising from criminal offenses are governed: (1) by the provision s of the Revised Penal Code (i.¢., 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 1193-1 198); (c) Alternative (1199-1205) and facultative obligations (Article 1206); (@) 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). Discussion of the Law A pure obligation is one which is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable. Example: 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) P5,000 on or before December 30, 2007, as part of the staff incentive program. Joint obligations are those where, although there concur two or more creditors and debtors, in one and the same obligation, there is no right to demand nor 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 inan obligation made by several obligors when the obligee may at his option hold one or all liable together, However, this situation arises only when the obligation expressly so states or when the law or nature of the obligation requires solidarity.” .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). Discussion of the Law There are other causes of extinguishment of obligation which are not expressly provided under the above provision, Death extinguishes obligations which are purely personal in character, such as partnership and agency. Obligations may also be extinguished by the happening of a fortuitous event" or by will of one of the parties as in some contracts such as partnership and agency. Parties may stipulate any currency for payment of debts to extinguish obligations. In the absence of any stipulation, payments must be made in the currency which is the legal tender in the Philippines (the Philippine Peso). Payment in checks (whether manager’s or cashier’s checks) will have the effect of payment under Article 1231, Civil Code only when these are already encashed or cleared by the collecting banks.*! Payment by way of credit cards is equivalent to payment made by a third person (credit card company) who has no interest in the fulfillment of the obligation, in which case, the payer shall have the rights of reimbursement, acquires the rights of a creditor and may recover what has actually paid.” Fortuitous event, also known as force majeure or caso fortuito, are terms with exempt an obligor from liability. These are extraordinary events not foreseeable or avoidable, events that could not be (Article 1174, Civil Code of the Philippines) foreseen, or which, though foreseen, were inevitable. It is, therefore, not enough thatBe : ieved, but the event could not have been foreseen or anticipated, as is commonly belie it must be 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, governmental prohibitions, robbery, etc. In order that acts of man may constitute fortuitous event, it is necessary that they have the force of an imposition which the debtor could not have resisted (3 Salvat 83-84). Thus, the outbreak of war which prevents performance exempts a party from liability (PNB v. Court of Appeals, 94 SCRA 357). Fortuitous event includes unavoidable accidents, even if there has been an intervention of human element, provided fault or negligence cannot be imputed to the debtor.* If the thing has been lost through robbery with violence, the debtor must show that he could not resist the violence. If the thing is lost through theft, the debtor is considered negligent in having placed the thing within reach of thieves and not in a secure or safe place; hence, the debtor will be liable for damages.*°Contracts The Law Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a) Discussion of the Law The essential elements of a contract are as follows: (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rhis signature oF his adhesion.” Some will of one of the contracting parties juridically true. Normally, the if he adheres, then he give, Participation of the other party is the signing of Writers believe that such contracts suppress the hence not a true contract, However, this is not always Party who adheres to it is in reality free to reject entirely; his consent, Characteristics of a Contract (1) Mutuatity of Contracts. It is validity and performance cannot be left g 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 lay, 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 Statute of Frauds.’ (5) Obligatory Force of Contracts. By the obligatory force of contracts, it constitutes the law as between the parties who are compelled to perform under the threat of being sued in the courts of law."Law on Partnership The Law Article 1767. By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. sDiscussion of the Law A partnership is an association of two or more persons to carry on as co-owners of a business for profit. The definition does not include religious associations, conjugal partnerships, and others of a similar nature because a partnership as defined by law refers only to associations the purpose of which is to obtain profits to be distributed among the partners. A partnership contract is based on trust and confidence. Hence, the fiduciary relation in a partnership stems from the principle of delectus personae, where inno one can become a partner in a partnership without the consent of all the partners. The essential requisites of a partnership are: (1) Anagreement 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 (©) 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, Firmis tied to the acts and judgment one of partner as agent Classification of Partnerships (1) According to subject matter: (a) Universal partership — a partnership wheté 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Q) GQ) if none do you experience business establishments forming a universal partnership. (b) Particular partnership ~ a particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.*” 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.** 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: a) 2) (G3) when itis stipulated; 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 . partnershi) is void.” . 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 wD Q) G) 4 Where contribution is money or property. If a partner promises to continue money during the celebration of the contract and he fails to do so, he shall pay the interest and damages from the time he should have complied without need of any demand.® If a partner promises to contribute specific determinate things, he must: (a) preserve the property; (b) deliver the fruits from the time of agreement; (c) warrant against eviction and hidden effects; (d) transfer ownership on delivery to the partnership; (¢) pay damages for the delay without necessity of demand; and (f) bear the risk of loss before delivery. Where contribution is industry. An industrial partner (a partner who merely contributed industry or services to the common fund) cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should fail to do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. 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. 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 ang 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 opposed, the majority among(7) the managing partners shall prevail; if there is no majority, the partners owning, controlling interest will decide.” Liability of individual partners to third persons. All partners, including the industrial partner, are liable pro rata with all their properties for contracts with third persons provided: (a) they were entered into in the name and for the account of the partnership; (b) under its signature; (c) by persons authorized to act for the partnership; (d) the partnership assets are already exhausted.” All partners are liable solidarily with the partnership” for: (a) wrongful acts and omissions causing loss to a non-partner”* and (b) conversion or misappropriation of funds belonging to a stranger received in the usual course of business by partnership. (8) Liability of the limited partner. A limited partner is liable as a general: (a) when he allows his surname to appear in the partnership name” and (b) when he takes part in the control of 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 a Article 1830. Dissolution is caused: Without violation of the agreement between the partners: (a) By the termination of the definite term or particular undertaking specified in the agreement; (b) By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; (c)_. By the express will of all the partners who have not assigned theit interest or suffered them to be charged for their separate debts.G) (4) (5) (6) M (8) 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. 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; 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; 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 afier the partnership has acquired the ownership thereof: By the death of any partner; By the insolvency of any partner of the parmership; By the civil interdiction of any partner; and By decree of court under the following article, (1700a and 17012) Anticle 1831. On application by or for a parter, the court shall decree a dissolution whenever: ay Q) @) (4) (5) (6) A partner has been declared insane in any, judicial proceeding or is shown 10 be of unsound mind; A partner becomes in any other way ineapable of performing his part of the partnership contract; Apartner has been guilty of such conduct as trends to affect prejudicially by the carrying on of the business; A partner willfully or persistently commits breach of the partnership agreement, or otherwise 8 conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; ‘The business of the partnership can be only be carried on at a loss; and Other circumstances render dissolution equitable.