THIRD DIVISION

[G.R. No. 141258. April 9, 2003.]

TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-

CABRIDO and MARIA LOURDES SUN, respondents.

Liberato G. Casilan, Jr. for petitioner.

Victor dela Serna for respondents.

SYNOPSIS

The controversy herein arose when a piece of diamond was broken by Zenon
Santos, an employee at the jewelry shop, in the process of dismounting it from an
original setting. The diamond was claimed to be .33 carat and almost perfect in cut
and clarity. As a result of the incident, the petitioner herein was forced to replace
the broken diamond to its owner in the amount of P30,000.00. The petitioner filed a
complaint for damages with the Metropolitan Trial Court in Cities (MTCC) and
claimed that the dismounting of the diamond from its original setting was part of
the obligation assumed by the respondents under the contract of service, the
respondent spouses being the owner of the jewelry shop and the other respondent
their employee. Thus, they should be held liable for the damages arising from its
breakage. The MTCC decided in favor of the petitioner herein. But on appeal, the
Regional Trial Court (RTC) reversed the decision; thus absolving the respondents of
any responsibility arising from breach of contract. The Court of Appeals affirmed the
judgment of the RTC, hence, this petition for review.

According to the Supreme Court, preponderance of evidence supported the view

that Marilou and Zenon Santos were employed at the jewelry shop in order to
perform activities, which were usually necessary or desirable in its business. The
Court, therefore, held that an obligation to pay actual damages arose in favor of the
petitioner against the respondent spouses who admittedly owned and managed the
jewelry shop. It was proven that petitioner replaced the damaged jewelry in the
amount of P30,000.00. The facts of the case also justified the award of moral
damages. The petition was granted and the assailed decision of the Court of Appeals
was reversed and set aside by the Supreme Court ordering the respondent spouses
to pay petitioner actual damages of P30,000.00 and moral damages of P10,000.00.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS; SHALL HAVE THE FORCE OF LAW BETWEEN

PARTIES WHEN THE SAME AROSE FROM CONTRACTS; EFFECT OF FAULT OR
NEGLIGENCE IN THE PERFORMANCE THEREOF. — Obligations arising from
contracts have the force of law between the contracting parties. Corollarily, those
who in the performance of their obligations are guilty of fraud, negligence or delay
and those who in any manner contravene the tenor thereof, are liable for damages.
The fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place.

2. ID.; DAMAGES; MORAL DAMAGES; GENERALLY NOT RECOVERABLE IN

ACTIONS FOR BREACH OF CONTRACT; EXCEPTION. — As a general rule, moral
damages are not recoverable in actions for damages predicated on a breach of
contract for it is not one of the items enumerated under Article 2219 of the Civil
Code. Moral damages may be awarded in a breach of contract only when there is
proof that defendant acted in bad faith, or was guilty of gross negligence amounting
to bad faith, or in wanton disregard of his contractual obligation.TSacCH

DECISION

CORONA, J : p

This appeal by certiorari stems from the Decision 1 of respondent Court of Appeals
promulgated on November 26, 1999 in CA-G.R. SP No. 47431 declaring the private
respondents not liable for damages.

Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra.
Virginia Lao, requested her to find somebody to reset a pair of diamond earrings into
two gold rings. 2 Accordingly, petitioner sent a certain Tita Payag with the pair of
earrings to Dingding's Jewelry Shop, owned and managed by respondent spouses
Luis and Rose Cabrido, 3 which accepted the job order for P400. 4

Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. 5
After 3 days, Tita Payag delivered to the jewelry shop one of Dra. Lao's diamond
earrings which was earlier appraised as worth .33 carat and almost perfect in cut
and clarity. 6 Respondent Ma. Lourdes (Marilou) Sun went on to dismount the
diamond from its original setting. Unsuccessful, she asked their goldsmith, Zenon
Santos, to do it. Santos removed the diamond by twisting the setting with a pair of
pliers, breaking the gem in the process. 7

Petitioner required the respondents to replace the diamond with the same size and
quality. When they refused, the petitioner was forced to buy a replacement in the
amount of P30,000. 8

Respondent Rose Cabrido, manager of Dingding's Jewelry Shop, denied having

entered into any transaction with Tita Payag whom she met only after the latter
came to the jewelry shop to seek compensation from Santos for the broken piece of
jewelry. 9 However, it was possible that Payag may have availed of their services as
she could not have known every customer who came to their shop. Rose disclosed
that she usually arrived at 11:00 a.m. When she was not around, her mother and
sister tended the shop. 10

Marilou admitted knowing Payag who came to Dingding's Jewelry Shop to avail of
their services regarding a certain piece of jewelry. After a short conversation, Payag
went inside the shop to see Santos. When the precious stone was broken by Santos,
Payag demanded P15,000 from him. As the latter had no money, she turned to
Marilou for reimbursement apparently thinking that Marilou was the owner of the
shop. 11

For his part, Santos recalled that Payag requested him to dismount what appeared
to him was a sapphire. While clipping the setting with the use of a small pair of
pliers, the stone accidentally broke. Santos denied being an employee of Dingding's
Jewelry Shop. 12

Attempts to settle the controversy before the barangay lupon proved futile. 13
Consequently, petitioner filed a complaint for damages on June 28, 1994 with the
Municipal Trial Court in Cities (MTCC) of Tagbilaran City docketed as Civil Case No.
2339 which rendered a decision 14 in favor of the petitioner, the dispositive portion
of which reads:

WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa

Sarmiento and against defendants Spouses Luis and Rose Sun-Cabrido,
ordering defendants to pay jointly and severally the amount of Thirty
Thousand Pesos (P30,000.00) as actual or compensatory damages; Three
Thousand Pesos (P3,000.00) as moral damages; Five Thousand Pesos
(P5,000.00) as attorney's fees; Two Thousand Pesos (P2,000.00) as
litigation expenses, with legal interest of 6% per annum from the date of this
decision and 12% per annum from the date when this decision becomes
final until the amounts shall have been fully paid and to pay the costs.

This case as against defendant Maria Lourdes Sun as well as defendants'

counterclaim are dismissed for lack of merit.

SO ORDERED.

On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the
decision of the MTCC, thus absolving the respondents of any responsibility arising
from breach of contract. 15 Finding no reversible error, the Court of Appeals (CA)
affirmed the judgment of the RTC in its Decision promulgated on November 26,
1999. 16

Unable to accept the decision, the petitioner filed the instant petition for review
with the following assigned errors:

THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING THAT

ZENON SANTOS IS NOT AN EMPLOYEE OF DEFENDANT (herein respondent)
ROSE SUN-CABRIDO, AND IS THEREFORE ANSWERABLE FOR HIS OWN
ACTS OR OMISSIONS
 II

THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE

REGIONAL TRIAL COURT'S PRONOUNCEMENTS THAT THERE EXISTS NO
AGREEMENT BETWEEN THE PETITIONER AND RESPONDENTS THAT THE
LATTER WOULD ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE
DAMAGED IN THE PROCESS OF DISMOUNTING THEM FROM THE EARRINGS.

Essentially, petitioner claims that the dismounting of the diamond from its original
setting was part of the obligation assumed by the private respondents under the
contract of service. Thus, they should be held liable for damages arising from its
breakage. On the other hand, the version of the private respondents, upheld by the
RTC and the CA, is that their agreement with the petitioner was for crafting two
gold rings mounted with diamonds only and did not include the dismounting of the
said diamonds from their original setting. 17 Consequently, the crux of the instant
controversy is the scope of the obligation assumed by the private respondents under
the verbal contract of service with the petitioner.

The Court notes that, during the trial, private respondents vigorously denied any
transaction between Dingding's' Jewelry Shop and the petitioner, through Tita
Payag. Rose Cabrido, for instance, denied having ever met Payag before the latter
came to seek reimbursement for the value of the broken diamond. Likewise, while
Marilou acknowledged acquaintance with Payag, she nevertheless denied accepting
any job order from her. Debunking their protestations, however, the MTCC of
Tagbilaran City rendered its decision on November 26, 1999 in favor of herein
petitioner.

Apparently realizing the weakness and futility of their position, private respondents
conceded, on appeal, the existence of an agreement with the petitioner for crafting
a pair of gold rings mounted with diamonds. This apparent concession by the private
respondents, however, was really nothing but an ingenious maneuver, designed to
preclude, just the same, any recovery for damages by the petitioner. Thus, while
ostensibly admitting the existence of the said agreement, private respondents,
nonetheless denied assuming any obligation to dismount the diamonds from their
original settings. 18

The inconsistent position of the private respondents impugns their credibility. They
cannot be permitted to adopt a certain stance, only to vacillate later to suit their
interest. We are therefore inclined to agree with the MTCC in giving credence to the
version of the petitioner. The MTCC had the unique opportunity to actually observe
the behavior and demeanor of the witnesses as they testified during the trial. 19

At any rate, the contemporaneous and subsequent acts of the parties 20 support the
version of the petitioner. Thus, when Tita Payag asked Marilou of Dingding's Jewelry
Shop to reset a pair of diamond earrings, she brought with her the said pieces of
jewelry so that the diamonds which were still mounted could be measured and the
new ring settings crafted accordingly. On the said occasion, Marilou expressed no
reservation regarding the dismounting of the diamonds which, after all, was an
integral part of petitioner's job order. She should have instructed Payag to have
them dismounted first if Marilou had actually intended to spare the jewelry shop of
the task but she did not. Instead, petitioner was charged P400 for the job order
which was readily accepted. Thus, a perfected contract to reset the pair of diamond
earrings arose between the petitioner, through Payag, and Dingding's Jewelry Shop,
through Marilou.

Marilou's subsequent actuations were even more revealing as regards the scope of
obligation assumed by the jewelry shop. After the new settings were completed in 3
days, she called up the petitioner to bring the diamond earrings to be reset. 21
Having initially examined one of them, Marilou went on to dismount the diamond
from its original setting. Unsuccessful, she then delegated the task to their
goldsmith, Zenon Santos. Having acted the way she did, Marilou cannot now deny
the shop's obligation to reset the pair of earrings.

Obligations arising from contracts have the force of law between the contracting
parties. 22 Corollarily, those who in the performance of their obligations are guilty of
fraud, negligence or delay and those who in any manner contravene the tenor
thereof, are liable for damages. 23 The fault or negligence of the obligor consists in
the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. 24

In the case at bar, it is beyond doubt that Santos acted negligently in dismounting
the diamond from its original setting. It appears to be the practice of the trade to
use a miniature wire saw in dismounting precious gems, such as diamonds, from
their original settings. 25 However, Santos employed a pair of pliers in clipping the
original setting, thus resulting in breakage of the diamond. The jewelry shop failed
to perform its obligation with the ordinary diligence required by the circumstances.
It should be pointed out that Marilou examined the diamond before dismounting it
from the original setting and found the same to be in order. Its subsequent
breakage in the hands of Santos could only have been caused by his negligence in
using the wrong equipment. Res ipsa loquitur.

Private respondents seek to avoid liability by passing the buck to Santos who
claimed to be an independent worker. They also claim, rather lamely, that Marilou
simply happened to drop by at Dingding's Jewelry Shop when Payag arrived to place
her job order. 26

We do not think so.

The facts show that Santos had been working at Dingding's Jewelry Shop as
goldsmith for about 6 months accepting job orders through referrals from private
respondents. 27 On the other hand, Payag stated that she had transacted with
Dingding's Jewelry Shop on at least 10 previous occasions, always through Marilou.
28 The preponderance of evidence supports the view that Marilou and Zenon Santos
were employed at Dingding's Jewelry Shop in order to perform activities which were
usually necessary or desirable in its business. 29
We therefore hold that an obligation to pay actual damages arose in favor of the
petitioner against the respondents spouses who admittedly owned and managed
Dingding's Jewelry Shop. It was proven that petitioner replaced the damaged
jewelry in the amount of P30,000. 30

The facts of the case also justify the award of moral damages. As a general rule,
moral damages are not recoverable in actions for damages predicated on a breach of
contract for it is not one of the items enumerated under Article 2219 of the Civil
Code. 31 Moral damages may be awarded in a breach of contract only when there is
proof that defendant acted in bad faith, or was guilty of gross negligence amounting
to bad faith, or in wanton disregard of his contractual obligation. 32 Santos was a
goldsmith for more than 40 years. 33 Given his long experience in the trade, he
should have known that using a pair of pliers instead of a miniature wire saw in
dismounting a precious stone like a diamond would have entailed an unnecessary
risk of breakage. He went on with it anyway. Hence, respondent spouses are liable
for P10,000 as moral damages due to the gross negligence of their employee.

However, private respondent's refusal to pay the value of the damaged jewelry
emanated from an honest belief that they were not responsible therefor, hence,
negating any basis for the award of attorney's fees. 34

WHEREFORE, the instant petition is GRANTED and the assailed decision of the
Court of Appeals dated November 26, 1999 is hereby reversed and set aside. Private
respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly
and severally, the amount of P30,000 as actual damages and P10,000 as moral
damages in favor of the petitioner. TIcEDC

No costs.

SO ORDERED.

Puno, Panganiban, Sandoval-Gutierrez, and Carpio Morales, JJ., concur.

Footnotes

1. Penned by Associate Justice Ma. Alicia Austria-Martinez and concurred in by

Associate Justices B.A. Adefuin-de la Cruz and Presbitero J. Velasco, Jr., Rollo, pp.
17-23.

2. TSN, December 14, 1994, pp. 7-8.

3. Exhibit "I"; TSN, February 7, 1995, p. 4.

4. Exhibit "1"; TSN, November 8, 1994, pp. 3-4.

5. Exhibit "C".

6. TSN, December 14, 1995, p. 9.

7. TSN, November 8, 1994, pp. 6-7.

8. Exhibit "B"; TSN, December 14, 1994, pp. 12-14.

9. TSN, February 7, 1995, pp. 4-5.

10. Id., p. 9.

11. TSN, August 18, 1995, pp. 3-4.

12. TSN, June 8, 1995, pp. 2-5.

13. Exhibit "D".

14. Petition, Annex "D", Rollo, pp. 29-36. Penned by Judge Emma Eronico-Supremo.

15. Petition, Annex "B", Rollo, pp. 24-28. Penned by Judge Pacito A. Yape.

16. See footnote no. 1.

17. Comment, Rollo, p. 57.

18. Appellant's Brief, Original Records, pp. 97-101.

19. People vs. Lacsa, 339 SCRA 178, 190 [2000]; People vs. Continente, 339 SCRA
1, 29 [2000]; People vs. Barro, Sr., 338 SCRA 312, 322 [2000].

20. Tangquilig vs. CA, 334 Phil. 68, 74 [1997].

21. TSN, December 14, 1994, p. 11.

22. Article 1159, Civil Code of the Philippines.

23. Article 1170, Civil Code of the Philippines.

24. Article 1173, Civil Code of the Philippines.

25. TSN, January 20, 1995, p. 3.

26. TSN, August 18, 1995, p. 3.

27. TSN, June 8, 1995, pp. 6-7.

28. TSN, November 8, 1994, p. 4.

29. Article 280 of the Labor Code pertinently provides:

Art. 280. Regular and Casual Employment. — The provisions of written agreement to
the contrary notwithstanding and regardless of the oral agreement of the parties,
an employment shall be deemed to be regular where the employee has been
engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer . . ..

30. Exhibits "B"; "F"; "G".

31. Calalas vs. Court of Appeals , 302 SCRA 356 [2000].

32. Magat, Jr. vs. Court of Appeals , 337 SCRA 298, 308 [2000]; Integrated Packaging
Corporation vs. Court of Appeals , 333 SCRA 170 [2000].

33. TSN, June 8, 1995, p. 4.

34. Bernardo vs. Court of Appeals , 275 SCRA 413, 432 [1997].