Legal Ramifications of Philippine E-Commerce
By Franklin I. Cueto*

     With the advent of the internet, a person is now capable of accomplishing certain tasks through electronic means. One time, my professor in taxation assigned 15 cases for recitation and since I didn't had a time to read them in the original, I asked a friend to e-mail me a copy of his case digests. In a matter of seconds, I was able to receive the needed file. Apart from electronic mails, web tech has also introduced a different concept of commerce that transgressed the traditional image of buy and sell. Highly technical in some aspects and relatively complex in operation, this field introduced various issues on the subject of law. Electronic commerce or E-commerce is yet to be legally recognized in its fullest sense. Armed with the goal of joining the communication process in promoting public awareness regarding the subject, it is therefore my objective in writing this article to provide a "bird's eyeview" on the topic. I may not be a cyberspace law expert, but with the present stand of our legislators in addressing the internet, who is?

     None of the existing laws anticipated the advent of electronic commerce. As what the Philippine Internet Commerce Society has put it, "Philippine laws deals exclusively with paper-based transactions and regards paper documents as the highest form of evidence to prove their existence. In some cases, such as the Statute of Frauds, validity depends upon the existence of a writing. The Rules of Evidence admit only original documents which must further be authenticated by, among others, the identification of a signature."1 Obviously, our present laws do not apply to on-line or virtual transactions. As a consequence, the validity and enforceability of e-commerce transactions are faced with legal uncertainty.

     Speaking at a Seminar-workshop on E-Commerce Policy held last March 1, 2000, Supreme Court Administrator Alfredo Benipayo stressed the need for "a legal framework that will support the far-reaching changes that will be occasioned by going on-line. E-commerce, to survive and thrive, requires that the virtual marketplace be recognized as a real and functioning arena where the participants deal in actual rights, concrete obligations, and contracts no less binding than those in the real world. For that to happen, electronic documents must necessarily be recognized as having the same validity and enforceability of their paper counterparts."

What is E-commerce      E-commerce can be defined as doing business on the internet in all its various shapes and forms. This definition is refined to mean transactions that are completed over the internet, that is, selection, purchase and payment.2 With the internet, a person can now communicate with another person irrespective of their location, at such pace and expedience nothing compared to the telephones, fax machines and the like. Communication carries with it the opportunity to transact business, buy and sell goods or services, or even pull together a virtual organization that will perform the entire process of trading or merchandising. This technological advancement has come to be known as electronic commerce or e-commerce.

Laws Relevant to Electronic Commerce

  1. Contracts. The provisions of the New Civil Code on the law on obligations and contracts will generally govern the validity of online contracts. Under Art. 1305 of the NCC, 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. As long as the essential requisites concur, that is, there is consent, object certain and cause, then there is a valid contract. In online contracts, however, issues as to forms and legal capacity of minors are often discussed since the present rules governing them in paper contracts may not be applicable in the case of online contracts. Under the NCC, to prevent fraud and not to encourage the same, certain agreements are required to be in writing so that they may be enforced. Its chief characteristic is the provision that no suit or action shall be maintained on certain classes of contracts or engagements unless there is a note or memorandum thereof in writing signed by the party to be charged or by his authorized agent. Obviously, this law has no application to online contracts. The legislators could have not possibly thought of digital signatures when they had the statute of frauds in their agenda.

    As to the incapacity of minors to enter into contracts, a computer has no mind of its own to determine whether both or either of the contracting parties have the capacity to contract. With the increasing concern against internet pornography, however, certain mechanisms are now designed to prevent minors from accessing adult sites and/or online shops such as requiring the input of a credit card account number (although it is possible for a minor to use his father's credit card without the latter's knowledge). Filtering softwares are also available to prevent unauthorized access to sites with potentially offensive materials, such as NetNanny, Cyber-Patrol and SurfWatch. These utilities requires age authentication through certain means not accessible to minors.

  2. Enforceability of "Web Wrap" licenses. A "web wrap" agreement is when an online shopper is supplied with a copy of a license agreement flashed on his or her computer screen and is instructed that by clicking on an "Accept" button, he or she is deemed to have read and agreed with the terms of the license. In some cases, the internet user is asked to choose between "enter" or "do not enter". When the button "enter" was chosen, it is deemed an acceptance of the terms of the agreement. Though the Supreme Court has not ruled on the enforceability of "web wrap" agreements, it is argued that all the requisites to a valid contract are present in such agreements.3 It may even be pointed out that such licenses falls under the category of contracts of adhesion, or the take it or leave it contracts.

    In the case of Angeles vs. Calasanz, the SC held that the terms of a contract of sale which has the characteristics of a contract of adhesion must be construed and interpreted against the party who drafted it, especially if the interpretation will help effect justice to buyers who, after having invested a big amount of money, are sought to be deprived of the same through the application of a contract, clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most unfair to the buyers.4

  3. Reproduction of published works. Most of the people seek access to the internet to obtain information which they either download to their personal computers or print a copy of the same for whatever purpose they may use them. The present statute in the Philippines on intellectual property rights is R.A. 8293 otherwise known as the "Intellectual Property Code of the Philippines" which was approved on June 6, 1997 and took effect on January 1, 1998. Under the law on copyright, "published works" are defined as works, which, with the consent of the authors, are made available to the public by wire or wireless means in such a way that members of the public may access these works from a place and time individually chosen by them. Written articles published in a website is an example of such work that is protected by the code. Works are protected by the sole fact of their creation, irrespective of their mode or form of expression, as well as of their content, quality and purpose.5 The general rule is that if you copy without permission, you will be liable for copyright infringement.

    It is noteworthy to explain that not all works are protected and that the mere act of copying is not by itself an act of infringement. First, no protection shall extend to any idea, procedure, system method or operation, concept, principle, discovery or mere data as such, even if they are expressed, explained, illustrated or embodied in a work; news of the day and other miscellaneous facts having the character of mere items of press information; or any official text of a legislative, administrative or legal nature, as well as any official translation thereof.6 Second, the fair use of copyrighted work for criticism, comment, news reporting, teaching including multiple copies for classroom use, scholarship, research and similar purposes is not an infringement of copyright.7 The code further provided that the private reproduction of a published work in a single copy, where the reproduction is made by a natural person exclusively for research and private study, shall be permitted, without the authorization of the owner of copyright in the work.8 The copyright in works shall be protected during the life of the author and for fifty years after his death. Any person infringing any right secured by the code shall be punished by imprisonment ranging from one year to nine years, plus a fine ranging from P 50,000.00 to P 1,500,000.00. If you really want to play safe, the best way to avoid being sued for infringement of intellectual property right in cyberspace is to simply ask permission to use the information you are downloading or copying. It's worth the effort!

  4. Credit Card Transactions. I have a personal experience in purchasing a password from a British webpage where I used the password to gain access to their site for a period of one year. The price was quoted in US dollars and the service may be availed of through credit cards. I simply typed my credit card's account number and there it was, on my next credit card billing statement, I was charged the corresponding amount. I didn't even had to sign any receipt, the transaction was consummated as simple as 1-2-3. Disclosing your credit card's account number is extremely risky, and in buying goods online, one should choose a company that is reputable and prominent. Also, if you are a credit cardholder, you should be more watchful of your card's whereabouts. The law relevant to this issue is R.A. 8484 otherwise known as the "Access Devices Regulation Act of 1998". The state recognizes the recent advances in technology and the widespread use of access devices in commercial transactions. Access Device was defined as any card, plate, code, account number, electronic serial number, personal identification number, or other telecommunications service, equipment, or instrumental identifier, or other means of account access that can be used to obtain money, good, services, or any other thing of value or to initiate a transfer of funds (other than a transfer originated solely by paper instrument). Any person committing any of the acts constituting access device fraud shall be punished by a fine of P 10,000.00 or twice the value obtained by the offense, whichever is greater and imprisonment ranging from 6 years to 20 years.
  5. Lawsuit against foreign corporations. In conducting commerce electronically, a Filipino may want to transact with a foreign corporation and in some unfortunate cases, the former end up filing a suit against the latter. Question: May the Filipino sue the Foreign Corporation? May the foreign corporation maintain any action, suit or proceeding in any court of the Philippines? Under the Corporation code, license is necessary for a foreign corporation to do business in the Philippines.9 The purpose of the law requiring the license is to subject the foreign corporation doing business in the Philippines to the Jurisdiction of its court. If the foreign corporation transacts business in the Philippines without a license, then it shall not be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.10

    In the case of Pacific Micronesian Line, Inc. vs. del Rosario, the SC held that one single or isolated transaction does not constitute "doing business", and that transactions which are occasional, incidental and casual, not of a character to indicate a purpose to engage in business do not constitute the doing or engaging in business contemplated by law. In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business.11 Essentially, each case must be decided in the light of its peculiar circumstances.

    Im pretty sure there are several other laws pertinent to electronic commerce. In the meantime, however, allow me to conclude this part of the topic and proceed to the next…areas in e-commerce where there is no applicable law at all.

Issues that may arise in Electronic Commerce
  1. Admissibility of Electronic Documents in Court. Supposed I was offered to enter into a contract by a friend based in Cebu and she sent me the offer via an electronic mail. I decided to accept the offer so I e-mailed her back manifesting my acceptance. Question: In proving the consummation of a valid contract, is a copy of my e-mail admissible as evidence in court? Does the printed copy of my e-mail constitute an original document as defined under the Rules of Evidence? The legal recognition of electronic documents and the admissibility and evidentiary weight of data messages are among the legal uncertainty that impedes the growth of Philippine e-commerce. The absence of clear guidelines is one of the main reasons for e-commerce's relatively slow growth in the country, as companies, particularly foreign investors, remained wary of taking the plunge. Precisely, this is one of the highlights introduced by the proposed e-commerce bill, as it seeks to recognize electronic signatures the way normal signatures are recognized and the admissibility and evidentiary weight of digital data as evidence.
  2. Taxation. At present, the Bureau of Internal Revenue has not issued any regulations regarding electronic commerce. Besides, with its poor level of performance in the collection of taxes imposed on the real world, I don't think it is smart to address the issue on online taxation at this stage.
  3. Importation. The importation of softwares into the Philippines through the internet is a typical day-to-day transaction in this computer age.Unfortunately, it is not clear how the customs and tariff code will apply in this scenario. The law did not categorically include the importation of an article through electronic means as within the definition of "importation". Under sec. 1202 of the Tariff and Customs Code, By this time, perhaps you will agree with me that in the virtual world, "places" are not confined within borders. Here, the impact of an activity is global. On the contrary, the local g o v e r n m e n t cannot enforce its rules on the global population. It is difficult which rule or law applies. In practice, the transmission of software into the Philippines by electronic means is not being monitored.
  4. Digital Signatures. Electronic signature refers to any distinctive mark, characteristic and/or sound in electronic form, representing the identity of a person and attached to or logically associated with the data message or any methodology or procedures employed or adopted by a person and executed or adopted by such person with the intention of authenticating or approving an electronic document.12 There is no law that recognizes digital signatures.
  5. Encryption Policy. There is no law that deals with encryption.
  6. Domain Names. Domain names are chosen on a first-come-first-serve basis. Some companies provides free hosting for domain names while others will normally charge you on a yearly basis. There is no registry for Domain Names in the Philippines.
Present Status of E-Com in the Philippines

     Legal problems such as conflicts of law, the determination of jurisdiction, taxation, the treatment of digital intellectual property, the regulation of certification authorities, the criminalization of on-line offenses, the settlement of domain name disputes and the protection of online consumers are among the issues which our legislators should take into account in this growing age of computer world. Other issues such as privacy and personal data protection, trademarks, indecency/pornography, internal security/sedition, and data transfer restrictions should also be considered. According to Senator Ramon Magsaysay Jr., author of the proposed law on electronic commerce (Senate Bill No. 1902), there are presently 150,000 households in the country with internet access equivalent to 500,000 to 600,000 internet users who can benefit extensively from the proposed law. The Philippines is expected to be the fourth country in the Asian region next to Malaysia, Singapore and Korea to allow online business transactions with the expected passage of the electronic commerce law. As sponsored by Senator Magsaysay, "if the bill becomes a law, the electronic document will have the same effect as a written document, and shall be admissible in court. An electronic document that becomes part of the data of either party, whether it stays in the server or hard disk, as long as it is not tampered with, is considered original. This legislation is long overdue."

     Sooner or later, the Philippines will encounter problems brought about by e-commerce. This is but a natural consequence of the increasing online users in the country. If caught unprepared, like what happened to the "I Love You" virus, the country will be left without a law to resolve whatever dispute that will arise in the future…the near future.

Comments are welcome at


* LLB. 2000, Article Editor, UB Law Journal
1 Position paper of the Philippine Internet Commerce Society
2 Latest trends:e-commerce, Randy Batholomew, Accountants' Journal
3 APEC legal guide to Philippine E-Commerce.
4 G.R. No. 42283, March 18, 1985
5 Sec. 172.2, Chapter II, Part IV, R.A. 8293
6 Sec. 175, Chapter IV, Part IV, R.A. 8293
7 Sec. 185, Chapter VIII, Part IV, R.A. 8293
8 Sec. 187.1. Chapter VIII, Part IV, R.A. 8293
9 Sec. 126, Corporation Code
10 Sec. 133, Corporation Code
11 96 Phil. 23
12 sec. 5, Chapter I, Part II, SB 1902