Title
Kalalo vs. Luz
Case
G.R. No. L-27782
Decision Date
Jul 31, 1970
Civil engineer Octavio Kalalo sued architect Alfredo Luz for unpaid fees under their 1959 agreement for engineering design services. The Supreme Court upheld Kalalo’s claims, ruling Luz owed fees converted to pesos at the current exchange rate, plus attorney’s fees, dismissing Luz’s counterclaim.
civil engineer
architect
unpaid fees

Case Summary (G.R. No. L-27782)

Factual Background

The parties entered into a written agreement on November 17, 1959, whereby Octavio P. Kalalo agreed to render structural, electrical, mechanical and sanitary engineering services to Alfredo J. Luz for specified percentage fees of the architect’s fee. A supplemental clarification excluded foundation soil exploration and principally engineering works, and reserved the right to increase fees on projects costing less than P100,000. Pursuant to the contract, the engineer rendered services on multiple projects, including the International Rice Research Institute (IRRI) project, for which the architect received a U.S. dollar fee.

Services Rendered and Accounts

After completing services, Octavio P. Kalalo sent a statement of account dated December 11, 1961 (Exhibit 1 and 1-A), asserting total engineering fees of P116,565.00 and other dollar claims, and stating a balance due of P59,565.00 after admitted payments. Alfredo J. Luz replied with his own resume of fees dated May 18, 1962, asserting a balance of P10,861.08, and tendered a check for that amount on June 14, 1962, which the plaintiff refused to accept as full payment.

Procedural History and Issues Presented to the Commissioner

When the pleadings showed agreement only as to the fact that services were rendered and disagreement only as to the amount due, the trial court, by consent of parties, referred the case to a Commissioner. The Commissioner reported that the plaintiff was due $28,000.00 for the IRRI project (20% of the $140,000.00 architect’s fee) and P51,539.91 for other projects, less payments of P69,475.46, and recommended attorney’s fees of P5,000.00. At the hearing on the report counsel for both parties manifested no objection to the Commissioner’s findings of fact and agreed that only two legal issues remained: whether estoppel applied under the report’s facts, and whether payment in dollars was legally permissible or, if not, the proper peso conversion rate.

Trial Court Ruling

On February 10, 1967, the Court of First Instance rendered judgment in favor of Octavio P. Kalalo. The court ordered payment of P51,539.91 and $28,000.00, the latter to be converted into Philippine currency at the current rate of exchange at the time of payment as certified by the Central Bank, less P69,475.46 already paid, with legal interest from filing until paid, and awarded P8,000.00 as attorney’s fees. The court dismissed the defendant’s counterclaim.

Issues on Appeal

Alfredo J. Luz appealed directly to the Supreme Court, raising five assignments of error: (1) that Exhibit 1 and 1-A estopped the plaintiff from claiming amounts greater than those stated; (2) that the IRRI dollar balance should be converted at the official rate prevailing when the obligation arose (P2.00:$1.00) rather than at the rate at payment; (3) that the aggregate balance due was only P15,792.05; (4) that attorney’s fees should be limited to P5,000.00 as recommended by the Commissioner; and (5) that the trial court erred in denying relief on his counterclaim.

Parties’ Contentions

The appellant argued that Exhibit 1-A was a binding admission or placed the plaintiff in estoppel and that any dollar obligation should be converted at the official P2.00:$1.00 rate prevailing when payment to the architect became due on August 25, 1961. He further contended that prior payments should be applied to the IRRI obligation and that the Commissioner’s recommended attorney’s fees of P5,000.00 bound the court. The appellee maintained that Exhibit 1-A was prepared under a mistake and did not estop him, that the IRRI fee was rightly claimed in dollars because the architect received dollars, and that conversion should occur at the rate prevailing at the time of payment if conversion became necessary.

Supreme Court’s Analysis on Estoppel and Admissions

The Court affirmed the trial court’s and Commissioner’s factual finding that Exhibit 1-A had been prepared under ignorance or innocent mistake and that the defendant did not rely upon it. The Court reiterated that under Art. 1431 estoppel requires reliance by the party invoking it. The Court summarized the elements of estoppel in pais and held that essential elements were lacking here: there was no conduct by the plaintiff intended to mislead, no ignorance or inability on defendant’s part to ascertain the facts, and no detrimental reliance or change of position. The Court further explained that Exhibit 1-A was not a judicial admission and that nonconclusive admissions may be explained or overcome by evidence of mistake. The Court cited precedent including Cristobal vs. Gomez and Republic of the Philippines vs. Garcia to reinforce that estoppel cannot be invoked where the adverse party was not misled.

Supreme Court’s Analysis on Dollar Obligation and Rate of Conversion

The Court addressed the question whether the $28,000.00 award for the IRRI project must be paid in dollars or converted to pesos and at what rate. The Court observed that on August 25, 1961 two exchange rates existed: the preferred official rate of P2.00:$1.00 and a free market rate set by Central Bank Circular No. 121. The Court found no evidence that the $140,000.00 received by the architect was surrendered to the Central Bank at the preferred rate; consequently the Court reasonably presumed conversion, if any, would have occurred at the free market rate. The Court held that while Republic Act No. 529 forbids contractual provisions asking for payment in a foreign currency, the Act applies differently to obligations incurred before its enactment and those incurred after. Because RA 529 was enacted June 16, 1950, and the plaintiff’s entitlement for the IRRI project arose on August 25, 1961, RA 529’s rule fixing exchange at the rate prevailing when the obligation was incurred did not apply. The Court adopted the principle, as in Engel vs. Velasco & Co., that when an obligation expressed in foreign currency is to be satisfied in domestic currency the domestic equivalent is to be fixed at the rate of exchange at the time of payment. The Court therefore upheld the trial court’s order that $28,000.00 be converted into pesos at the current rate at the time of payment, as certified by the Central Bank.

Rulings on Other Contentions: Application of Payments and Correctness of Items

The Court declined the appellant’s argument that prior peso payments totaling P57,000.00 should have been applied against the IRRI dollar claim. The Commissioner found, and the parties accepted, that the $28,000.00 remained unpaid; the Court observed that the parties had agreed not to challenge the Commissioner’s findings of fact. On the appellant’s contention that the aggregate balance was only P15,792.05, the Court held that that question had not been submitted for resolution and that by manifesting no objection to the Commissioner’s findings of fact the parties bound themselves to those findings; hence the appellant could not belatedly contest the Commissioner’s accounting.

Attorney’s Fees and the Commissioner’s Recommendation

The Court considered whether the trial court erred

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