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Kalalo vs.

July 31, 1970 | Reyes, JBL, J. | Extinguishment of Obligations - Payment
PETITIONER: Octavio Kalalo
SUMMARY: Kalalo (civil engineer) entered into a commission-based agreement with Luz (architect) in 1959 for engineer design
services, with stipulated commission from the architects fees. After refusing Luz partial payment in 1962, Kalalo filed a complaint
for payment, and the Commissioners report stated that the amount due was USD 28,000 (20% of the USD 140,000 project with the
International Research Institute), among other fees.
DOCTRINE: Under RA 529, if the obligation was incurred prior to the enactment 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. RA 529 does not provide for the rate of exchange for the payment of obligation incurred after the
enactment of said Act. The logical conclusion is that the rate of exchange should be that prevailing at the time of payment for such
1. In 1959, Kalalo (civil engineer) entered into an agreement
with Luz (architect) where the former was to render
engineering design services to the latter for fees, as
stipulated in the agreement.
2. In 1961, Kalalo sent a statement account asking for PhP
116,565.00 in engineering fees.
3. Luz already paid Php 57,000 prior, so the actual balance
was Php 59,565.00.
4. In 1962, Luz said they only owe PhP 10,861.08, and sent
a check with the said amount.
5. Kalalo refused to accept the check as full payment.
6. Kalalo then filed a complaint against Luz for 4 causes of
(1) USD 28,000 and PhP 30,881.25 for his
(2) PhP 17,000 as consequential and moral
(3) PhP 55,000 as moral damages, attorney's fees
and expenses of litigation;
(4) PhP 25,000 as actual damages, and also for
attorney's fees and expenses of litigation.
7. The USD 28,000 fee is in US dollars because it was for
the International Research Institute (IRRI) project.
8. Luz contended that the Kalalos services were not
complete or were performed in violation of the agreement
and otherwise unsatisfactory.
9. In order to settle the dispute, the trial court authorized the
case to be heard before a Commissioner since the only
question is on the assessment of the proper fees and the
balance due to Kalalo after deducting the admitted
payments made by Luz.
10. The Commissioner rendered a report which stated that the
amount due to appellee was USD 28,000.00 as his fee in
the International Research Institute Project which was
20% of the USD 140,000.00 that was paid to Luz, and
PhP 51,539.91 for the other projects (less the sum of PhP
69,475.46 already paid by Luz), plus PhP 8,000 Attorney's
11. The USD 28,000 was to be converted into peso on the
basis of the rate of exchange of the US dollar to the
Philippine peso at the time of payment of judgment as
Certified by the Central Bank of the Philippines.
1. WON the recommendation in the Report that the payment

of the amount due to Kalalo in US dollars legally

permissible. NO
2. WON the USD 28,000 should be paid on the basis of the
exchange rate at the time of the payment (of fees in
judgement) or at the time when the research institute
project became due and demandable. AT THE TIME
RULING: Lower Court Decision affirmed.
Amount due is [(USD 28K + PhP 51,539.91) - sum they
already paid] + legal rate of interest thereon from the filing of
the complaint in the case until fully paid for + PhP 8K
Attorneys fees.
1. Luz cannot be compelled to pay what was due to Kalalo in
dollars even if Luz himself had received his fee for the
IRRI project in dollars, because of RA 529.
RA 529 (enacted on June 16, 1950) prohibited payment in
dollars for all transactions after its enactment.
The obligation to pay Kalalo the 20% of USD 140,000.00
accrued on August 25, 1961, after the enactment of RA
2. RA 529 states that if the obligation was incurred PRIOR to
the enactment of the Act and require payment in a different
currency, the same shall be discharged in Philippine
currency measured at the prevailing rate of exchange AT
THE TIME the obligation was incurred.
The same RA does not state explicitly which exchange rate
is to be followed for obligations made AFTER its
Since the obligation accrued after the enactment of RA
529, it follows that the requirement of payment at the
prevailing rate of exchange when the obligation was
incurred cannot be applied.
The Court stated it is but logical to use the rate of
exchange at the time of payment.
NOTE: RA 529 has already been repealed by RA 8183
(every monetary obligation must be paid in Philippine
currency). However, the parties may agree that the
obligation or transaction shall be settled in any other
currency at the time of payment.