Lemon Law

Chapter 18: Lemon Law

Introduction

  • Declaration of Policy:
    • The state promotes full protection of consumer rights in the sale of motor vehicles against deceptive, unfair, or harmful business practices.
    • Acknowledges motor vehicles as significant consumer purchases/investments.
    • Consumer rights must be clearly defined, providing means for redress for violations.

Definition of Terms

  • Brand New Motor Vehicle:

    • A vehicle created entirely of new parts.
    • Covered by a manufacturer’s warranty at the purchase time.
    • Must never have been sold, registered with DOTC, or operated on roads in the Philippines or abroad.

  • Collateral Charges:

    • Fees paid to LTO for vehicle registration.
    • Includes incidental expenses such as:
    • Insurance costs related to the vehicle.
    • Chattel mortgage fees and applicable interest expenses.

  • Comparable Motor Vehicle:

    • Motor vehicle identical or reasonably equivalent in specifications and value to the one to be replaced.
    • Subject to availability and consideration for reasonable usage allowance.

  • Consumer:

    • Any individual or entity purchasing a new motor vehicle by cash or credit from an authorized distributor, dealer, or retailer in the Philippines.

  • Dealer or Retailer:

    • Authorized person or entity selling brand new vehicles directly to the public.

  • Distributor:

    • Authorized person or entity selling brand new vehicles to dealers or retailers for resale.

  • Implementing Agency:

    • The Department of Trade and Industry (DTI), as per Executive Order No. 292, series of 1987.

  • Lemon Law Rights Period:

    • Defined as the earlier of:
    1. 12 months from the vehicle's original delivery date.
    2. 20,000 kilometers of operation after delivery.
    • The period during which a consumer can report nonconformity.

  • Manufacturer:

    • Any individual or entity involved in manufacturing or assembling motor vehicles.

  • Motor Vehicle:

    • A self-propelled, four-wheeled vehicle designed for passenger transport, including various types like sedans, SUVs, etc.
    • Exclusions include motorcycles, delivery trucks, buses, etc.

  • Nonconformity:

    • Any defect that significantly affects the use, value, or safety of a motor vehicle, preventing compliance with manufacturer standards or specifications and cannot be repaired.
    • Exclusions include:
    1. Conditions from consumer's noncompliance with warranty obligations.
    2. Unauthorized modifications.
    3. Damage from neglect or accidents.

  • Purchase Price:

    • Invoice price received by the dealer for the vehicle in question.

  • Warranty:

    • Written assurance from the manufacturer concerning materials, workmanship, and roadworthiness of the vehicle.

  • Warranty Rights Period:

    • Duration mentioned in the sale contract where the manufacturer guarantees vehicle standards.

Requisites to Invoke Lemon Law Rights

  1. Vehicle must be brand new.
  2. Purchase must occur in the Philippines.
  3. Consumer must report nonconformity to manufacturer or distributor standards.
  4. Report made within 12 months of original delivery or 20,000 km, whichever comes first.

Repair Attempts

  • Consumers may invoke rights if nonconformity remains unresolved after at least 4 separate repair attempts for the same complaint within the Lemon Law rights period.
  • Repairs may involve replacing parts or components.

Notice of Availment

  • Consumers must notify in writing:
    1. The unresolved complaint.
    2. Intent to invoke Lemon Law rights.
  • Notice format to be specified in the warranty booklet.

Availment of Lemon Law Rights

  • Consumers must return vehicle to the original manufacturer, distributor, authorized dealer, or retailer for a final repair attempt.
  • Manufacturers must repair the vehicle to conform to their standards upon receiving the notice.
  • If issues remain unresolved, consumers may file a complaint with the DTI.

Deemed Successful Repair

  • If the vehicle is not returned for the same issue within 30 days post-repair notification, the repair is deemed successful.
  • Should issues persist post 30 days, consumers can still invoke rights within the Lemon Law period.

Compensation for Non-Use

  • Consumers are entitled to compensation for vehicle non-usage during repairs:
    • Daily transportation allowance covering commuting to/from residence and workplace, equivalent to:
    1. Air-conditioned taxi fare with an official receipt.
    2. An agreed amount between parties.
    3. A service vehicle option provided by the seller.
  • Disputes resolved by DTI.

Remedies for Dispute Resolution

  • The DTI assumes exclusive jurisdiction over disputes under Lemon Law, which includes:

1. Mediation

  • Principles of negotiation and conciliation to foster amicable settlements.
  • DTI to establish the validity of consumer complaints independently, potentially incurring costs shared by both parties.
  • Validity determined if vehicle fails to meet manufacturer standards.
  • If mediation fails, a certificate of such will be executed.
  • Cases to be settled within 10 working days.

2. Arbitration

  • Available for voluntary decisions by both parties if mediation fails.

3. Adjudication

  • Adjudication may commence if arbitration is not pursued by one party, administered by DTI with findings on conformity.
    • Must conclude in 20 working days.
    • If nonconformity is found:
    1. Replace vehicle with a similar one, subject to availability.
    2. Accept return and refund purchase price + collateral charges.
    • If not found, consumer can be required to reimburse costs incurred in validating their complaint.

Appeals

  • Appeals allowed from DTI findings within 15 days of final judgement.
  • Grounds for appeal include:
    1. Grave abuse of discretion.
    2. Decisions exceeding authority.
    3. Evidence-supported errors.
  • DTI's Secretary will decide appeals within 30 days.
  • Further appeal via certiorari to Court of Appeals under Rule 65.

Determination of Reasonable Allowance for Use

  • Reasonable allowance for use defined as the lesser of the following:
    1. 20% depreciation from the purchase price per annum, or
    2. Using formula: (Distance ext{ traveled (in kms)} imes ext{purchase price}) / 100,000

Disclosure on Resale

  • Upon resale of a returned motor vehicle, manufacturers must disclose:
    1. The vehicle's return reason.
    2. The nature of its nonconformity.
    3. Its condition at the point of transfer.
  • Responsibility ceases upon the subsequent sale of the vehicle to the first purchaser.

Penalty

  • Violators of disclosure provisions liable to pay a minimum of ₱100,000 to aggrieved parties, potentially incurring additional civil or criminal liabilities.

Multiple Choice Questions

  1. The Lemon Law aims to:
    • b. Protect consumer rights of consumers in the sale of motor vehicles.
  2. Which agency implements the Lemon Law?
    • a. Department of Trade and Industry.
  3. These refer to the fees paid to LTO:
    • d. Collateral charges.
  4. Refers to a motor vehicle identical in terms of specifications and values:
    • d. Comparable motor vehicle.
  5. Rights under the Lemon Law are available for:
    • d. Twelve months.
  6. Distance under the Lemon Law is:
    • c. 20,000 kilometers.
  7. Lemon Law rights period means:
    • c. Both I and II.
  8. Which vehicles are covered by the Lemon Law?
    • a. Pickups.
  9. Vehicles not covered by the Lemon Law:
    • c. Buses.
  10. Which vehicle types are covered under it?
    • b. Station wagons.
  11. Vehicles not covered include:
    • b. Trailers.
  12. Damage due to accident is:
    • d. Both statements are not true.
  13. Lemon Law rights may be invoked by:
    • a. Purchasers of brand new motor vehicles, the purchase being made in the Philippines.
  14. After how many repair attempts can rights be claimed?
    • c. At least four separate repair attempts.
  15. Correct order in claiming rights under the Lemon Law:
    • a. III, I, II, IV.