Sarmiento vs. Sun-Cabrido

An employer is liable for actual and moral damages arising from an employee’s gross negligence in performing a contractual obligation, where the negligence amounts to bad faith, even if the employer initially denied the existence of the contract; however, attorney’s fees are not awarded where the refusal to indemnify stems from an honest belief of non-responsibility.

Petitioner Tomasa Sarmiento, through an intermediary, delivered a pair of diamond earrings to Dingding’s Jewelry Shop, owned by respondent spouses Luis and Rose Sun-Cabrido, to be reset into two gold rings. The shop, represented by respondent Maria Lourdes Sun, accepted the job order for P400. Three days later, the intermediary delivered one of the earrings to the shop. Marilou Sun attempted to dismount the diamond but failed, delegating the task to Zenon Santos, the shop's goldsmith. Santos used a pair of pliers to twist the setting, breaking the diamond in the process. Standard trade practice requires the use of a miniature wire saw for dismounting precious gems. Petitioner demanded replacement of the diamond, valued at P30,000, but respondents refused.

• The Job Order: In April 1994, petitioner requested an intermediary, Tita Payag, to find someone to reset a pair of diamond earrings into two gold rings. Payag brought the earrings to Dingding’s Jewelry Shop, owned and managed by respondent spouses. Respondent Maria Lourdes Sun accepted the job order for P400. Petitioner provided 12 grams of gold for the ring settings.
• The Dismounting Incident: After the new settings were completed three days later, Marilou Sun called petitioner to bring the diamond earrings. Marilou examined one of the diamonds and attempted to dismount it from its original setting. Unsuccessful, she delegated the task to Zenon Santos, a goldsmith at the shop. Santos clipped the setting with a pair of pliers, breaking the diamond in the process. Trade practice dictates using a miniature wire saw for such a procedure.
• Subsequent Demand: Petitioner demanded that respondents replace the broken diamond, which had been appraised at .33 carat and almost perfect in cut and clarity. When respondents refused, petitioner purchased a replacement for P30,000.
• Respondents' Version: Rose Cabrido denied transacting with Payag, though admitted Payag could have availed of their services when she was not tending the shop. Marilou Sun acknowledged Payag's presence but denied accepting a job order. Zenon Santos claimed Payag requested him directly to dismount what he thought was a sapphire, and that the stone broke accidentally while he was clipping the setting. Santos denied being an employee of the jewelry shop.

• Employer-Employee Relationship: Petitioner argued that Zenon Santos was an employee of respondent Rose Sun-Cabrido, making the latter answerable for his negligent acts under the principle of employer liability.
• Scope of the Contract: Petitioner maintained that the dismounting of the diamond from its original setting was an integral part of the obligation assumed by respondents under the verbal contract of service, thereby rendering them liable for damages arising from its breakage.

• No Employer-Employee Relationship: Respondents contended that Zenon Santos was an independent worker, not an employee of the jewelry shop, and thus they could not be held liable for his actions.
• Limited Scope of Contract: Respondents argued that their agreement with petitioner was strictly for crafting two gold rings mounted with diamonds and did not include the obligation to dismount the diamonds from their original settings.

• Employer's Liability: Whether respondent spouses are liable for the negligent acts of Zenon Santos under the principle of employer-employee relationship.
• Scope of Obligation: Whether the obligation to dismount the diamonds from their original settings was included in the contract of service between petitioner and respondents.
• Damages: Whether petitioner is entitled to actual damages, moral damages, and attorney's fees.

• Employer's Liability: Respondent spouses are liable for Santos's negligence. Santos had been working at the shop for about six months, accepting job orders through referrals from respondents. Under Article 280 of the Labor Code, Santos was deemed a regular employee engaged to perform activities necessary or desirable to the usual business of the employer.
• Scope of Obligation: The obligation to dismount the diamonds was included in the perfected contract. The contemporaneous and subsequent acts of the parties established the contract's scope: Payag brought the mounted diamonds so they could be measured for the new settings, Marilou Sun expressed no reservation about dismounting them, and Marilou herself attempted to dismount the diamond before delegating the task to Santos. Respondents' inconsistent positions—initially denying the transaction entirely, then conceding it but limiting its scope on appeal—further impugned their credibility.
• Damages: Actual damages of P30,000 were justified by the proven replacement cost of the diamond. Moral damages of P10,000 were warranted due to Santos's gross negligence, which amounted to bad faith; despite being a goldsmith for over 40 years, he used pliers instead of a miniature wire saw, unnecessarily risking breakage. However, attorney's fees were denied because respondents' refusal to pay emanated from an honest belief that they were not responsible for the damage, negating bad faith in the withholding of payment.

• Res ipsa loquitur — The doctrine that an injury is of a nature that does not ordinarily occur in the absence of negligence, allowing an inference of negligence. Applied to find that the diamond's breakage while in the goldsmith's exclusive control, using the wrong equipment, was clear evidence of negligence.
• Moral Damages in Breach of Contract — Moral damages are generally not recoverable in actions predicated on breach of contract, except when the defendant acted in bad faith, was guilty of gross negligence amounting to bad faith, or exhibited wanton disregard of the contractual obligation.
• Employer's Liability for Employee Negligence — Employers are liable for damages caused by their employees acting within the scope of their assigned tasks. The nature of the employment is determined by the activities the employee performs, regardless of oral agreements to the contrary, pursuant to Article 280 of the Labor Code.

• "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 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."
• "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."

• Tangquilig vs. CA, 334 Phil. 68 (1997) — Cited for the proposition that the contemporaneous and subsequent acts of the parties are instrumental in determining the scope and terms of their obligation.
• Calalas vs. Court of Appeals, 302 SCRA 356 (2000) — Followed for the rule that moral damages are not recoverable in breach of contract cases unless bad faith or gross negligence amounting to bad faith is proven.
• Bernardo vs. Court of Appeals, 275 SCRA 413 (1997) — Applied to deny attorney's fees, holding that refusal to pay based on an honest belief of non-liability negates the bad faith required for such an award.

• Article 1159, Civil Code of the Philippines — Obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith. Applied to hold respondents to their contractual undertaking.
• Article 1170, Civil Code of the Philippines — Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who contravene the tenor thereof, are liable for damages. Applied to anchor liability for the goldsmith's negligence.
• Article 1173, Civil Code of the Philippines — Fault or negligence consists in the omission of that diligence required by the nature of the obligation and the circumstances of the persons, time, and place. Applied to measure the goldsmith's conduct against the standard trade practice of using a wire saw.
• Article 2219, Civil Code of the Philippines — Enumerates the cases where moral damages may be recovered; breach of contract is not among them unless bad faith or gross negligence is present.
• Article 280, Labor Code — Deems employment regular where the employee has been engaged to perform activities usually necessary or desirable in the usual business or trade of the employer. Applied to establish the employer-employee relationship between the jewelry shop and the goldsmith, despite the latter's claim of being an independent worker.

Puno (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales