Short answer. Yes. When a party breaches in good faith, Philippine law limits his liability to damages that are the natural and probable consequences of the breach and that the parties foresaw or could have reasonably foreseen when the obligation was constituted. Losses beyond that foreseeable range are not recoverable unless fraud or bad faith is proved.
What the law says
In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.
Civil Code, Article 2201 — Damages in Contracts and Quasi-Contracts. Read the full provision →
The good-faith rule on damages
Article 2201 of the Civil Code draws a clear line between a good-faith breach and a bad-faith one. When your supplier failed to deliver without any fraudulent or malicious intent, his liability is confined to losses that flow naturally and probably from that failure and that were foreseeable when the two of you struck the deal. Losses that were unforeseeable at that point — even if they actually resulted — fall outside what he must compensate.
What changes when there is bad faith or fraud
The same article provides the contrasting rule: in case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. In other words, the foreseeability cap disappears once bad faith is established. If your supplier concealed a known inability to deliver or acted with deliberate disregard for your interests, a broader range of consequential losses opens up. The difference is significant, so it matters whether you can show more than a simple failure to perform.
What 'foreseeable at the time the obligation was constituted' means in practice
The reference point is the moment the contract was formed — not when the breach occurred. If your supplier did not know and could not reasonably have known that late delivery would trigger, say, a penalty clause in your own downstream contract, that downstream penalty may not be recoverable under the good-faith rule. On the other hand, ordinary lost profit on goods that were clearly intended for resale is almost always foreseeable. The test is objective: what would a reasonable person in the supplier's position have anticipated as a probable consequence of a breach?
Practical steps when you are trying to recover
Gather evidence of what losses you actually suffered and, separately, what losses a reasonable supplier would have anticipated. Written communications made at the time of contracting — purchase orders, emails discussing your use of the goods, delivery schedules — tend to establish foreseeability most clearly. If the breach was accompanied by dishonesty or the supplier knew he could not perform but said nothing, document those facts separately: they go to bad faith, which lifts the foreseeability ceiling entirely. A lawyer can help you assess which damages are realistically within the statutory range before you commit to litigation.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- International Exchange Bank vs. Rudy S. Labos And Associates, Inc., Sps. Rodolfo S. Labos And Consuelo R. Labos, And Rockwell Land Corporation, G.R. No. 206327, July 6, 2022 — read the decision on LawPhil →
- Voltaire Hans N. Bongcaya, doing business under the name and style of VHB Biopro, G.R. No. 225438, January 20, 2021 — read the decision on LawPhil →
- Santiago Lighterage Corporation vs. Court of Appeals, et al, G.R. No. 139629, June 21, 2004 — read the decision on LawPhil →
- Spouses Enrique Llonillo and Marites Llonillo vs. People of the Phillippines, G.R. No. 246787, January 30, 2024 — read the decision on LawPhil →