Regulatory Framework for Business Transactions
ONG, CPA, MBA
RFBT Consumer Act of the Philippines
STUDENT HANDOUTS
Philippine Lemon Law
REPUBLIC ACT NO. 10642
AN ACT STRENGTHENING CONSUMER PROTECTION IN THE
PURCHASE OF BRAND NEW MOTOR VEHICLES
Declaration of Policy.
1. 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.
2. 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. (Sec 2)
Coverage
This cover brand new motor vehicles purchased in the
Philippines reported by a consumer to be in nonconformity
with the vehicle’s manufacturer or distributor’s standards or
specifications 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.
The following causes of nonconformity shall be excluded:
(a) Noncompliance by the consumer of the obligations under
the warranty;
(b) Modifications not authorized by the manufacturer,
distributor, authorized dealer or retailer;
(c) Abuse or neglect of the brand new motor vehicle; and
Abuse means the use of a motor vehicle in a manner not in
accordance with the provisions stated in the Owner's
Manual, the Manufacturer's Service/Warranty
Booklet.(1.4.1, DAO, 14-3, 2014)
Neglect means failure of the Consumer to properly and
regularly .(1.4.2, DAO, 14-3, 2014)
(d) Damage to the vehicle due to accident or force majeure.
Accident means any man-made event that causes damage
or injury over which the manufacturer, distributor,
authorized dealer or retailer has no control. (1.5.1, DAO,
14-3, 2014)
Force Majeure means any event caused by elements or
forces of nature such as, but not limited to, typhoon, flood,
earthquake and volcanic eruptions. (1.5.1, DAO, 14-3,
2014)
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
an appropriate agency or authority, and has never been
operated on any highway of the Philippines, or in any foreign
state or country; (Sec 3 (a))
• 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)
• Excluded:
(a) motorcycles,
(b) delivery trucks,
(c) dump trucks
(d) buses,
(e) road rollers,
(f) trolley cars,
(g) street sweepers,
(h) sprinklers,
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ATTY. JOHNSON A.H.
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(i) lawn mowers and
(j) heavy equipment, such as, but not limited to
1. bulldozers,
2. payloaders,
3. graders,
4. forklifts,
5. amphibian trucks,
6. cranes, and
7. vehicles which run only on rails or tracks, and
8. tractors, trailers and traction engines of all kinds
used exclusively for agricultural purposes.
Trailers having any number of wheels, when
propelled or intended by attachment to a motor
vehicle, shall be classified as separate motor vehicle
with no power rating;
Consumer defined
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.
(Sec 3 (d))
• 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 retail buyers and the public. (Sec 3 (e))
• Distributor refers to any person, natural or juridical,
authorized by the manufacturer to sell brand new
motor vehicles to duly authorized dealers or retailers.
(Sec 3 (f))
• Manufacturer refers to any person, natural or juridical,
engaged in the business of manufacturing or
assembling motor vehicles. (Sec 3 (i))
Warranty refers to the written assurance, so labeled, of the
manufacturer of a brand new motor vehicle including any term
or condition precedent to the enforcement of obligations under
the warranty. (Sec 3(m))
• Warranty rights period refers to the period provided for
under the contract of sale when the manufacturer would
guarantee the materials used, the workmanship and the
roadworthiness of a brand new motor vehicle for ordinary
use or reasonable intended purposes. (Sec 3(n))
Content of the warranty booklet
Warranty booklet issued by the manufacturer, distributor,
authorized dealer or retailer
1. Clearly state the manner and form of such notice to
constitute a valid and Legal notice to the manufacturer,
distributor, authorized dealer or retailer.
2. Clearly state the responsibility of the consumer under this
section.
Responsibilities of the consumer as follows:
a. The Consumer shall keep copy of repair records;
b. The Consumer shall ensure that the odometer
reading or the date of vehicle delivery for Final
Attempt at the servicing dealer is within the Lemon
Law rights period;
c. The Consumer shall, in writing and in the form
prescribed in the Warranty Booklet (the Notice of
Availment form), notify the manufacturer, distributor,
authorized dealer or retailer of the unresolved
complaint after four (4) separate repair attempts; and
d. The Consumer shall likewise retain the documentary
requirements.
Documentary requirements
1. Warranty Booklet/Service Booklet;
2. Current Motor Vehicle Registration;
3. All repair/job order invoices. And
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4. Notice of Availment stamped received by the
Dealer or accompanied by proof of receipt by the
Dealer of the Notice of Availment.
Requisites for availment of lemon law rights
1. The consumer exercise the rights within the lemon rights
period. (Sec 5)
a. Lemon Law rights period
b. Refers to the period ending twelve (12) months
after the date of the original delivery of a brand
new motor vehicle to a consumer or the first
twenty thousand (20,000) kilometers of operation
after such delivery, whichever comes first. (Sec 2
(h))
2. The consumer give the manufacturer, distributor,
authorized dealer or retailer at least four (4) separate
repair attempts for the same complaint and the
nonconformity issue remains unresolved, The repair may
include replacement of parts components, or assemblies.
(Sec 5)
o Repair Attempt is a process that begins when the
Consumer brings the Motor Vehicle to the
manufacturer, distributor, authorized dealer or
retailer for repair of a specific complaint/s and which
shall be completed within fifteen (15) days from
delivery of the motor vehicle to the dealer. If repair
was completed in excess of fifteen (15) days, the
excess period shall be added to the Lemon Law Rights
Period of the motor vehicle. (1.7 DAO, 14-3, 2014)
o Nonconformity - refers to any defect or condition that
substantially impairs the use, value or safety of a
brand new motor vehicle which prevents it from
conforming to the manufacturer’s or distributor’s
standards or specifications, which cannot be repaired,
but excluding conditions resulting from
noncompliance by the consumer of his or her
obligations under the warranty, modifications not
authorized by the manufacturer or distributor, abuse
or neglect, and damage due to accident or force
majeure;
3. The consumer notify in writing (notice of availment) the
manufacturer, distributor, authorized dealer or retailer of
the unresolved complaint, and the consumer’s intention to
invoke his or her rights under the lemon law within the
Lemon Law rights period. (Sec 6)
4. After notice of availment, the consumer 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 of the consumer to his or
her satisfaction. (Sec 7)
It shall be the duty of the manufacturer, distributor,
authorized dealer or retailer, upon receipt of the motor
vehicle and the notice of nonconformity required hereof,
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
or specifications of the manufacturer, distributor,
authorized dealer or retailer for such vehicle.
a. Nonconformity issue remains unresolved
• The consumer may file a complaint before the DTI
b. Nonconformity issue is resolved.
• 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.
• If 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
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ATTY. JOHNSON A.H. ONG, CPA, MBA
allowed to avail of the same remedies under
Sections 5 (4 Repair attempt) and Section 6
(Notice of availment) hereof.
Repair Attempt Process
A completed repair/job order constitutes one repair attempt
by undergoing the process outlined below.
1. The Consumer and/or representative, specifically
authorized in writing by the Consumer, bring the motor
vehicle to the same authorized Dealer report and/or
demonstrate the complaint on the Motor Vehicle.
2. The Dealer, at all times, shall receive the motor vehicle, and
records the consumer's complaint on the Motor Vehicle.
3. The Dealer shall advise the Consumer of the proposed
repair(s) and the estimated time to complete the repair(s).
4. The Consumer authorizes the repair by affixing his/her
signature on the repair/job order.
5. The Dealer, upon completion of the repair activity, releases
the motor vehicle to the consumer and shall provide the
Consumer with an inventory of repairs done as completed
and parts replaced.
6. The Dealer returns the parts replaced and furnishes the
results of any test activity which was performed, if any.
7. Consumer receives the unit and if the motor vehicle is not
returned within fifteen (15) days from release, the repair
is deemed accepted.
8. Any Repair covered by the Manufacturer's Warranty shall
not be charged for labor and parts. (Title II, Rule 1, Sec 2,
DAO, 14-3, 2014)
A repair attempt that is started but not completed by the dealer
for reason attributable to the dealer shall be treated as one
repair attempt. (Title II, Rule 1, Sec 3, DAO, 14-3, 2014)
Compensation
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 air-conditioned taxi fare, as evidenced by official
receipt, or in such amount to be agreed upon by the parties, or
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 this Act. 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 its 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 qualified 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
bornejointly by the consumer and the manufacturer,
distributor, authorized dealer or retailer;
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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:
1. Replace the motor vehicle with a similar or
comparable motor vehicle in terms of
specifications and values, subject to availability;
or
Comparable motor vehicle 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 the motor vehicle existed at the time of
purchase: Provided, That there shall be an
offsetting from this value for reasonable
allowance for its use. (Sec 3(c))
2. Accept the return of the motor vehicle and pay
the consumer the purchase price plus the
collateral charges.
Purchase price refers to the invoice price or the
amount of money which the dealer or retailer
actually received for the brand new motor
vehicle, in consideration of the sale of such brand
new motor vehicle. (Sec 3 (l))
Collateral charges 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. (Sec 3(b))
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 shall be deducted in
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ATTY. JOHNSON A.H. ONG, CPA, MBA
determining the value of the nonconforming motor
vehicle.
Reasonable allowance for use
Mean twenty percent (20%) per annum deduction
from the purchase price, or the product of the distance
traveled in kilometers and the purchase price divided
by one hundred thousand (100,000) kilometers,
whichever is lower. (Sec 9)
c. In case a nonconformity of the motor vehicle is not
found by the DTI, it 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 complaints.
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 of Appeal to the Adjudication Officer, and
with a copy duly furnished the adverse party or
parties.
Grounds of appeal from the adjudication officer to the
Secretary of DTI
1. Grave abuse of discretion;
2. The decision/order is in excess of jurisdiction or
authority of the Adjudication Officer; and
3. The decision/order is not supported by the evidence
or there is serious error in the findings of facts.
d. 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 to the
Court of Appeals under Section 4, Rule 65 of the
Revised Rules of Court.
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 manufacturer, distributor, authorized
dealer or retailer.
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. (Sec 10)
Penalty for non disclosure
The manufacturer, distributor, authorized dealer or retailer
adjudged to have violated the provisions requiring disclosure
shall be liable to pay a minimum amount of One hundred
thousand pesos (P100,000.00) 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.
(Sec 11)
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