KALALO V.

LUZ

G.R. NO. L-27782

JULY 31, 1970

FACTS:

Plaintiff-appellee Engr. Octavio Kalalo of O. A. Kalalo and Associates, entered into an agreement with
defendant-appellant Arch. Alfredo J. Luz of A. J. Luz and Associates, whereby Kalalo was to render
engineering design services to Luz.

On December 11, 1961, Kalalo sent Luz a statement of account containing the total engineering fees
amounting to P116,565.00, with a balance of P59,565.00. Luz then sent Kalalo a resume of fees due to
the latter which amounted only to P10,861.08 and issued a check for the same amount, but the latter
refused to accept it as full payment. Kalalo then filed a case against Luz for the recover of the money,
contending that the fees due to him is $28,000 (U.S.) and P100,204.46, excluding interests, of which
sums, only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 and the balance of P30,881.25

ISSUE:
Whether the rate of exchange at the time of payment should prevail (free market exchange rate)

RULING:

Yes. Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of
$28,000.00. Appellee, however, cannot oblige the appellant 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 Republic Act 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. This view finds support in the ruling of this Court in the case of Engel vs. Velasco & Co.
where this Court held that even if the obligation assumed by the defendant was to pay the plaintiff a
sum of money expressed in American currency, the indemnity to be allowed should be expressed in
Philippine currency at the rate of exchange at the time of judgment rather than at the rate of
exchange prevailing on the date of defendant's breach. This is also the ruling of American court as
follows:

The value in domestic money of a payment made in foreign money is fixed with respect to the rate of
exchange at the time of payment. (70 CJS p. 228)

According to the weight of authority the amount of recovery depends upon the current rate of exchange,
and not the par value of the particular money involved. (48 C.J. 605-606)

The value in domestic money of a payment made in foreign money is fixed in reference to the rate of
exchange at the time of such payment. (48 C.J. 605)

It is Our considered view, therefore, that appellant 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, ...."