Laws Regulating Professional Congress Organizers PDF

Chapter 11 Laws Regulating Professional Congress Organizers Conferences, exhibitions, trade shows, and other events take place in major cities of the country with sometimes...

Chapter 11 Laws Regulating Professional Congress Organizers Conferences, exhibitions, trade shows, and other events take place in major cities of the country with sometimes foreign delegates. It is the job of professional congress or event organizers to plan carefully a memorable, organized, and successful affair. (Mina Gabor, former Secretary of Tourism) Case of the Missing Conference Participant Bert Ampil is a professional conference organizer assigned to put together the needs of the 900 foreign and local delegates to the 2007 World Congress on Dermatology to be held in Manila. The event was programmed at five days with the last two days devoted to shopping, sightseeing, networking and visiting friends. The conference was a resounding success gauging from the attendance of medical experts, financial results, and other objectives attained. One of the foreign participants was Dr. Yuri Petrovski who was coming to the Philippines for the first time. Dr. Petrovski booked for a trip to Tagaytay to see the famous Taal Volcano. Dr. Petrovski did not come back to his hotel until after two days and has obviously missed his flight back to Moscow. The other Russian delegates became so worried that they called the attention of Mr. Ampil. Mr. Ampil found out that Dr. Petrovski did not avail of the authorized official tour operators commissioned by the conference organizers for sightseeing. Is Mr. Ampil’s company at fault in this situation? What are the responsibilities of conference organizers especially when there are foreign delegates in an event? Can Dr. Petrovski demand payment from the conference organizers of the new airline booking he had to make because of the incident? Learning Objectives Enumerate the responsibilities of professional congress organizers Identify the laws that govern the business of congress, conference or event organizers Provide examples of safeguards that may be observed by professional congress organizers to prevent violation of any law Meetings, incentives, conventions and events are part of business tourism sector, a major though often undervalued sector of the wider tourism industry. This chapter deals with the laws regulating professional congress organizers which also encompass other names applied to the profession, e.g., event planners and convention organizers. This will also discuss the accreditation requirements by the Department of Tourism. Nature and Description of Business The Law Convention. Any gathering for the purpose of exchanging or disseminating views, technical expertise, experiences, knowledge, skills, information, policies or any other related activity. It does not include corporate meetings or events where participation is limited to company personnel only. The term shall include any of the following: 195  Conference. Usually general sessions and face-to-face groups with high participation to plan, get facts, solve organization and member problems. Congress. More commonly used European designation for convention and mainly international in scope. Seminar. Usually one face-to-face group sharing experiences in a particular field under the guidance of an expert discussion leader. Attendance is 30 persons or less. Lecture. A formal presentation by an expert sometimes followed by question-and-answer period. Symposium. A panel discussion by experts in a given field before a large audience with some audience participation but appreciably less than a forum. Forum. A panel discussion taking opposite sides of an issue by experts in a given field with liberal opportunity for audience participation. Workshop. Usually a general session and face-to-face groups of participants training each other to gain new knowledge, skills or insights into problems; attendance generally no more than 30-35 participants. Colloquium. A program in which the participants determine the matter to be discussed. The leaders would then construct the program around the most frequent problems; usually attended by 35 persons or less with equal emphasis on instruction and discussion. Professional Congress Organizer (PCO). Any person, natural or juridical, who manages conventions, either as an official of an organization, consultant, volunteer or as a retained professional.1 Discussion of the Law Trade shows and events may be organized by a professional congress organizer, for purposes of accreditation by the Department of Tourism. Think of the professional congress organizer (PCO) or event planner as a well-connected meeting-planner-for-hire. This type of specialist is common outside the U.S., especially in European cities. A PCO or event planner can take over the site-selection process for you, negotiate with hotels and other suppliers, handle accounting matters and on-site logistics, advise on tax matters, and shepherd paperwork. In short, it will take charge of the program. The business of professional congress organizers is a type of “agency” therefore, the laws discussed in Chapter 5 may apply. The following may apply for accreditation as PCO under the Department of Tourism: a. A resident Filipino citizen; b. Partnerships organized under the laws of the Philippines, at least 60% of the capital of which is owned by Filipino citizens; and c. Corporations organized under the laws of the Philippines, at least 60% of its subscribed common or voting shares of stocks being owned by Filipino citizens and the composition of its Board of Directors being at least 60% Filipino.2 Accreditation of Professional Congress Organizers The following are the requirements for the issuance of accreditation by the Department of Tourism: 1 Chapter I, Section 1 (r), Rules and Regulations to Govern the Accreditation of Travel and Tour Services. 2 Section 11, Rules and Regulations to Govern the Accreditation of Travel and Tour Services. 196 a. In case of a single proprietorship, a business name certificate and all amendments thereto; in the case of partnership or corporations, a certified true copy of the articles of partnership/incorporation and its by-laws and amendments thereto, duly registered with the Securities and Exchange Commission; b. Complete list of its executive officers and employees, indicating therein their nationality, home address and their positions; c. Contract of lease or contract to lease the office space intended for the use of the PCO. d. Mayor’s permit/municipal license; e. Latest Income Tax Return and Audited Financial Statements reflecting a minimum working capital of One Hundred Thousand Pesos (5100,000.00); and f. Such other documents that the Department may require from time to time. 3 The PCO must also be located in a business district and must be easily identifiable.4 The certificate of accreditation shall be valid for a period of one (1) year from the date of its issuance by the Department of Tourism. 5 Application of the Law Case: Roberto Zozobrado has an event planning outfit called Ideaz. He recently won a bid to handle the international convention of surgeons in Manila in 2009. He was obviously delighted because aside from the business motivation, Mr. Zozobrado is very keen on supporting Philippine tourism. Discuss the key responsibilities of his company in the upcoming international convention. What areas must he be careful in order to prevent problems? Legal Opinion: Mr. Zozobrado is bound by his acceptance to carry out in handling the international convention and shall be liable for damages which, through his non-performance, the client who hired Mr. Zozobrado may suffer. In the execution of handling the international convention, Mr. Zozobrado must act in accordance with the instructions and approval of the client. All things being considered, Mr. Zozobrado must perform all that a good father of a family would do, as required by the nature of his business.6 As an event organizer has various ‘safety’ duties known collectively as duties of reasonable care, planning any activity or special event is important since there is an element of risk present. These are: To investigate all aspects of the event (including safety and security) and act accordingly To inform and warn participants of known risks To plan for the safety and well-being of every participant To ensure participants are not subjected to unreasonable risks or harm Delegate safety and security should always be considered when selecting a venue. In addition, ease of access, both by participants and by the organizer and suppliers, as well as the importation of goods, should be taken into account. Medical congresses cost significant sums of money. Proper fund management is important as any commercial operation to ensure the security of these funds and for the regular audited tracking of allocated expenditure. Confidentiality is a major issue and can affect many different areas within the boundaries of 3 Section 12, Rules and Regulations to Govern the Accreditation of Travel and Tour Services. 4 Section 13, Rules and Regulations to Govern the Accreditation of Travel and Tour Services. 5 Section 15, Rules and Regulations to Govern the Accreditation of Travel and Tour Services. 6 See Articles 1884 and 1887, Civil Code of the Philippines. 197 the meetings industry. Special attention should be paid to obtaining permission from speakers and/or companies for the publication and/or disclosure of material to be presented at the event. Mr. Zozobrado must make sure that the caterer for the meals shall provide the highest standards of cleanliness associated with the food and beverage service.7 † Guide Questions ¢ Try to answer the following questions to give you a better understanding of the laws discussed in this chapter. 1. What is a professional congress organizer or event planner? 2. What are the responsibilities of a professional congress organizer or event planner? 3. What are the accreditation requirements by DOT for a professional congress organizer or event planner? 4. Why are professional congress organizers or event planners important to the tourism industry? 5. What is a conference? 6. What is a convention? 7. What is a congress? 8. What is a seminar? 9. What is a symposium? 10. What is a lecture? 11. What is an event? Give examples of events. 12. What is a colloquium? 13. What is a trade exhibition or trade show? 14. What is a forum? 15. What is a workshop? † CLASS ACTIVITIES ¢ Trade Exhibit Visit a trade exhibit and observe the conduct of the event focusing on areas which could have been improved by the organizers and which could prevent any potential problems with the law. Submit a three- page dossier with entrance tickets and photos taken from the trade exhibit attached on the 3rd page and your findings on the first two pages. 7 www.ipcaa.org 198 Coffee Break with an Event Organizer Invite an event organizer in class for a 30-minute coffee break. Engage the event organizer in an impromptu conversation about his work, the risks involved in his work, handling difficult clients and situations and how he solves problems. You may bring assorted beverages (e.g., tea, iced tea, soft drinks, juices, etc.) to suit non-coffee drinkers. You may want to bring also sandwiches, cookies and biscuits. Drafting Agreements Divide the class into three groups. Each group will brainstorm on how to write a simple sample agreement between a conference organizer and an engager client (a civic club for group 1, a religious group for group 2, and a businessmen’s club for group 3). Present the output in class. The teacher will critique the outputs. RESEARCH PROJECT The ASEAN Summit originally slated on December 10, 2006 was postponed on orders of President Gloria Macapagal Arroyo. Surf the Internet and find out the circumstances that led to the moving of the date of the conference to January 2007. The newly constructed Cebu International Convention Center in Mandaue City was the venue and Cebu Governor Gwendolyn Garcia and her team were all set to host this high profile event and make a big impression on the heads of state of the different ASEAN countries. Discuss in class the obligations of congress organizers should there be a cancellation of the event. 199  Chapter 12 Laws Related to Tourism Investments and Finance “Teach man how to start a business and you feed him many lifetimes.” (Jose Ma. Concepcion III, founder, Go Negosyo Summit) Case of the Delayed Retirement Village Rafael Valdez is a seasoned restaurateur who made his fortune via his two fine dining restaurants which he solely owns in the financial district of Makati. But Mr. Valdez is still dreaming of bigger things. He would like to build a deluxe hotel, a retirement village and spa complex and many more. On the retirement village, he was able to convince some friends and suppliers to invest over 5 100 million and a bank loan was secured for 5 200 milllion. The idea was to build 50 upscale retirement homes adjacent to his hotel north of Manila for the Japanese, Filipino-American and European markets. Each unit would sell for 5 5.2 million and even before they could get the necessary permits, Mr. Valdez was able to sell 8 units already. He was warned by the Housing and Land Use Regulatory Board (HLURB) on the consequences of pre-selling without a permit. He promised the buyers to have all the units constructed by 2010. One year has passed and no work has been done on the land development aspect of the project. Meanwhile, money invested by partners and money received as sales were already spent on the new additional restaurants being built. Dr. Pacifico Morales, one of the Filipino-American retirees has been inquiring about his unit and no one could give a definite answer. What are your impressions of this business venture? What violations did Mr. Valdez commit? What are his liabilities to the investors and buyers? Learning Objectives Enumerate the procedure in setting up a tourism-oriented business Explain the laws governing tourism investments and financing tourism-oriented projects Discuss the business models applicable to tourism projects Enumerate the various taxes application to tourism-related establishments Discuss the limitation of foreigners in tourism investments It has been the policy of the State to recognize the indispensable role of the private sector like the tourism industry and provide incentives for its needed investments.1 This chapter deals with laws related to promotion, monitoring and regulation of tourism investments and finance in the country. Basically, this will tackle the participation of foreign investors as well as incentives given to Filipinos in case they will invest in the tourism industry. Special laws are even created to address needs of certain sectors like the informal sector, Filipino balikbayans, retirees and senior citizens. 1 Section 20, Article II, 1987 Philippine Constitution. 200  Foreign Investments Act of 1991 The Law The term “Philippine national” shall mean a citizen of the Philippines, or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines, in order that the corporation shall be considered a Philippine national.2 Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars (US$200,000.00), are reserved to Philippine nationals: Provided, That if (1) they involve advance technology as determined by the Department of Science and Technology, or (2) they employ at least fifty (50) direct employees, then a minimum paid-in capital of One hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine nationals.3 The phrase “doing business” shall include soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase “doing business: shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.4 Discussion of the Law Republic Act 7042, as amended by Republic Act 8179 (March 25, 1996), also known as the Foreign Investments Act of 1991, provides for the policy that foreigners can now invest in all activities and enterprises in the Philippines, except those covered in the negative list. When a foreign investment in the Philippines is not covered or does not seek incentives under the Omnibus Investment Code, the foreign national or entity can ascertain the extent of allowable foreign equity in the enterprise sought to be entered into by simply referring to the Negative Lists, and filing the necessary requirements with the Securities and Exchange Commission. 2 Section 1, R.A. 8179. 3 Section 3, R.A. 8179. 4 Section 3 (d), R.A. 7042. 201  Under the Foreign Investment Act of 1991 (FIA 1991), a foreign national or equity must determine the kind of enterprise sought to be entered into, whether the enterprise is a Domestic Market Enterprise or an Export Enterprise. Domestic market enterprise shall mean an enterprise which produces goods for sale, or renders service to the domestic market entirely or, if exporting a portion of its output, continually fails to export at least 60% thereof.5 In domestic market enterprises, foreigners can invest as much as 100% equity, except: a) in areas included in the Negative List;6 or b) in case the paid-in equity capital is less than the equivalent of Two hundred thousand US dollars (US$200,000.00), such domestic market enterprises is reserved to Philippine nationals, provided, that if (1) they involve advance technology as determined by the Department of Science and Technology, or (2) they employ at least fifty (50) direct employees, then a minimum paid-in capital of One hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine nationals.7 If the activity is in the Negative List, foreign ownership in the enterprise is generally limited to a maximum of 40% unless the Constitution or other laws provide lower limit. Export Enterprise shall mean an enterprise wherein a manufacturer, processor, or service (including tourism) enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty percent (60%) or more of such purchases.8 There are no restrictions on the extent of foreign ownership (up to 100%) in export enterprises, unless the products and services fall within the Negative Lists A and B or utilize raw materials from depleting natural resources. Procedure for Registration A foreign national or entity not seeking to avail of incentives under the Omnibus Investment Code shall file an application of registration as follows: (a) Corporation and Partnership – with the Securities and Exchange Commission (SEC). The existing requirements for foreign corporations are: (1) Name Verification Slip; (2) Certified Copy of Board Resolution authorizing the establishment of a Philippine office, designating the resident agent, and a stipulation that in the absence of such agent or upon cessation of its business in the Philippines, the SEC shall receive summons and legal processes; (3) Financial statements as certified by an independent Certified Public Accountant of the home country for the immediately preceding year at the time of the filing of the application; (4) Certified copies of the Articles of Incorporation/Partnership with English translation; (5) Foreign Company Information Sheet; (6) Proof of inward remittances such as a bank certificate or inward remittance or credit advices; 9 The existing requirements in case of new domestic corporation or a partnership are: (1) Articles of Incorporation/Partnership; (2) Name Verification Slip; (3) Bank Certificate of Deposit; (4) Special Investor’s Resident Visa (SIRV) Visa # 13 of the alien subscribers10; (5) Proof of Inward Remittance (for non-resident aliens).11 5 Section 1(k), Implementing Rules and Regulations of R.A. 7042 (October 23, 1991) as amended by R.A. 8179. 6 Section 2, R.A. 8179. 7 Section 3, R.A. 8179. 8 Section 1 (g), Implementing Rules and Regulations of R.A. 7042 (October 23, 1991) as amended by R.A. 8179. 9 Implementing Rules and Procedure of the Foreign Investments Act of 1991, October 23, 1991. 10 The Special Investor’s Resident Visa (SIRV), issued pursuant to the provisions of the Omnibus Investments Code of 1987, as amended shall entitle the holder to reside in the Philippines for an indefinite period as long as the required qualifications and investments are maintained as provided for in Article 74 of the Code. 11 Implementing Rules and Procedure of the Foreign Investments Act of 1991, October 23, 1991. 202  (b) Single or Sole Proprietorships – with the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry. Aside from the registration requirements as mandated above, Section 125 of the Corporation Code requires foreign corporations wishing to do business in the Philippines to secure a license from the SEC allowing foreign corporation to do business in the Philippines. Effects of Failure to Comply with the Registration Requirements and Failure to Secure the Necessary SEC License: 1) Administrative sanctions (such as imposition of fines and forfeiture of benefits, Section 14, Foreign Investments Act) 2) For foreign corporations: (a) Criminal liability fine or imprisonment (Art. 144, Corporation Code) (b) Foreign corporations cannot sue in Philippine courts (Sec. 133, Corporation Code of the Philippines) (c) Foreign corporation can be sued in Philippine courts (Sec. 133, Corporation Code) Limitation of Foreign Ownership Under Executive Order No. 139 dated October 27, 2002, pursuant to Republic Act 8179, promulgating the Fifth Regular Foreign Investment Negative List and other special laws, the following investments have the corresponding limitation of foreign ownership: List A: Foreign Ownership Is Limited By Mandate of the Constitution and Specific Laws No Foreign Equity: 1. Mass Media except recording (Article XVI, Section 11 of the Constitution; Presidential Memorandum dated 04 May 1994) 2. Services involving the practice of licensed professions save in cases prescribed by law a) Engineering b) Medicine and Allied Professions c) Accountancy d) Architecture e) Criminology f) Chemistry g) Custom Brokerage h) Environmental Planning i) Forestry j) Geology k) Interior Design l) Landscape Architecture m) Law n) Librarianship o) Marine Deck Officers 203  p) Marine Engine Officers q) Master Plumbing r) Sugar Technology s) Social Work t) Teaching (Article XIV, Section 14 of the Constitution; Section 1 of RA No. 5181) 3. Retail Trade (Section 1 of RA No. 1180) 4. Cooperatives (Chapter III, Article 26 of RA No. 6938) 5. Private Security Agencies (Section 4 of RA No. 5487) 6. Small-scale Mining (Section 3 of RA No. 7076) 7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive economic zone (Article XII, Section 2 of the Constitution) 8. Ownership, operation and management of cockpits (Section 5 of Presidential Decree No. 449) 9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Article II, Section 8 of the Constitution) 10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons (Various treaties to which the Philippines is a signatory and conventions supported by the Philippines) 11. Manufacture of firecrackers and other pyrotechnic devices. Up to Twenty-five Percent (25%) Foreign Equity: 12. Private recruitment, whether for local or overseas employment (Article 27 of Presidential Decree No. 442) 13. Contracts for the construction and repair of locally-funded public works except: a) infrastructure/development projects covered in RA No. 7718; and b) projects which are foreign funded or assisted and required to undergo international competitive bidding (Commonwealth Act No. 541; Presidential Decree 1594; Letter of Instruction 630; Section 2a of RA No. 7718) Up to Thirty Percent (30%) Foreign Equity: 14. Advertising (Article XVI, Section 11 of the Constitution) Up to Forty Percent (40%) Foreign Equity: 15. Exploration, development and utilization of natural resources, unless full foreign participation through financial or technical assistance agreement with the President of the Philippines; (Article XII, Section 2 of the Constitution) 16. Ownership of private lands (a corporation 40% foreign-owned and 60% owned by Filipinos may own private lands); (Article XII, Section 7 of the Constitution; Chapter 5, Section 22 of Commonwealth Act No. 141) 17. Operation and management of public utilities (Article XII, Section 11 of the Constitution; Section 16 of Commonwealth Act No. 146) 18. Ownership/establishment and administration of educational institutions (Article XIV, Section 2 of the Constitution) 204 19. Engaging in the rice and corn industry (Presidential Decree No. 194) 20. Financing companies regulated by the Securities and Exchange Commission (SEC, Section 6 of RA No. 5980) 21. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation (Section 1 of RA No. 5183) 22. Contracts for the construction of defense-related structures (e.g., land, air, sea and coastal defenses, arsenals, barracks, depots, hangars, landing fields, quarters and hospitals) (Commonwealth Act No. 541) 23. Project proponent and facility operator of a BOT project requiring a public utilities franchise (Article XII, Section 11 of the Constitution; Section 2a of RA No. 7718) 24. Private domestic construction contracts (Republic Act 4566; Article XIV, Section 14 of the Constitution) 25. Operation of deep sea commercial fishing vessels 26. Adjustment companies 27. Ownership of condominiums (Sec. 5, R.A. 4726) Up to 60% Foreign Equity Allowed: 28. Investment companies regulated by the Securities and Exchange Commission (subject to reciprocity rights) 29. Financing companies regulated by the Securities and Exchange Commission List B: Foreign Ownership Is Limited for Reasons of Security, Defense, Risk to Health and Morals and Protection of Small and Medium Scale Enterprises Up to Forty Percent (40 %) Foreign Equity: 1. Manufacture, repair, storage, and/or distribution used in the manufacture thereof requiring Philippine National Police (PNP) clearance: a) Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be used in the manufacture of firearms b) Gunpowder c) Dynamite d) Blasting supplies e) Ingredients used in making explosives f) Telescopic sights, sniperscope and other similar devices (RA No. 7042 as amended by RA No. 8179) 2. Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance: a. Guns and Ammunition for Warfare b. Military Ordinance and Parts Thereof (e.g., Torpedoes, Mines, Depthcharges, Bombs, Grenades, Missiles) c. Gunnery, Bombing and Fire Control Systems and Components d. Guided Missiles/Missile Systems and Components e. Tactical Aircraft (Fixed and Rotary-Winged), Parts and Components Thereof 205  f. Space Vehicles And Component Systems g. Combat Vessels (Air, Land and Naval) and Auxiliaries h. Weapons Repair and Maintenance Equipment i. Military Communications Equipment j. Night Vision Equipment k. Stimulated Coherent Radiation Devices, Components and Accessories l. Armament Training Devices (RA No. 7042 as Amended by RA No. 8179) 3. Manufacture and distribution of dangerous drugs (RA No. 7042 as amended by RA No. 8179) 4. Sauna and steam bathhouses, massage clinics, nightclubs, bars, beer houses, dance halls and other like activities regulated by law because of risks they may impose public health and morals 5. Other forms of gambling, e.g., race track operation, racehorse ownership/importation 6. Domestic market enterprises with paid-in equity capital of less than US$200,000 7. Domestic market enterprises involving advanced technology or employing at least 50 direct employees with paid-in-equity capital of less than US$100,000 Addendum: Up to 49% Foreign Equity Allowed: Lending companies regulated by the Securities and Exchange Commission (subject to reciprocity rights)12 Application of the Law Case: Tan O. Cheng, a Chinese resident and citizen, wants to try the air transportation business in the Philippines. If you are the lawyer appointed by Tan O. Cheng to put up this kind of business, what advice will you give? Legal Opinion: As the lawyer of Tan O. Cheng, I will advise him that he cannot engage in the air transportation as a sole proprietor because of the constitutional limitation that the operation of a public utility (like the air transportation business) shall be granted only to citizens of the Philippines) unless he wants to be a naturalized citizen under Philippine laws. Under the current situation, I may advise him to look for partners or incorporators to form a partnership or a corporation under Philippine Laws. However, the formation must be based on the limited 40% foreign equity by reason of the constitutional limitation. Investment in Transportation Business and Public Utilities The Law Article XII. (National Economy and Patrimony) Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines, or to corporations or associations organized under the laws of the Philippines or at least 60 per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under 12 Under Sec. 6, Republic Act 9474, Lending Company Regulation Act of 2007, May 22, 2007, at least a majority of the voting capital stock shall be owned by Filipino citizens. 206  the condition that it shall be subject to amendment, alteration or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.13 Discussion of the Law For common carriers, such as the airline, land and water transportation business, the operation of such involve public service which shall be granted only to citizens of the Philippines, or to corporations or associations organized under the laws of the Philippines, or at least 60 per centum of whose capital is owned by such citizens. In other words, foreign participation is limited to only 40 percent. In addition, the executive and managing officers of the corporation or association operating a transportation business shall be exclusive to citizens of the Philippines. Application of the Law Case: Virginia Perez, a Filipino citizen and businesswoman, wants to engage in a limousine and car service business. She wants to start a fleet of ten (10) cars. If you were the lawyer appointed by Ms. Perez to set up this kind of business, what advice would you give? Legal Opinion: As the lawyer of Virginia Perez, I would advise her that she may (a) engage in the transportation business as a sole proprietor; or (b) look for partners to form a partnership or incorporators to form a corporation in accordance with Philippine laws. If she chooses to form a partnership or corporation, she must observe the limitation for foreign ownership, i.e., a maximum of 40% of total equity. Investment in Travel Agencies and Tour Operators The Law The following may apply for accreditation as tour operator: a. A resident Filipino citizen; b. A partnership organized under the laws of the Philippines, at least 60% of its capital being owned by Filipino citizens; and c. Corporations organized under the laws of the Philippines, at least 60% of the subscribed common or voting shares of stocks of which is owned by Filipino citizens and the composition of its Board of Directors being at least 60% Filipinos. 14 Discussion of the Law The above provides the limitation of foreign participation to 40 percent for purposes of accreditation and operation of a travel agency and/or tour operator by the Department of Tourism. In addition, Memorandum Order No. 211 approving the 2006 Investment Priorities Plan (April 4, 2006), tourism (which covers travel agencies or tour operators) has been classified as preferred activities pursuant to Article 29 of the Omnibus Investment Code of 1987. Thus, in 13 1987 Philippine Constitution. 14 Section 2, Rules and Regulations to Govern the Accreditation of Travel and Tour Services. 207 order for a travel agency or tour operator to be entitled for registration under the Investment Priorities Plan, an applicant must satisfy the Board of Investments that: a) He is a citizen of the Philippines, in case the applicant is a natural person, or in case of a partnership or any other association, it is organized under Philippine laws and that at least sixty percent (60%) of its capital is owned and controlled by citizens of the Philippines; or in case of a corporation or a cooperative, it is organized under Philippine laws and that at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by Philippine nationals as defined under Article 15 of Omnibus Investment Code, and at least sixty percent (60%) of the members of the Board of Directors are citizens of the Philippines. (b) The applicant is proposing to engage in a preferred project listed or authorized in the current Investment Priorities Plan within a reasonable time to be fixed by the Board. (c) The applicant is capable of operating on a sound and efficient basis of contributing to the national development of the preferred area in particular and of the national economy in general; 15 Application of the Law Case: Mr. Francois Renault, a French resident and citizen is interested in putting up a travel agency in the Philippines, specializing in European outbound tour packages. If you are the lawyer appointed by Mr. Renault to assist him in putting up this kind of business, what advice will you give him? Legal Opinion: Mr. Francois Renault cannot just put up a business on his own as a sole proprietor in the Philippines as the formation of a travel agency is reserved only to citizens of the Philippines under the Omnibus Investment Code. I may, however, legally assist Mr. Renault in looking for partners or incorporators for purposes of forming a partnership or a corporation under Philippine Laws. However, the formation must be based on the limited 40% foreign equity by reason of the limitation under the Omnibus Investment Code. Investment in Hotels, Resorts and other Accommodation Establishments The Law By reason of the enactment of Memorandum Order No. 211 approving the 2006 Investment Priorities Plan (April 4, 2006), tourism has been classified as preferred activities pursuant to Article 29 of the Omnibus Investment Code of 1987. Tourism covers the development of tourism economic zones, tourist estates, eco-agri tourism facilities, and the establishment of tourist accommodation facilities (i.e., hotels, resorts and other tourism accommodation facilities such as apartel, pension houses, tourist inns and similar establishments). Discussion of the Law Thus, in order for tourist accommodation facilities to be entitled for registration under the Investment Priorities Plan, an applicant must satisfy the Board of Investments that: a) He is a citizen of the Philippines, in case the applicant is a natural person, or in case of a partnership or any other association, it is organized under Philippine laws and that at least sixty percent (60%) of its capital is owned and controlled by citizens of the Philippines; or in case of a corporation or a cooperative, it is organized under Philippine laws and that at 15 Section 32, Executive Order No. 226, July 16, 1987. 208  least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by Philippine nationals as defined under Article 15 of Omnibus Investment Code, and at least sixty percent (60%) of the members of the Board of Directors are citizens of the Philippines. (b) The applicant is proposing to engage in a preferred project listed or authorized in the current Investment Priorities Plan within a reasonable time to be fixed by the Board. (c) The applicant is capable of operating on a sound and efficient basis of contributing to the national development of the preferred area in particular and of the national economy in general.16 Application of the Law Case: Martha Soriano, Baguio City-based retailer and caterer, noted the severe shortage of hotel accommodations in the city especially during the annual Panagbenga Flower Festival. She invited some foreign friends, Arthur Hewitt, an American retiree, and Rose Ann Grundt, a German hotelier, to join and invest in her new business venture – the Mayflower Hotel. Based on the business plan prepared, the total capitalization needed for the 50-room standard hotel is 520 million. Martha is only capable of raising half of the total investment needed. What advice would you give Ms. Soriano as she forms a partnership with two foreign partners? Legal Opinion: For hotel investments, 60% of the capitalization should be owned by Filipinos. Thus, 512 million must be Filipino-owned. If Martha Soriano can only raise 510 million of the required total investment for Mayflower Hotel, she can do one of two things: (a) borrow 52 million from the bank or any other source, or (b) invite another Filipino investor/partner to invest, at least 52 million. Either way, the required of 60% Filipino ownership will be satisfied. Application of the Retail Trade Law for Restaurants and Shops The Law Restaurants and other tourism-related establishments such as department stores and shops are governed by the laws on retail trade by reason of the nature of their business. In the past, operation and ownership of these establishments are confined only to Filipino citizens or to corporations and associations fully owned by Filipino citizens. By reason of the enactment of the Retail Trade Liberalization Act 2000, foreign investors may now engage in retail trade subject to capital requirements (refer to Chapter X, Laws Regulating Restaurants and Other Tourism-Related Establishments). Discussion of the Law The following sales transactions are exempted under the coverage of the Retail Trade Liberalization Act of 2000 and are therefore allowed 100% foreign ownership participation: (a) By a manufacturer, processor, laborer or worker, to the general public the products manufactured, processed or produced by him if his capital does not exceed 5100,000.00; (b) By a manufacturer of his products in a single outlet, irrespective of capitalization; (c) In restaurants incidental to the hotel business.17 16 Section 32, Executive Order No. 226, July 16, 1987. 17 Section 3 (1), R.A. 8762. 209 Application of the Law Case: Mr. Chek O. Teng, a Chinese resident and citizen, wants to put up a fine dining restaurant West Avenue, Quezon City specialized in Macanese cuisine. If you are the lawyer appointed by Mr. Teng to put up his business, what advice will you give? Legal Opinion: As the lawyer of Mr. Teng, I will advise him that he has these choices: 1) He may register as a single proprietor at the Department of Trade and Industry subject to the investment qualifications as prescribed under the Retail Trade Liberalization Act of 2000; 2) He may look for partners or incorporators and form a partnership or corporation under Philippine Laws. However, the formation must be based on the limited 40% foreign equity as prescribed under the Retail Trade Liberalization Act of 2000; 3) He may put up a restaurant incident to a hotel business in West Avenue, Quezon City so that he will be exempted under the Retail Trade Liberalization Act of 2000. In this case, he may put up a joint venture with an owner of a hotel business to pursue his restaurant business. Tourism Projects under the Build-Operate-and-Transfer (BOT) Program The Law Republic Act No. 6987 as amended by Republic Act 7718, referred to as the “BOT Law” implements the declared policy of the state to recognize the indispensable role of the private sector as the main engine for national growth and development and provide the most appropriate favorable incentives to mobilize the private resources for the purpose. The coverage of the B-O- T Law extended not merely to “government infrastructure projects” but also to “government development projects.” The following are the schemes recognized under the law. Build-and-transfer (BT). A contractual arrangement whereby the Project Proponent undertakes the financing and Construction of a given infrastructure or development facility and after its completion turns it over to the Agency or LGU concerned, which shall pay the Project Proponent on an agreed schedule its total investment expended on the project, plus a Reasonable Rate of Return thereon. This arrangement may be employed in the Construction of any Infrastructure or Development Projects, including critical facilities which, for security or strategic reasons, must be operated directly by the Government. Build-lease-and-transfer (BLT). A contractual arrangement whereby a Project Proponent is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the Agency/LGU concerned on a lease arrangement for a fixed period, after which ownership of the facility is automatically transferred to the Agency/LGU concerned. Build-own-and-operate (BOO). A contractual arrangement whereby a Project Proponent is authorized to finance, construct, own, operate and maintain an infrastructure or development facility from which the Project Proponent is allowed to recover its total investment, operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users; Provided, That all such projects upon recommendation of the Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA), shall be approved by the President of the Philippines. Under this project, the proponent who owns the assets of the facility may assign its operation and maintenance to a Facility Operator. Build-operate-and-transfer (BOT). It is a contractual arrangement whereby the Project Proponent undertakes the Construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The Project Proponent operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as 210  negotiated and incorporated in the contract to enable the Project Proponent to recover its investment, and operating and maintenance expenses in the project. The Project Proponent transfers the facility to the Agency/LGU concerned at the end of the fixed term that shall not exceed fifty (50) years. This build-operate-and-transfer contractual arrangement shall include a supply-and-operate scheme which is a contractual arrangement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals. Build-transfer-and-operate (BTO). A contractual arrangement whereby the Agency/LGU contracts out the Construction of an infrastructure facility to a private entity such that the Contractor builds the facility on a turnkey basis, assuming cost overruns, delays, and specified performance risks. Once the facility is commissioned satisfactorily, title is transferred to the implementing Agency/LGU. The private entity however operates the facility on behalf of the implementing Agency/LGU under an agreement. Contract-add-and-operate (CAO). A contractual arrangement whereby the Project Proponent adds to an existing infrastructure facility which it is renting from the Government and operates the expanded project over an agreed Franchise period. There may or may not be a transfer arrangement with regard to the added facility provided by the Project Proponent. Develop-operate-and-transfer (DOT). A contractual arrangement whereby favorable conditions external to a new infrastructure project which is to be built by a Project Proponent are integrated into the arrangement by giving that entity the right to develop adjoining property, and thus, enjoy some of the benefits the investment creates such as higher property or rent values. Rehabilitate-operate-and-transfer (ROT). A contractual arrangement whereby an existing facility is turned over to the Project Proponent to refurbish, operate and maintain for a Franchise period, at the expiry of which the legal title to the facility is turned over to the Government. The term is also used to describe the purchase of an existing facility from abroad, importing, refurbishing, erecting and consuming it within the host country. Rehabilitate-own-and-operate (ROO). A contractual arrangement whereby an existing facility is turned over to the Project Proponent to refurbish and operate with no time limitation imposed on ownership. As long as the operator is not in violation of its Franchise, it can continue to operate the facility in perpetuity.18 Discussion of the Law Any individual, partnership, corporation or firm, whether local or foreign, including joint venture or consortia of local, foreign or local and foreign firms, subject to the limits herein set, may participate or apply for pre-qualification projects covered under the provisions of the Act.19 The limitation for the qualification requirements for an entity to engage in any of the schemes under the BOT Law are as follows: a. For projects to be implemented under the BOT scheme whose operations require a public utility Franchise, the prospective Project Proponent and the Facility Operator must be Filipinos or, in case of corporations, must be duly registered with the Securities and Exchange Commission (SEC) and owned up to at least sixty percent (60%) by Filipinos. For projects other than these, the prospective Project Proponent shall comply with the nationality and ownership requirements under the Constitution and other applicable laws. 18 Rule 1, Section 1.3 (e). Revised Implementing Rules and Regulations of R.A. No. 6957, “An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes,” as Amended by R.A. No. 7718. 19 Rule 5.1, Revised Implementing Rules and Regulations of R.A. No. 6957, “An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes,” as Amended by R.A. No. 7718. 211  For projects to be implemented through a scheme other than the BOT and requiring a public utility Franchise, the Facility Operator must be a Filipino or, in case of corporations, must be duly registered with the Securities and Exchange Commission (SEC) and owned up to at least sixty percent (60%) by Filipinos. Consistent with existing laws, the Project Proponent may be the operator but it may be allowed to enter into a management contract with another entity, who may be 100% foreign-owned, for the day-to-day operation of the facility, provided that the Project Proponent will assume all attendant liabilities of the operator. In case the prospective Project Proponent is a joint venture or consortium, the members or participants thereof shall already be disclosed during the pre-qualification stage and shall undergo pre-qualification. Further, the members or participants thereof shall execute an undertaking in favor of the Agency/LGU that if awarded the contract, they shall bind themselves to be jointly and severally liable for the obligations of the Project Proponent under the contract. However, if members of the joint venture or consortium organize themselves as a corporation registered under Philippine laws, such corporation shall execute such an undertaking binding itself to be liable for the obligations of the Project Proponent under the contract, which shall substitute or be in lieu of the undertaking submitted by the members or participants of the joint venture or consortium. For projects to be operated by the Project Proponent itself or owned by the Project Proponent but operated through a Facility Operator where operation of the facility does not require a public utility Franchise, the Project Proponent or the Facility Operator may be Filipino or foreign-owned. For purposes of pre-qualification, the Contractor proposed to be engaged by the Project Proponent to undertake the Construction of the project must be duly licensed and accredited by Philippine Contractors’ Accreditation Board (PCAB), in the case of a Filipino Contractor, or by an equivalent accreditation institution in the Contractor’s country of origin, in the case of a foreign Contractor. Once the Project Proponent is awarded the project, such foreign Contractor must secure a license and accreditation from the PCAB. b. Experience or Track Record. The prospective Project Proponent must possess adequate experience in terms of firm experience and key personnel experience. c. Financial capability. The prospective Project Proponent must have adequate capability to sustain the financing requirements for the detailed engineering design, construction and/or operation and maintenance phases of the project, as the case may be.20 Period Covered The contractor transfers the facility to the government unit concerned at the end of the fixed term which shall not exceed fifty (50) years. Financing Allowed For the construction stage, contractor may obtain financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino contractor. The financing of foreign or foreign-controlled contractor from Philippine government financing institutions shall not exceed 20% of the total cost of infrastructure facility or project. The financing from foreign sources shall not require a guarantee by the government or by government owned and controlled corporations. 20 Rule 5.4, Revised Implementing Rules and Regulations of R.A. No. 6957, “An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes,” as Amended by R.A. No. 7718. 212 Employment of Filipino Workers In the case of foreign contractors, Filipino labor shall be employed or hired in the different phases of the construction where Filipino skills are available. Priority Projects All concerned infrastructure agencies, including government owned and controlled corporations and local government units, shall include in their infrastructure programs those priority projects that may be financed, constructed, operated, and maintained by the private sector. Under Joint Resolution No. 03 passed by Congress, the following have been classified as national priority infrastructure projects related to tourism: (a) Highways, including expressways, roads, bridges, interchanges, tunnels and related facilities; (b) Rail-based projects packaged with commercial development opportunities, e.g., use of government facilities; (c) Non-rail based mass transit facilities, navigable inland waterways and related facilities; (d) Port infrastructure like piers, wharves, quays, storage, handling ferry services and related facilities; (e) Airports, air navigation and related facilities; (f) Tourism, educational and health infrastructure; (g) Land reclamation, dredging and other related developments facilities; (h) Industrial estates, regional industrial centers, and export processing zones; and (i) Development of new townsites and communities and related facilities. Approval of the projects or the confirmation authority lies with the National Economic and Development Authority and the local development councils of the local government units concerned depending on the cost of the project. Preference to Filipino Contractors In order to be accorded preference, a Filipino contractor is required to submit an equally advantageous bid with the same price and technical specifications as that of the foreign contractor. A Filipino contractor will not be accorded preference unless his bid is at par, on both price and technical aspects, with that of the foreign contractor. Registration with the Board of Investments Republic Act 7718 provides that projects costing in excess of P1.0 billion shall be registered with the Board of Investments (BOI) and entitled to the incentives provided under the Omnibus Investment Code. For projects undertaken as authorized under the Revised Internal Rules costing 51.0 billion or less may, upon registration with the BOI, avail of incentives provided under the Omnibus Investment Code, subject to the inclusion of the project activity in the current Investment Priorities Plan of the BOI. Investment Incentives and Government Undertakings under the BOT Law Subject to existing laws, policies, rules and regulations, the Government may provide any form of direct or indirect support or contribution, such as, but not limited, to the following: a. Cost Sharing. This shall refer to the Agency/LGU concerned bearing a portion of capital expenses associated with the establishment of an infrastructure development facility, such as, the provision of access infrastructure, right-of-way, transfer of ownership over, or usufruct, 213  or possession of land, building or any other real or personal property for direct use in the project and/or any partial financing of the project, or components thereof, provided, that such shall not exceed fifty percent (50%) of the Project Cost, and the balance to be provided by the Project Proponent. Such government share may be financed from direct government appropriations and/or from Official Development Assistance (ODA) of foreign government or institutions. b. Credit Enhancements. This shall refer to direct and indirect support to a development facility by the Project Proponent and/or Agency/LGU concerned, the provision of which is contingent upon the occurrence of certain events and/or risks, as stipulated in the contract. Credit enhancements are allocated to the party that is best able to manage and assume the consequences of the risk involved. Credit enhancements may include, but are not limited to, government guarantees on the performance, or the obligation of the Agency/LGU under its contract with the Project Proponent, subject to existing laws on indirect guarantees. Indirect Guarantees shall refer to an agreement whereby the Government or any of its Agencies/LGUs assume full or partial responsibility for or assists in maintaining the financial standing of the Project Proponent or project company in order that the Project Proponent/company avoids defaulting on the Project Loans, subject to fulfillment of the Project Proponent/company of its undertakings and obligations under the project agreement. c. Direct Government Subsidy. This shall refer to an agreement whereby the Government, or any of its Agencies/LGUs will: (a) defray, pay for or shoulder a portion of the Project Cost or the expenses and costs in operating or maintaining the project; (b) condone or postpone any payments due from the Project Proponent; (c) contribute any property or assets to the project; (d) in the case of LGUs, waive or grant special rates on real property taxes on the project during the term of the contractual arrangement; and/or (e) waive charges or fees relative to business permits or licenses that are to be obtained for the Construction of the project, all without receiving payment or value from the Project Proponent and/or Facility operator for such payment, contribution or support. d. Direct Government Equity. This shall refer to the subscription by the Government or any of its agencies or Local Government Units of shares of stock or other securities convertible to shares of stock of the project company, whether such subscription will be paid by the money or assets. e. Performance Undertaking. This shall refer to an undertaking of a department, bureau, office, commission, authority, agency, GOCC, or LGU in assuming responsibility for the performance of the Agency’s/LGU’s obligations under the contractual arrangement including the payment of monetary obligations, in case of default. f. Legal Assistance. This shall refer to the extension of representation by government lawyers to a Project Proponent but only in cases, hearings, or inquiries where the Agency/LGU and Project Proponent are party-defendants/respondents therein including the adoption by such government lawyers of positions and strategies consistent with upholding the validity of the approved contractual arrangement. g. Security Assistance. This shall refer to the deployment of government security forces, either from the Philippine National Police (PNP) or the Armed Forces of the Philippines (AFP) in the vicinity of the project site to provide security during the implementation of the project up to completion. LGUs may provide additional tax incentives, exemptions, or reliefs, subject to the provisions of the Local Government Code (LGC) of 1991 and other pertinent laws. 214 Application of the Law Case: On August 8, 1997, the Philippine government, through the Department of Transportation and Communications (DOTC) entered into a Build, Lease and Transfer (BLT) Agreement with Metro Rail Transit Corporation, Limited (MRTC). In the BLT Agreement, MRTC undertook to build MRT 3 which it shall own for 25 years, after which, ownership shall be transferred to the Philippine government in accordance with Republic Act No. 6957 or the Build, Operate and Transfer Law. The agreement allows MRTC, either by itself or through any estate developers, to develop commercial premises in the MRT 3 structure or to obtain advertising income therefrom. According to the agreement, the DOTC awards to MRTC the rights to (a) develop commercial premises in the Depot and the air space above the Stations, which shall be allowed to such height as is legally and technically feasible, (b) lease or sub-lease interests or assign such interests in the Depot and such air space and (c) obtain any advertising income from the Depot and such air space. On October 27, 1998, MRTC entered into a Contract for Advertising Services with Trackworks Rail Transit Advertising, Vending and Promotions, Inc. (Trackworks) giving the latter the exclusive right to undertake advertising and promotional activities within and along the exterior and interior of the MRT 3 structure. Thereafter, Trackworks proceeded to install commercial billboards, banners, signage and other forms of advertisement in the different parts of MRT 3 structure. On January 29, 2001, the Metro Manila Development Authority (MMDA) requested Trackworks to dismantle the billboards purportedly in conformity with MMDA Regulation No. 96-009, prohibiting the posting, installation and display of any kind or form of billboards, signs, posts, streamers, in any part of the road, sidewalk, center island, posts, trees, parks and open space. Trackworks refused to comply and invoked its advertising contract with MRTC. Consequently, MMDA started dismantling the billboards and streamers of Trackworks. Does the MMDA have the right to dismantle the billboards and streamers of Trackworks? Legal Opinion: No, the MMDA has no authority to dismantle the billboards and streamers of Trackworks. The contract with the MRTC vested it the exclusive right to undertake advertising and promotional activities at the MRT 3 structure. What is involved here is not an indiscriminate posting and installation of commercial advertisements but one sanctioned by a contract under the B-O-T Law.21 Applicable Negotiable Instruments and Documents of the Title The Law By way of introduction, the laws applicable for purposes of discussion of the different negotiable instruments and documents of title in Tourism Investment are as follows: 1) Act 2031, also known as the Negotiable Instruments Law 2) Presidential Decree No. 115, Providing for the Regulation of Trust Receipts Transactions 3) Warehouse Receipt Law (Act 2137) Discussion of the Law The following are some negotiable instruments and documents of title which can be useful in tourism financing and investment: 21 Metropolitan Manila Development Authority vs. Trackworks Rail Transit Advertising, Vending and Promotions, Inc., G.R. No. 167514,October 25, 2005. 215  Promissory Note. It is a written promise committing the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without interest.22 Special types of promissory notes: (1) Certificate of Deposit. It is a written acknowledgment by a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer or some other person, to the order of the depositor, or to him or his order. (2) Mortgage Note. A debt instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on the property as security for the repayment of a loan. The borrower has use of the property, and the lien is removed when the obligation is fully paid. A mortgage normally involves real estate which is called Real Estate Mortgage. For personal property, such as machines, equipment, or tools, the lien is called a chattel mortgage.23 Bill of Exchange. It is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed determinable future time a sum certain in money to order or bearer.24 Types of bills of exchange: (a) Draft. This is the common term of a bill of exchange. It is a bill of exchange drawn by a bank, issued at the solicitation of a stranger who purchases and pays thereof. It is also defined as an “order of payment of money.” In such a case, the drawee bank acting as the “payor” bank is liable for the acts not done in accordance with the instructions of the purchaser.25 (b) Trade Acceptance. A draft or bill of exchange drawn by the seller on the buyer of goods sold and accepted by such purchaser of goods. It is payable to order and with certain maturity. (c) Banker’s Acceptance. A draft or bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting bankers’ acceptance credit. This is chiefly used for international trade financing. Check. A check is a bill of exchange drawn on a bank payable on demand.26 Special types of checks: (1) Manager’s Check. It is one drawn by the bank’s manager upon the bank itself and deemed accepted by the act of issuance. It is similar to the cashier’s check both as to effect and use. It is really the bank’s own check and may be treated as a promissory note with the bank as the maker. It is an accepted practice that that manager’s check is deemed as cash. (2) Traveler’s Check. It is one upon which the holder’s signature must appear twice, one to be affixed by him at the time it is issued (usually in the presence of the bank issuing the checks) and the second or counter-signature, to be affixed by him in the presence of the payee before it is paid, otherwise, it is incomplete. Its purpose is to provide the traveler safe and convenient method by which to supply himself with funds in almost all parts of the civilized world without the hazard of carrying the money on his persons. The bank or company issuing the instruments has the right to refuse to pay it when it does not bear the countersign agreed upon and the owner of the check also has the right to insist it shall not be paid when not countersigned. 22 Barron’s Financial Guides, Dictionary of Finance and Investment Terms. 23 Barron’s Financial Guides, Dictionary of Finance and Investment Terms. 24 Section 126, Negotiable Instruments Law. 25 Citytrust Banking Corporation vs. Court of Appeals, 196 SCRA 553. 26 Section 185, Negotiable Instruments Law. 216  (3) Certified Check. It is one which bears upon its face an agreement by the drawee bank that the check will be paid on presentation. The usual practice is by stamping or writing the word “certified” upon the check. Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance.27 Before acceptance or certification, the bank is not liable, and the holder has no right to sue the drawee bank on the check.28 (4) Crossed Check. Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should pay only with the intervention of that company.29 The effects of crossing a check are: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account with a bank; and (c) the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. Application of the Law Case: Sometime in March, April, May and August 1983, Equitable Banking Corporation (EBC) through its Visa Card Department, drew six crossed Manager’s checks (Exhibits ‘A’ to ‘F’, and herein referred to as checks) having an aggregate amount of Forty-Five Thousand Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member establishments of Visa Card. Subsequently, the checks were deposited with the Banco de Oro Savings and Mortgage (BDO) to the credit of its depositor, a certain Aida Trencio. Following normal procedures, and after stamping at the back of the checks the usual endorsements: ‘All prior and/or lack of endorsement guaranteed’ the BDO sent the checks for clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, EBC paid the checks; its clearing account was debited for the value of the checks and BDO’s clearing account was credited for the same amount. Thereafter, EBC discovered that the endorsements appearing at the back of the checks and purporting to be that of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees. Pursuant to the PCHC Clearing Rules and Regulations, EBC presented the checks directly to BCO for the purpose of claiming reimbursement from the latter. However, BDO refused to accept such direct presentation and to reimburse EBC for the value of the checks. What law should govern in resolving controversies of this nature? Who should be responsible for any undue payment, EBC or BDO? Legal Opinion: The law that should govern in this case is Section 185 of the Negotiable Instruments Law which states: “Sec. 185. Check defined. A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to a check.” 27 Section 187, Negotiable Instruments Law. 28 Please see PNB vs. National City Bank of New York, 63 Phil. 711. 29 State Investment House vs. IAC, 175 SCRA 310 ; Associated Bank vs. CA, 208 SCRA 465. 217  Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It is of the essence to be payable on demand, because the contract between the banker and the customer is that the money is needed on demand. Consequently, it appears that the use of the term ‘check’ is to be perceived as not limited to negotiable checks only, but to checks as is generally known in use in commercial or business transactions. There should be no distinction in the application of a statute where none is indicated because the courts are not authorized to distinguish where the law makes no distinction. The participation of the two banks, EBC and BDO, in the clearing operations under the rules and regulations of the Philippine Clearing House Corporation is a manifestation of their submission to its jurisdiction. In the above case, BDO should be held responsible and must reimburse EBC for any undue payment. In presenting the checks for clearing and for payment, BDO made an express guarantee on the validity of ‘all prior endorsements’. Thus, stamped at the back of the checks are BDO’s clear warranty: ‘All Prior Endorsements And/Or Lack of Endorsements Guaranteed.’ Without such warranty, EBC would not have paid the checks. As the warranty has proven to be false and inaccurate, BDO is liable for any damage arising out of the falsity of its representation. The principle of estoppel effectively prevents BDO from denying liability for any damage sustained by EBC. The same principle of estoppel effectively prevents BDO from denying the existence of the checks. In this regard, BDO, by its own acts and representation cannot now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. In the matter of forgery in endorsements, it has been emphasized that the collecting bank (BDO in this case) or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of PNB vs. National City Bank [63 Phil. 711]. In another case, it was held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank. [Republic Bank vs. Ebrada, 65 SCRA 680] In addition, BDO should be held liable as an indorser under Section 66 of the Negotiable Instruments which states that: “Every indorser who indorses without qualification, warrants to all subsequent holders in due course” (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has good title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and subsisting.”30 Application of the Law Case: On November 8, 1982, Casa Montessori International (Casa), a school catering to foreign students, opened Current Account No. 0291-0081-01 with the Bank of the Philippine Islands (BPI) with Casa’s President Ms. Ma. Carina C. Lebron as one of its authorized signatories. In 1991, after conducting an investigation, Casa discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,600.00, on the following dates and amounts: 30 Banco De Oro Savings and Mortgage Bank vs. Equitable Banking Corporation et al., G.R. No. 74917, January 20, 1988. 218  Check No. Date Amount 1. 839700 April 24, 1990 543,400 2. 839459 Nov. 2, 1990 110,500 3. 839609 Oct. 17, 1990 47,723 4. 839549 April 7, 1990 90,700 5. 839569 Sept. 23, 1990 52,277 6. 729149 Mar. 22, 1990 148,000 7. 729129 Mar. 16, 1990 51,015 8. 839684 Dec. 1, 1990 140,000 9. 729034 Mar. 2, 1990 98,985 Total 5782,600 It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt Branch was a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of Casa. Mr. Leonardo T. Yabut voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks. The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter. Should BPI be held accountable for the forged checks? Legal Opinion: Having established the forgery of the drawer’s signature, BPI, the drawee, erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and Casa, the drawer whose authorized signatures do not appear on the negotiable instruments, cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a real defense. By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the right to expect high standards of integrity and performance from it. Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed to question those errors in the statements sent by the bank to them for verification.31 Other Commercial Documents The following commercial documents are also useful in merchandising, importation and exportation of goods which may also be utilized in the tourism industry. Invoice In commercial transactions, it is a written account of the particulars of merchandise shipped or sent to a purchaser, consignee and actor with the value of the prices and charges. It is a list of goods sold and the prices charged for them, or the goods consigned and the value at which the consignee is to receive them.32 Sales Invoice It is a repository of the agreement resulting from negotiations for the sale of goods between the parties. It is a list of goods sold and the prices charged for them.33 31 Bank of the Philippine Islands vs. CASA Montessori Internationale et al., G.R. No. 149454, May 28, 2004. 32 Philippine Law Dictionary by Federico B. Moreno, 3rd Edition. 33 Philippine Law Dictionary by Federico B. Moreno, 3rd Edition. 219 Purchase Order A contract in itself, involving the undertaking agreed upon and the items mentioned therein, between the party placing the order and signing the same and the party to whom it is addressed and who accepts the order.34 It is a form used by the purchasing department to order goods or merchandise. The original copy is sent to the supplier. This purchase order is an authorization to deliver the merchandise and to submit a bill based on the prices listed. 35 Once accepted by the supplier, the purchase order becomes a legally binding purchase contract.36 Bill of Lading It is a written document issued by a carrier that specifies contractual conditions and terms (such as time, place, person named for receipt) for delivery of goods. It also evidences receipt of goods.37 It is an instrument in writing, signed by a carrier or his agent, describing the freight so as to identify it, stating the name of the consignor, the terms of the contract of carriage, and agreeing or directing that the freight be delivered to the order or assigns of a specified person at a specified place. Its character is two-fold: a) it is a receipt, specifying the quantity, character and condition of the goods received; and b) it is also a contract, by which the carrier agrees to transport the goods therein described to a place named, and deliver them to a designated consignee upon the terms and conditions specified in the instrument.38 Warehouse Receipt The Warehouse Receipt Law (Act 2137) seeks to encourage transactions on negotiable warehouse receipts, which may only be issued by a warehouseman who is engaged in the business of receiving commodities on deposit for storage. The negotiation of a warehouse receipt carries with it the transfer of title over the commodity covered by the receipt. In the event of loss of the commodity covered by the receipt, it will be the debtor who will bear the loss as the true intent of the parties is not the negotiation of the warehouse receipt with its consequent transfer of title but merely as security.39 Trust Receipt It is a commercial document whereby the bank releases the goods in the possession of the entrustee but retains ownership thereof while the entrustee shall sell the goods and apply the proceeds for the full payment of his liability with the bank. The Trust Receipt Law (Presidential Decree 115) does not seek payment of the loan but punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner.40 A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase or merchandise, and who may not be able to acquire credit except through utilization, as collaterals, of the merchandise imported or purchased.41 34 Philippine Law Dictionary by Federico B. Moreno, 3rd Edition. 35 Barron’s Business Guides, Dictionary of Accounting Terms. 36 Barron’s Business Guides, Dictionary of Finance and Investment Terms. 37 Barron’s Financial Guides, Dictionary of Accounting Terms. 38 Philippine Law Dictionary by Federico B. Moreno, 3rd Edition. 39 Martinez vs. PNB, 93 Phil. 765. 40 Colinares vs. Court of Appeals, 339 SCRA 609, 623. 41 Nacu vs. Court of Appeals, 231 SCRA 237. 220  Under Presidential Decree 115, the failure of the entrustee to return the goods covered by the trust receipt or of the proceeds from the sale thereof shall constitute the crime of estafa under the Revised Penal Code. Letter of Credit Modern letters of credit are strictly bank-to-bank transactions. A letter of credit is an instrument issued by a bank on behalf of one of its customers, authorizing an individual or a firm to draw drafts on the bank or one of the correspondents for its account under certain conditions of the credit. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. In this case, the buyer may be required to contract with a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to authorize draft and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit, which basically are the shipping documents of the goods purchased (i.e., packing list).42 A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under the set-up, a bank extends a loan by the letter of credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. If under the trust receipt, the bank is made to appear the owner, it was but an artificial expedient, more of a legal fiction than fact. The trust receipt arrangement does not convert the bank into an investor, it remains a lender and creditor because of the loan it extended which the letter of credit represents to the importer. By that loan, the importer should be the real owner of the goods.43 Application of the Law Case: Mr. Harold Tan (buyer in Manila) agrees to buy 500 cases of Black Label Whiskey from Mr. Carl Sanders (seller in New York City, USA) worth US$50,000.00 FOB New York. Since Mr. Tan has no facilities within which to transmit dollars to the USA, he contacts a bank in Manila (ABC Banking Corporation) and inquires whether Mr. Sanders has a correspondent Bank in New York. Mr. Sanders will confirm Chemical Bank of New York as the correspondent bank. Mr. Tan opens a letter of credit of US$50,000 with ABC Banking Corporation for the importation of 500 cases of Black Label Whiskey for his restaurant business The Dawn. In this regard, Mr. Tan will be required to deposit with ABC Banking Corporation a marginal deposit of 90% of the amount of the transaction. The letter of credit is a bank-to-bank transaction involving trust wherein ABC Banking Corporation can ask Chemical Bank to draw a draft to pay Mr. Sanders US$50,000, upon showing that the latter has already delivered the goods to Mr. Tan by means of presentation of shipping documents of the goods delivered to Mr. Tan. Chemical Bank will now debit ABC Banking Corporation the sum of US$50,000. Once the goods and the covering documents as specified in the bill of lading arrive, Mr. Tan would like to take possession of the 500 cases of whiskey under a trust receipt. The ABC Banking Corporation agrees to release the goods to him under the trust receipt, a document which is issued to Mr. Tan whereby the latter admits that the goods still belong to the former and which authorizes the latter to sell the goods and apply the proceeds thereof to the payment of his debt to ABC Banking Corporation. 42 Bank of America vs. Court of Appeals, 228 SCRA 357. 43 See Abad vs. Court of Appeals, G.R. 42737, January 22, 1990. 221  Mr. Tan sells the 500 cases of whiskey from various customers but failed to turn over the proceeds within the period stipulated, despite repeated demands from ABC Banking Corporation. ABC Banking Corporation files an estafa case against Mr. Tan before the City Fiscal of Manila. Mr. Tan contends that the transaction emanates from a letter of credit which is civil in nature and invokes his constitutional right that he should not be imprisoned for non- payment of indebtedness. Determine if Mr. Tan may be held criminally liable. Who is the real owner of the whiskey, the bank or Mr. Tan? Legal Opinion: By express mandate of the Trust Receipt Law (Section 13 thereof), failure of Mr. Tan to turn over the proceeds from the sale of such goods to ABC Banking Corporation constitutes estafa by reason of the violation of trust reposed upon him. Under the set-up, a bank extends a loan by the letter of credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. If under the trust receipt, the bank is made to appear the owner, it was but an artificial expedient, more of a legal fiction than fact. The trust receipt arrangement does not convert the bank into an investor. It remains to be a lender and creditor because of the loan it extended which the letter of credit represents to the importer. By that loan, the importer should be the real owner of the goods.44 Foreign Exchange Foreign Exchange are instruments employed in making payments between countries – using paper currency, notes, checks, bills of exchange and electronic notifications of international debits and credits.45 The Law Article 1249. (Civil Code of the Philippines). The payment in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. Discussion of the Law Legal tender means such currency which in a given jurisdiction can be used for payment of debts, public or private, and which cannot be refused by the creditor. In the Philippines, the following are legal tender: (a) The Philippine peso; (b) All notes and coins issued by the Bangko Sentral ng Pilipinas. The foregoing article sanctions payment of debts in currency other than that which is the legal tender in the Philippines, if there is stipulation to that effect. Since obligations must be paid in money that is legal tender, the payment by check may be validly refused by the creditor, even if such check may be good.46 A check, whether a manager’s check or an ordinary check, is not legal tender, and an offer of the check in payment of a debt is not a valid tender of payment.47 By reason of the second paragraph of Article 1249, Civil Code of the Philippines, checks, bills of exchange and drafts may have the effect of payment only when they have been encashed. 44 Abad vs. Court of Appeals, G.R. 42737, January 22, 1990. 45 Barron’s Financial Guides, Dictionary of Finance and Investment Terms. 46 Belisario vs. Natividad, 60 Phil. 156. 47 Court of First Instance vs. Court of Appeals, G.R. No. L-4191, April 30, 1952; PAL vs. Court of Appeals, 181 SCRA 557; Roman Catholic Bishop vs. Intermediate Appellate Court, G.R. No. 72110, Nov. 16, 1990; New Pacific Time. 222 Foreign Exchange Regulations Under Central Bank Circular No. 1353 (September 21, 1992), the Monetary Board further liberalized the foreign exchange regulations on receipts and disbursements of residents arising from non-trade and trade transactions. As a general rule, foreign exchange may be freely sold and purchased outside the banking system. Foreign exchange receipts, acquisitions or earnings may also be deposited in foreign currency accounts, whether in the Philippines or abroad, or brought out of the Philippines.48 Tourists may purchase foreign exchange from AABs to the extent of the amount shown to have been sold by them for pesos to AABs. Departing tourists may reconvert at airports or other ports of exit unspent pesos of up to a maximum of US$200 or an equivalent amount in any other foreign currency calculated at prevailing exchange rates, without need of showing proof of previous sale by them of foreign exchange to AABs.49 In this regard, all categories of banks (except Offshore Banking Units) duly licensed by the Central Bank, also called as Authorized Agent Banks (AABs) may sell foreign exchange without need of prior CB approval for any payment on any foreign exchange transaction.50 All residents of tourism establishments falling under any of the following categories of non-trade foreign exchange earners shall submit to the Central Bank, a monthly report of their foreign exchange receipts and disbursements, if any, under a report form which shall be prescribed by the Central Bank. 1. Hotels, restaurants, resorts, gifts shops and duty-free shops, tour operators, travel agents organizing domestic tours and other establishments duly accredited by the Department of Tourism as tourism-oriented establishments; 2. Airline owners and operators engaged in international flight operations; 3. Shipowners and operators engaged in overseas operations; 4. Those engaged in port operations, marine services, catering services, hauling services and other similar services; 5. Local agents of foreign carriers; 6. Amusement and gaming establishments; and 7. Oil companies engaged in selling aviation gasoline, bunker oil and other oil products to aircraft and vessels of fore