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NATUREPetition for review on certiorari of a decision of the Court of AppealsFACTS Tomasa Sarmiento’s friend, Dra. Virginia Lao, reuested her to !ndsomeone toreset a pair of diamond earrings into two gold rings. Sarmientosent Tita Pa"ag withthe earrings to Dingding’s #ewelr" Shop, owned andmanaged $" spouses Luis and%ose Ca$rido, which accepted the &o$ order forP'((. Petitioner provided )* gramsof gold to $e used in crafting the pair ofring settings. After + da"s, Pa"ag deliveredto the &ewelr" shop one of the

diamond earrings which was earl ier appraised asworth .++ carat andalmost perfect in cut and clarit". %espondent arilou Sun wenton todismount the diamond from original settings. -nsuccessful, she asedtheirgoldsmith, /enon Santos, to do it. 0e removed the diamond $" twistingthe settingwith a pair of p liers, $reaing the gem in the process.Petitioner reuired therespondents to replace the diamond with thesame si1e and ualit". 2hen the"refused, the petitioner was forced to$u" a replacement in the amount of P+(,(((.%ose Ca$rido, manager, deniedhaving an" transaction with Pa"ag whom she metonl" after the lattercame to see compensation for the $roen piece of &ewelr".arilou,on the other hand, admitted nowing Pa"ag to avail their services

andr e c a l l e d t h a t w h e n S a n t o s $ r o e t h e & e w e l r " , P a " a g tu r n e d t o h e r f o rreim$ursement thining she was the owner. Santos also recalledthat Pa"agreuested him to dismount what appeared to him as sapphireand that the stoneaccidentall" $roe. 0e denied $eing an emplo"ee of the #ewelr" shop. The TCCof Tag$i l aran Cit" rendered a decisio n in favor of the pet i t ioner. 3n appeal ,%espondents conceded to the e4istence of an agreementfor crafting a pair of goldrings mounted with diamonds $ut denied the"had o$ligation to dismount thediamonds from the original setting.Petitioner claims that dismounting the diamondsfrom the original setting was

part of the o$ligation assumed $" respondents underthe contract of service. The %TC ruled in favor of the respondents. CA a5rmed the &udgment of the%TC.ISSUES). 236 dismounting of the diamond from its original setting waspart of theo$ligation*. 236 respondents are lia$le for damages+. 236respondents are lia$le for moral damagesHELD

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1. YESRatio The contemporaneous and su$seuent acts of the parties reveal the scopeof o$ligation assumed $" the &ewelr" shop to reset the pair of earrings.Reasoningarilou e4pressed no reservation regarding the dismounting of

thediamonds. She could have instructed Pa"ag to have the diamondsdismounted !rst,$ut instead, she readil" accepted the &o$ order andcharged P'((. After the newsettings were completed, she calledpetitioner to $ring the diamond earrings to $ereset. She e4amined one ofthem and went on to dismount the diamond from theoriginal setting. Afterfailing to do the same, she delegated it to the goldsmith.0avingacted the wa" she did, she cannot den" that the dismounting was part of theshop’s o$ligation to reset the pair of earrings.2. YES Ratio Those who, in the performance of their o$ligations are guilt"of fraud,negligence or dela" and those who in an" manner contravene the

tenor thereof, arelia$le for damages. The fault or negligence of the o$ligorconsists in the 7omission of that d iligence which is reuired $" thenature of the o$ligation and correspondswith the circumstances of thepersons, of the time and of the place.’ReasoningSantos acted negligentl" in dismounting the diamond from its originalsetting.8nstead of using a miniature wire, which is the practice of the trade, he usedapair of pliers. arilou e4amined the diamond $efore dismounting and foundthesame to $e in order. The su$seuent $reaage could onl" have$een caused $"Santos’ negligence in using the wrong euipment. %esipsa louitur. 9acts show thatarilou, who has transacted with Pa"ag on at

least )( occasions, and Santos, whohas $een accepting &o$ referrals throughrespondents for : mos. now, are emplo"edat the &ewelr" shop. The &ewelr" shop failed to perform its o$ligation wi th theordinar"diligence reuired $" the circumstances.3. YES Ratiooral damages ma" $e awarded in a $reach of contract when there isproof that defendant acted in $ad faith, or was guilt" of gross negligenceamounting to$ad faith, or in wanton disregard of his contractual o$ligation.ReasoningSantos was a goldsmith for more than '( "ears. 0e should have nownthatusing a pair of pliers would have entailed unnecessar" ris of $reaage. The

gross negl igence of the i r emplo"ee maes the respondents l ia$le of moraldamages.DispositionPetition was granted and CA decision was reversed. %espondentswereordered to pa" P+(,((( as actual damages and P)(,((( as moraldamages.