Chapter 18: LEMON LAW
Chapter 18
LEMON LAW
INTRODUCTION
RA No. 10642, AN ACT STRENGTHENING CONSUMER PROTECTION IN THE PURCHASE OF BRAND NEW MOTOR VEHICLES
DECLARATION OF POLICY: It is the policy of the State to promote full protection to the rights of consumers in the sale of motor vehicles against business and trade practices which are deceptive, unfair or otherwise inimical to consumers and the public interest.
The State recognizes that a motor vehicle is a major consumer purchase or investment. Hence, the rights of consumers should be clearly defined, including the means for redress for violations thereof.
DEFINITION OF TERMS
Brand new motor vehicle: refers to a vehicle constructed entirely from new parts and covered by a manufacturer's express warranty at the time of purchase that it has never been sold or registered with the Department of Transportation and Communications (DOTC) or any appropriate agency or authority, and has never been operated on any highway of the Philippines or in any foreign state or country.
Collateral charges: refers to the fees paid to the Land Transportation Office (LTO) for the registration of a brand new motor vehicle and other incidental expenses such as, but not limited to, the cost of insurance, interest expenses if applicable.
Comparable motor vehicle: refers to a motor vehicle that is identical or reasonably equivalent to the motor vehicle being replaced, in terms of specifications and value, subject to availability, as of the time of purchase, provided that there shall be an offsetting from this value.
Consumer: refers to any person, natural or juridical, who purchases a brand new motor vehicle either by cash or credit from an authorized distributor, dealer or retailer in the Philippines.
Dealer or retailer: refers to any person, natural or juridical, authorized by the manufacturer or distributor to sell brand new motor vehicles directly to the buyers and the public.
Distributor: refers to any person, natural or juridical, authorized by the manufacturer to distribute motor vehicles to duly authorized dealers or retailers.
Implementing agency: refers to the Department of Trade and Industry (DTI), organized under Title X, Book IV of Executive Order No. 292, series of 1987, otherwise known as the "Administrative Code of 1987".
Lemon Law rights period: refers to whichever comes first between:
1. The period ending 12 months after the date of the original delivery of a brand new motor vehicle to the consumer; or
2. The first 20,000 kilometers of operation after such delivery.
This shall be the period during which the consumer can report any nonconformity to the standards and specifications of the manufacturer, authorized distributor, authorized dealer or retailer, and pursue any right as provided under this Act.
Manufacturer: refers to any person, natural or juridical, engaged in the business of manufacturing or assembling motor vehicles.
Motor vehicle: refers to any self-propelled, four (4) wheeled road vehicle designed to carry passengers including, but not limited to, sedans, coupes, station wagons, convertibles, pick-ups, vans, sports utility vehicles (SUVs) and Asian Utility Vehicles (AUVs) but excluding motorcycles, trucks, buses, or any other motor vehicle, except that trailers having any number of wheels, when propelled or intended to be propelled by attachment to a motor vehicle, shall be classified as separate motor vehicle with no power rating.
Nonconformity: refers to:
1. Any defect or condition that substantially impairs the use, value or safety of a brand new motor vehicle;
2. Which prevents it from conforming to the manufacturer's or distributor's standards or specifications;
3. Which cannot be repaired.
But excluding:
1. Conditions resulting from noncompliance by the consumer with his obligations under the warranty;
2. Modifications not authorized by the manufacturer or distributor;
3. Abuse or neglect; and
4. Damage due to accident or force majeure.
Purchase price: refers to the invoice price or the amount of money which the dealer or retailer actually received for the sale of such brand new motor vehicle, in consideration thereof.
Warranty: refers to the written assurance, so labeled, by the manufacturer of a brand new motor vehicle including any term or condition precedent to the enforcement of obligations under the warranty.
Warranty rights period: refers to the period provided for under the warranty of sale when the manufacturer would guarantee the materials used, the workmanship and ordinary use or reasonable intended purposes.
REQUISITES TO INVOKE LEMON LAW RIGHTS:
1. Brand new motor vehicles
2. Purchased in the Philippines
3. Reported by a consumer to be in nonconformity with the vehicle's manufacturer or distributor's standards or specifications
4. Within twelve (12) months from the date of original delivery to the consumer, or up to twenty thousand (20,000) kilometers of operation after such delivery, whichever comes first.
REPAIR ATTEMPTS
At any time within the Lemon Law rights period, and after at least four (4) separate repair attempts by the same manufacturer, distributor, authorized dealer or retailer for the same complaint, and the nonconformity issue remains unresolved, the consumer may invoke his or her rights under this Act.
The repair may include replacement of parts components, or assemblies.
NOTICE OF AVAILMENT
Before availing of any remedy under this Act and subject to compliance with the provisions of Repair Attempts above, the consumer shall, in writing, notify the manufacturer, distributor, authorized dealer or retailer of:
(1) the unresolved complaint; and
(2) the consumer's intention to invoke his or her rights under this Act within the Lemon Law rights period.
AVAILMENT OF LEMON LAW RIGHTS
Subsequent to filing the notice of availment, the consumer shall bring the vehicle to the manufacturer, distributor, authorized dealer or retailer from where the vehicle was purchased for a final attempt to address the complaint to the consumer to his or her satisfaction.
It shall be the duty of the manufacturer, distributor, authorized dealer or retailer, upon receipt of the motor vehicle and the notice of nonconformity, to attend to the complaints of the consumer including, as may be necessary, making the repairs and undertaking such actions to make the vehicle conform to the standards and specifications of the manufacturer, distributor, authorized dealer or retailer for such vehicle.
In case the nonconformity issue remains unresolved despite the manufacturer, distributor, authorized dealer or retailer's efforts to repair the vehicle, pursuant to the consumer's availment of his or her Lemon Law rights, the consumer may file a complaint before the DTI as provided under this Act.
Deemed successful repair: If the vehicle is not returned for repair, based on the same complaint, within thirty (30) calendar days from the date of notice of release of the motor vehicle to the consumer following this repair attempt within the Lemon Law rights period, the repair is deemed successful.
In the event that the nonconformity issue still exists or persists after the thirty (30)-day period but still within the Lemon Law rights period, the consumer may be allowed to invoke his rights under this Act.
Compensation for non-use: To compensate for the non-usage of the vehicle while under repair and during the period of availment of the Lemon Law rights, the consumer shall be provided a reasonable daily transportation allowance, an amount which covers the transportation of the consumer from his or her residence to his or her regular workplace or destination and vice versa, equivalent to:
1. Air-conditioned taxi fare, as evidenced by official receipt; or
2. In such amount as agreed upon by the parties; or
3. A service vehicle at the option of the manufacturer, distributor, authorized dealer or retailer.
Any disagreement on this matter shall be resolved by the DTI.
Nothing herein shall be construed to limit or impair the rights and remedies of a consumer under any other law.
REMEDIES FOR DISPUTE RESOLUTION
The DTI shall exercise exclusive and original jurisdiction over disputes arising from the provisions of the Lemon Law. All disputes arising from the provisions of this Act shall be settled by the DTI in accordance with the following dispute resolution mechanisms:
1. Mediation
a. The principles of negotiation, conciliation and mediation towards amicable settlement between the manufacturer, distributor, authorized dealer or retailer and the consumer shall be strictly observed;
b. In the course of this dispute resolution efforts, the DTI shall endeavor to independently establish the validity of the consumer's outstanding complaint. The DTI shall likewise retain the services of other government agencies or independent private entities in the ascertainment of the validity of the consumer's complaint. Any cost incurred in establishing the validity of the consumer's complaint shall be borne jointly by the consumer and the manufacturer, distributor, authorized dealer or retailer;
c. The complaint shall be deemed valid if it is independently established that the motor vehicle does not conform to the standards or specifications set by the manufacturer, distributor, authorized dealer or retailer;
d. Upon failure of the negotiation or mediation between the manufacturer, distributor, authorized dealer or retailer and the consumer, the parties shall execute a certificate attesting to such failure; and
e. At any time during the dispute resolution period, the manufacturer, distributor, authorized dealer or retailer and the consumer shall be encouraged to settle amicably. All disputes that have been submitted for mediation shall be settled not later than ten (10) working days from the date of filing of the complaint with the DTI.
2. Arbitration
In the event there is a failure to settle the complaint during the mediation proceedings, both parties may voluntarily decide to undertake arbitration proceedings.
3. Adjudication
a. In the event that both parties do not undertake arbitration proceedings, at least one of the parties may commence adjudication proceedings, administered by the DTI. The DTI shall rely on the qualified independent findings as to conformity to standards and specifications established herein. In no case shall adjudication proceedings exceed twenty (20) working days;
b. In case a finding of nonconformity is arrived at, the DTI shall rule in favor of the consumer and direct the manufacturer, distributor, authorized dealer or retailer to grant either of the following remedies to the consumer:
i. Replace the motor vehicle with a similar or comparable motor vehicle in terms of specifications and values, subject to availability; or
ii. Accept the return of the motor vehicle and pay the consumer the purchase price plus the collateral charges.
In case the consumer decides to purchase another vehicle with a higher value and specifications from the same manufacturer, distributor, authorized dealer or retailer, the consumer shall pay the difference in cost.
In both cases of replacement and repurchase, the reasonable allowance for use, as defined in this Act, shall be deducted in determining the value of the nonconforming motor vehicle; and
c. In case a nonconformity of the motor vehicle is not found by the DTI, the decision shall rule in favor of the manufacturer, distributor, authorized dealer or retailer, and direct the consumer to reimburse the manufacturer, distributor, authorized dealer or retailer the costs incurred by the latter in validating the consumer's complaint.
An appeal may be taken from a final judgment or order of the Adjudication Officer which completely disposes of the case within fifteen (15) days from receipt thereof. The appeal shall be taken by filing a Memorandum of Appeal with the Secretary of the DTI, with notice to the adverse party or parties on any of the following grounds:
i. Grave abuse of discretion;
ii. The decision/order is in excess of jurisdiction or authority;
iii. Adjudication Officer; and
iv. The decision/order is not supported by the evidence or there is serious error in the findings of facts.
The Secretary of the DTI shall decide on the appeal within thirty (30) days from receipt thereof. A party seeking further appeal from the decision of the Secretary of the DTI may file a case for certiorari in the Court of Appeals under Section 4, Rule 65 of the Revised Rules of Court.
DETERMINATION OF REASONABLE ALLOWANCE FOR USE
For purposes of this Act, "reasonable allowance for use" shall mean whichever is lower between:
1. 20% per annum deduction from the purchase price; or
2. By using this formula:
(Distance traveled in kms × purchase price) ÷ 100,000 kms
DISCLOSURE ON RESALE
Should the returned motor vehicle be made available for resale, the manufacturer, distributor, authorized dealer or retailer shall, prior to sale or transfer, disclose in writing to the next purchaser of the same vehicle the following information:
1. The motor vehicle was returned to the manufacturer, distributor, authorized dealer or retailer;
2. The nature of the nonconformity which caused the return; and
3. The condition of the motor vehicle at the time of the transfer to the first purchaser.
The responsibility of the manufacturer, distributor, authorized dealer or retailer under this section shall cease upon the sale of the affected motor vehicle to the first purchaser.
Penalty: The manufacturer, distributor, authorized dealer or retailer found to have violated the provisions requiring disclosure as mentioned in the preceding section shall be liable to pay a minimum amount of P100,000 as damages to the aggrieved party without prejudice to any civil or criminal liability they and/or the responsible officer may incur under existing laws.
MULTIPLE CHOICE QUESTIONS
1. The Lemon Law aims to:
a. Encourage the consumption of lemons and other citrus fruits
b. Protect consumer rights of consumers in the sale of motor vehicles
c. Promote the use of motor vehicles instead of walking or other modes of transportation
d. Protect seller rights on the sale of real property.
2. Which agency implements the Lemon Law?
a. Department of Trade and Industry
b. Land Transportation Office
c. Land Transportation Franchising and Regulatory Board
d. Department of Transportation
3. These refer to the fees paid to the Land Transportation Office (LTO) for the registration of a brand new motor vehicle and other incidental expenses such as, but not limited to, the cost of insurance pertaining to the vehicle, chattel mortgage fees and interest expenses if applicable.
a. Incidental charges
b. Transaction costs
c. Registration fees
d. Collateral charges
4. It refers to a motor vehicle that is identical or reasonably equivalent to the motor vehicle to be replaced, in terms of specifications and values, subject to availability, as of the time of purchase.
a. Replacement motor vehicle
b. Identical motor vehicle
c. Equivalent motor vehicle
d. Comparable motor vehicle
5. In months, the period within which rights under the Lemon Law is available is:
a. Six months
b. Nine months
c. Twelve months
d. Twenty four months
6. In terms of mileage, the number of kilometers within which rights under the Lemon Law is available is:
a. 5,000 kilometers
b. 10,000 kilometers
c. 20,000 kilometers
d. 50,000 kilometers
7. The Lemon Law rights period is:
I. The period during which rights under the Lemon Law may be exercised or pursued.
II. The period during which the consumer can report any nonconformity to the standards and specifications of the manufacturer, authorized distributor, authorized dealer or retailer.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
8. Which of the following vehicles are covered by the Lemon Law?
a. Pickups
b. Bicycles
c. Trolley cars
d. Delivery trucks
9. Which of the following vehicles are not covered by the Lemon Law?
a. Vans
b. Sports utility vehicles
c. Buses
d. Electric vehicles
10. Which of the following vehicles are covered by the Lemon Law?
a. Motorcycles
b. Station wagons
c. Lawn movers
d. Forklifts
11. Which of the following vehicles are not covered by the Lemon Law?
a. Sedans
b. Trailers
c. Coupes
d. Convertibles
12. Statement 1: Damage due to accident is an example of non-conformity.
Statement 2: Damage due to neglect of the owner is an example of non-conformity.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
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
b. Purchasers of brand new motor vehicles, the purchase being made anywhere, but the manufacturer is situated in the Philippines
c. Purchasers of brand new or secondhand motor vehicles, the purchase being made in the Philippines
d. Purchasers of brand new or secondhand motor vehicles, the purchase being made anywhere, but the manufacturer is situated in the Philippines
14. After how many repair attempts will rights under the Lemon Law be available to the consumer?
a. At least two separate repair attempts
b. At least three separate repair attempts
c. At least four separate repair attempts
d. At least five separate repair attempts
15. Which is the correct sequential order in claiming rights under the Lemon Law:
I. Bringing the vehicle to the manufacturer
II. Repair attempts
III. Filing of a Notice of Availment
IV. Filing of a complaint before the DTI
a. III, II, I, IV
b. II, I, III, IV
c. II, III, I, IV
d. I, II, IV, III