Kalalo vs Luz (Civil Law)

OCTAVIO A. KALALO, plaintiff-appellee, 
vs.
ALFREDO J. LUZ, defendant-appellant.

--- exchange rate:  that prevailing at the time of payment

G.R. No. L-27782 July 31, 1970

ZALDIVAR, J.:

FACTS:

On November 1959, Kalalo, a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates, entered into an agreement with Luz, a licensed architect, doing business under firm name of A. J. Luz and Associates, whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement.

The fees agreed upon were percentages of the architect's fee, to wit: structural engineering, 12-½%; electrical engineering, 2-½%. The agreement was subsequently supplemented by a "clarification to letter-proposal" (blah blah items not included in the schedule of engineering fees). Pursuant to said agreement, Kalalo rendered engineering services to Luz in 10 projects.

On December 11, 1961, Kalalo sent to appellant a statement of account according to which the total engineering fee asked by Kalalo for services rendered amounted to P116,565.00 from which sum was to be deducted the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00.

Months after, Luz sent Kalalo a rcomputation of fees due to the latter which according to Luz only amounted to P10,861.08. Thus, Luz sent Kalalo a check for said amount, which e latter refused to accept as full payment of the balance of the fees due him.

Thereafter, Kalalo filed a complaint against Luz, containing four causes of action.

1^st cause of action: the balance of the fees due to him in the amount of P30,881.25; 2^nd, 3^rd 4^th causes of action are for damages and attorney’s fees.

In his answer, Luz admitted that Kalalo rendered engineering services, but the balance of the fees was only P10,861.08. He denied liability for any damage claimed by Kalalo to have suffered, and also set up affirmative and special defenses, alleging that Kalalo:

had no cause of action, was in estoppel because of certain acts, representations, admissions and/or silence, which led Luz to believe certain facts to exist and to act upon said facts, that Kalalo's claim regarding the Menzi project was premature because Luz had not yet been paid for said project, and that Kalalo's services were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory. Luz also set up a counterclaim for actual and moral damages for such amount as the court may deem fair to assess, and for attorney's fees of P10k.

The trial court, upon agreement of the parties, authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to Kalalo was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was twenty percent (20%) of the $140,000.00 that was paid to Luz, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by Luz. The Commissioner also recommended the payment to Kalalo of the sum of P5k as attorney's fees.

At the hearing on the Report, the parties had no objection to the findings of fact of the Commissioner, and they agreed that the said Report posed only two legal issues, namely: (1) whether under the facts stated in the Report, the doctrine of estoppel would apply; and (2) whether the recommendation in the Report that the payment of the amount due to the plaintiff in dollars was legally permissible, and if not, at what rate of exchange it should be paid in pesos.

The trial court ruled in favor of Kalalo, ordering the Luz to pay him the sum of P51,539.91 and $28,000.00, the latter to be converted into the Philippine currency at the exchange rate at the time of judgment, from which shall be deducted the sum of P69,475.46, and P8k as attorney's fees.

ISSUE:

1) What exhange rate should be applied for the payment of the balance? US-Peso exchange rate at the time of judgment or at the time the obligation (or breach occurred) was incurred?

2) Should the P57k previous payment be applied to the payment of the $28k because it is the most onerous of all debts?

HELD:

1) The exchange rate at the time of the judgment (payment) should be the basis because RA 529 does not apply in the present case.

(Note: The official rate at the time Luz received his architect's fees for the IRRI project, and correspondingly his obligation to Kalalo's fee on August 25, 1961, was P2.00 to $1.00.)

Under the agreement, Kalalo was entitled to 20% of $140,000.00, or the amount of $28,000.00. He, however, cannot oblige the Luz to pay him in dollars, even if appellant himself had received his fee for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted on June 16, 1950. Said act provides as follows:

SECTION 1. Every provision contained in, or made with respect to, any obligation which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. Every obligation heretofore or here after incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That, (a) if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred, (b) except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be legal tender for all debts, public and private.

Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred. As We have adverted to, Republic Act 529 was enacted on June 16, 1950. In the case now before Us the obligation of appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of Republic Act 529. It follows that the provision of RA 529, which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. Republic Act 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical Conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment.

It is Our considered view, therefore, that Luz should pay the appellee the equivalent in pesos of the $28,000.00 at the free market rate of exchange at the time of payment. And so the trial court did not err when it held that herein appellant should pay appellee $28,000.00 "to be converted into the Philippine currency on the basis of the current rate of exchange at the time of payment of this judgment, as certified to by the Central Bank of the Philippines, ....".

2) Luz also contends that the P57,000.00 that he had paid to appellee should have been applied to the debt due to the latter on the IRRI project because such debt was the most onerous to appellant. This contention is untenable. The Commissioner who was authorized by the trial court to receive evidence in this case, however, reports that Kalalo had not been paid for the account of the $28,000.00 which represents the fees of appellee equivalent to 20% of the $140,000.00 that the appellant received as fee for the IRRI project. This is a finding of fact by the Commissioner which was adopted by the trial court. The parties in this case have agreed that they do not question the finding of fact of the Commissioner.

WHEREFORE, the decision appealed from is affirmed.