THC 8- lEGALL aSPECT IN tOURISM AND HOSPITALITY INDUSTRY

PASSI CITY COLLEGE
City of Passi, Iloilo
SCHOOL OF HOSPITALITY MANAGEMENT
@ PASSI CITY COLLEGE-Future TOURISM PROFESSIONALS with P.R.I.D.E are produced.
P-Professionalism R-Respect I-Industry D-Discipline E-Excellence
MODULE IN LEGAL ASPECTS IN TOURISM & HOSPITALITY 2022
2
D0NALY D. ERESTINGCOL, MHM MODULE 4 THC 8
MODULE 4
UNDERSTANDING CONTRACTS & OBLIGATIONS
AFFECTING THE TOURISM AND HOSPITALITY

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INTRODUCTION
Passive subject - It is the one (debtor or obligor) who is obliged to perform the obligation.
MODULE 4
UNDERSTANDING CONTRACTS & OBLIGATIONS AFFECTING THE TOURISM AND HOSPITALITY

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2. Active subject - It is the party (creditor or obligee) who has the right to demand the performance of an
obligation.
3. Presentation - It is the object of the obligation. It is what the obligation is all about either to give, to do,
not to do, or a combination.
4. Efficient Cause - The juridical tie that binds the parties to an obligation. It is what binds the parties (e.g.
contracts, quasi contracts).
Example: Romeo executed a contract of loan to borrow money from Juliet whom he wishes to spend in courting
Juliet. Juliet in turn agreed and lend money to Romeo.
In the preceding example, Romeo is the passive subject while Juliet is the active subject. Their prestation is the
money being borrowed while their efficient cause is the contract of loan. All of the essential requisites of an
obligation is present, hence such contract creates an obligation.
The law clearly defines what the different sources of an Obligation are.
Obligations arise from:2
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punishable by law; and
(5) Quasi-delicts. (1089a)
Law
Obligations derived from law are not presumed. Only those expressly determined in this Code or in special
laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to
what has not been foreseen, by the provisions of this Book. (1090)
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A law is a binding custom or practice of a community : a rule of conduct or action prescribed or formally
recognized as binding or enforced by a controlling authority.4 Obligation derived from law must not be
presumed. If the law does not include, therefore it excludes. Only those which the law clearly stipulate or
express are demandable.

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Example of this is the obligation to pay Taxes. Those which are clearly stipulated in the National Internal
Revenue Code (R.A. 8424) are demandable and those which are not clearly expressed are not presumed.
Contracts
Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith. (1091a)5
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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.(125a).6 A contract, according to article 1159 and 1305,
bind two persons to perform an obligation that are incumbent upon them based on their agreement having
in them the force of law and should be complied in good faith. The two persons are the active and passive
subject while their agreement and what they have agreed upon are the presentation and efficient cause.
An example of this is a contract of loan, wherein the active subject is the creditor; the passive subject is the
debtor. The presentation is money to be borrowed and the efficient cause is the contract.
Example: Romeo executed a contract of loan to borrow money from Juliet whom he wishes to spend in
courting Juliet. Juliet in turn agreed and lend money to Romeo. The meeting of the minds of Romeo and
Juliet created the contract of loan and to enforce what they have agreed upon they put it in writing
(contract of loan) which is what the statute of fraud demand.
Quasi-contracts
7Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end
that no one shall be unjustly enriched or benefited at the expense of another (n).
8 Quasi-contract arises because of these acts which might result to an unjust enrichment. There is unjust
enrichment when a person unjustly retains a benefit at the loss of another that is against the fundamental
principles of justice, equity and good conscience.

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Example: Juliet left her farm unattended for 1 week because she is having a vacation. Romeo, a concerned
lover in secrecy, noticed that Juliet has not been around and the plants are slowly dying. Out of affection,
Romeo cultivated the land, watered the plants, buy fertilizers and placed fertilizers to the plants, removed
the weeds and do all what a farmer should do. Romeo spent necessary expenses which needs to be
reimbursed in order for Juliet not to unjustly enrich herself at the expense of Romeo.
b. Solutio indebiti
If something is received when there is no right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises. (1895)10
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Another example, Romeo commutes via jeepney on his way to school. Juliet, a jeepney driver, receives Php
10 from Romeo. Because of the handsomeness and cuteness of Romeo, Juliet thought that Romeo is a
student. So, she gave Romeo a change of Php 4 rather than Php 2 if no discount given. By solutio indebiti,
Romeo has no right to receive the excess Php 2. Therefore, Romeo is bound to return the excess Php 2 or
else he will be unjustly enriching himself at the expense of Juliet.
Acts or omissions punishable by law
Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions
of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of
Title XVIII of this Book, regulating damages. (1092a)11

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Every person criminally liable for a felony is also civilly liable.12 Commission of a crime makes the offender
civilly liable. Such civil liability includes:13
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.
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Example: Romeo, a horse racing enthusiast, steals the horse of Juliet. Romeo commits the crime of stealing
Juliet's beloved horse. Romeo is criminally liable. In addition, Romeo is also civilly liable. He is liable to
return the horse, paying for its value if he cannot return the horse and indemnifying Juliet of the
consequential damages she had suffered.
Quasi-delict
Quasi-delict (also known as tort or culpa aquiliana ) are acts or omissions that cause damage to another,
there being fault or negligence, is obliged to pay for the damage done but without any pre-existing
contractual relations between the party.15 There is quasi-delict if there is damages sustained, negligence by
act or omission, and the connection of the cause and effect between such negligence and damages.
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Example: Romeo, a handsome try hard baseball player, was playing baseball outside Juliet's house. Upon
seeing Juliet, Romeo suddenly got excited and hit the ball so hard that it fly straight to Juliet's window
shattering it into pieces and bounce right into Juliet's face injuring her beloved nose. Though Romeo and

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Juliet has no contractual relation at all. They are now bound to each other because of quasi-delict. Because
of Romeo's negligence, he will be liable for the damages to Juliet.
• As contract is one of the sources of obligation, hence, if the obligation in the contract was not
performed, one of the parties may have the right to sue the other.
• The definition clearly states that contract is actually the meeting of the minds. From the moment the
parties agree to the object, price or the terms and conditions, the contract is perfected.
Contrary to some beliefs, the contract is not the paper. The contract as stated is the meeting of the minds, while
the paper where the contract was written is called instrument. The instrument is as general rule the evidence of the
contract.
CONSENT
 Manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to
constitute the contract.
LAWS ON OBLIGATION AND CONTRACTS
CONTRACTS
Article 1305. Contract is a meeting of the minds between two persons, whereby one binds himself, with
respect to the other, to give something or render some service.

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 To create a valid contract, the meeting of the minds must be free, voluntary, willful, and with a
reasonable understanding of the various obligations the parties assumed for themselves.
 Where consent, however, is given through mistake, violence, intimidation, undue influence, or fraud,
the contract is deemed voidable meaning it is valid until annulled.
OBJECT
 Things, or
 Rights, or
 Service (Example: Catering of foods, Accounting, Event organizing)
RULES REGARDING OBJECT:
 The Object of the Contract must be within the commerce of man. This means that the
object is capable of appropriation.
 The object must be lawful. (Thus, shabu, marijuana and other contrabands cannot be
the object of the contract).
 Services as an object should not be contrary to law, morals, good customs, public order,
or public policy.
 In transmissible rights cannot be the object of the contract.
CAUSE OR CONSIDERATION
 An essential requisite of a contract, the cause or consideration is the reason why the
parties entered into a contract.
FORMALITIES OF CONTRACT
 As to the formalities, generally contracts shall be obligatory in whatever form. Contract
may be made orally or in writing as long the three essential requisites are present.
 However, the above rule admits of certain exceptions, namely:

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A. When the law itself requires that they be in some particular form (writing) in order
to make them valid and enforceable ( the so-called solemn contracts);
Example
1. The donation of immovable property, the law (Article 749) requires that the deed of
donation must be in a public instrument (meaning it must be in writing and notarized) in order
that the donation may be valid. The donation of movables worth more than P5,000.00 which
must be in writing, otherwise the donation shall be void.
2. In a Contract of Partnership, when one of the partners contributes immovable property, the
contract must be in public instrument, otherwise the contract of partnership is void.
3. In a sale of piece of land or any interest therein made through an agent, the authority of the
agent must be in writing, otherwise the sale shall be void.
B. When the law requires to be proved by some writing (memorandum) of its terms, as
in those covered by the Statue of Frauds, in Article 1403 (2) of the Civil Code.
Their existence not being provable by mere oral testimony (unless wholly or partly
executed), these contracts are exceptional in requiring a writing embodying the terms thereof
for their enforceability by action in court.

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Example: Mr. X and Y are lovers, They decided to get married on December 15,
2014. During their preparation, they looked for a good wedding reception and found XXX Hotel,
a 3 star hotel. X and Y met Mr. Mitra the event and catering director of the said hotel. Mr.
Mitra presented a proposed quotation worth 100,000.00 pesos inclusive of food and use of
function rooms.
CHARACTERISTICS OF CONTRACT
1. Mutuality of Contract. The validity or performance or compliance of which cannot be
left to the will of only one of the parties.
The ultimate purpose of the mutuality principle is thus to nullify a contract
containing a condition which makes its fulfillment or pre-termination dependent exclusively
upon the uncontrolled will of one of the contracting parties.
2. Autonomy of Contract. The contracting parties may establish such stipulations, clauses,
terms, and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customers, public order, or public policy.
3. Obligatory Force. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in keeping with good faith,
usage and law.
Once the contract is perfected, the parties must faithfully observe the terms and
conditions established. Otherwise, a cause of action for breach of contract will arise.
4. Relativity of Contract. This means that the contract entered into by the parties are binding
only between them, their heirs and assigns, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision
of law. The heir is not liable beyond the value of the property he received form the decedent.
DEFECTIVE CONTRACTS AND THEIR EFFECTS

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1. Rescissible Contracts. Contracts which are rescissible are valid contracts havill all the
essential requisites of a contract, but by a reason of injury or damage caused to either of the
parties therein or to third persons are considered defective and thus, may be rescinded.
Example: Those contracts entered into by the debtor to another person in fraud of his creditors
when the said creditor cannot in any other manner, collect the claims due them. The creditor
can file an action to rescind the contract entered in fraud of the former.
Once the contract is rescinded, it is terminated and the parties will return to their original
position as if there was no contract entered into. Or if the property or the object of the
contract has been deposed, the value thereof shall be returned.
2. Voidable Contracts. Voidable means those contracts which are valid until annulled.
Art. 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
 Those where one of the parties is incapable of giving consent to a contract;
 These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification.
 Example No.1
 Mr. A, 25 years old, has a note 3 Samsung cellular phone; he entered into a contract of
sale with Mr. X who is only 15 years old. The amount of the said phone is Php. 35,000.00.
The parents of Mr. X learned about this. Can the contract be annulled?
 3. Unenforceable Contract. A contract which cannot be enforced unless ratified, due to
any of the following reasons:
 a. The contract was entered into in the name of another person by one who has given
no authority or legal representation, or who has acted beyond his powers.
 b. The Contract did not comply with the Statues of Frauds. In the Statue of Frauds, some
transactions must be in writing to effect its enforceability such as sale of real property,

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sale of goods, chattels or things if the price is not less than Php. 500.00, an agreement to
lease(rent) for more than one year. If these contracts were not in writing, the other
party may not sue the one who violated it before the court.
 c. Both parties are incapable of giving consent.
 4. Void and Inexistent Contract. It is equivalent to nothing and is absolutely wanting in
civil effects. It cannot be validated either by ratification or prescription. But, although a
void contract has no legal effects even if no action is taken to set it aside, when any of
its terms have been performed, an action to declare its inexistence is necessary to allow
restitution of what has been given under it.
The following contracts are inexistent and void from the beginning:
 Those whose cause, object, or purpose is contrary to law, morals, good customs, public
order or public policy;
 Those which are absolutely simulated or fictitious;
 Those whose cause or object did not exist at the time of the transaction;
 Those whose object is outside the commerce of men;
 Those which contemplate an impossible service;
 Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained; and
 Those expressly prohibited or declared void by law.
TYPES OF CONTRACT FOR TOURISM AND HOSPITALITY
Agency Agreement

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A contract between a travel agent and a tour or activity operator setting out the
terms and conditions for the transaction of business by the travel agent with and on behalf of
the tour operator.
The agency agreement can either be:
Net rate agreement: This type of agreement involves the tour operator selling
their tours or activities to the agent at a discounted net rate (or wholesale rate) based on
the rack rate or retail rate.
Commission agreement: This type of agreement involves the agent selling the
tours or activities offered by the tour operator at the rack rate or retail rate directly to
customers. The operator calculates a commission for sales made by the agent during a specific
period and pays them an agreed upon commission.
A waiver or Liability Release is a form of contract that transfers acceptance of the risk to the
participants by requiring them to acknowledge the risks present in the activity. It also requires
participants to waive their right to take legal action if an accident occurs. Despite their
effectiveness, there have been cases where waivers have failed to protect an organization,

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often because the waiver was poorly written or delivered incorrectly .To be effective, a waiver
should include four components. First, it should clearly outline the risks in the activity —
voluntary acceptance of risk. Second, it should waive the participant’s right to pursue legal
action against the tourism operation in case of negligence — waiver of rights. Third, it should
be relatively short and easy to read, be easily recognized as a legal document, and include a
place for signature that can be witnessed by a company employee. Fourth, it should be signed
by participants only when they have been given ample time to read and understand it well in
advance of the event or activity.
Tour Participant Agreement
This is the contract that you should have with each individual age 18 and over. It is
also called your "disclaimer," "terms and conditions" or "terms of use." It requires the
participants to agree that your company is not responsible for the acts or omissions of travel
suppliers or events beyond your control. It also contains your payment and cancellation terms
and many other important disclosures, releases and the like.
Hotel Management Contracts
Most hotels are managed by brands or independent operators - not their owners; the owner
is generally responsible for providing funding for the operation of the hotel when necessary
while the operator manages the hotel’s day-to-day operation.
The agreement between the two parties is often structured with the operator as a contractor
using a contract that specifies duties, obligations, and liabilities.
Hotel Management contracts allow investors with relatively little knowledge and experience in
the hotel industry, or who cannot directly manage hotels for a variety of reasons, to invest in
hotels. Because competitive supply is increasing, hotel investors have attempted to realize
efficiency gains by assembling specialists to be responsible for the various components of their
hotel investments. Specifically, owners frequently contract specialists " hotel brands and hotel
operators " to help them maximize the returns on their investments.

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Hotel Guest Agreement
The hotel guest agreement contains terms and conditions of the accommodation that is
signed among the hotel and the guest. The agreement form is filled out by the guest before
using a room.
TYPES OF CONTRACT FOR RESTAURANTS
If you are a restaurant owner, you are bound to encounter many different types of contracts
that will affect your relationships with suppliers, contractors and employees. Before signing or
drafting any contract you should make sure that the terms are as clear as possible and all
essential aspects of the agreement you are making are reflected in the contract.
Leases
The first contract a restaurant owner may encounter is the lease for restaurant space. The
lease will dictate the essential terms between the relationship with the landlord including the
amount of rent, lease renewal procedures, the length of the lease and the amount of time
necessary to terminate your lease. Be sure to discuss alterations to the property with the
space owner as some alterations could be considered lease violations. Also, take note of any
provisions regarding late rent payments and how security deposits will be handled.
Employment Agreements
Employment contracts state the terms of employment such as pay, benefits, sick leave,
disciplinary procedures, promotion procedures and termination procedures. Although
employment contracts are not required to hire an employee, they are desirable as they clearly
define workplace duties and expectations.
Employment Agreements
Employment contracts state the terms of employment such as pay, benefits, sick leave,
disciplinary procedures, promotion procedures and termination procedures. Although

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employment contracts are not required to hire an employee, they are desirable as they clearly
define workplace duties and expectations.
Supplier Agreements
Contracts with food suppliers or paper product suppliers will dictate the terms of when
and how goods will be delivered to the restaurant. A well-thought-out supplier agreement is
essential because if your supplier fails to provide the goods you require, you may be forced to
temporarily close your restaurant or seek an alternate supplier. Common things to consider in
a supplier agreement include: how will the supplier compensate you if delivery is late, how will
prices change throughout the year as the availability of certain foods changes and when will
routine deliveries occur.
Contractor Agreements
Restaurant owners are required to hire contractors from time to time in order to
obtain certain services such as refrigeration and kitchen maintenance, cleaning of uniforms,
rugs and linens and repairs to your dining space. When reviewing a contractor agreement, be
sure to pay attention to the contractor's insurance coverage and necessary indemnification
clauses. An indemnification clause will protect your restaurant if the contractor accidentally
hurts someone or causes damage while working on your property.
ASSESSMENT /ACTIVITY
INSTRUCTIONS:

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References
LEGAL ASPECTS IN TOURISM & HOSPITALITY by MARIO H. MARANAN, DPA, LLB., JOVID MARICAR D. MARANAN, DBA.,
CRISTINA N. CALUZA, MBA., ATTY. KENNETH LLOYD G. DELA CRUZ.,

THC 8- lEGALL aSPECT IN tOURISM AND HOSPITALITY INDUSTRY

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