Title
Autozentrum Alabang, Inc. vs. Spouses Bernardo
Case
G.R. No. 214122
Decision Date
Jun 8, 2016
Spouses Bernardo purchased a "brand new" BMW from Autozentrum, later discovering it was certified pre-owned with recurring defects. Autozentrum misrepresented the car's condition, violating the Consumer Act, and was ordered to refund the purchase price with interest and pay fines.
consumer act
deceptive sales acts
domestic corporation

Case Summary (G.R. No. 214122)

Factual Background

On November 12, 2008, Spouses Miamar A. Bernardo and Genaro F. Bernardo, Jr. purchased a 2008 BMW 320i from Autozentrum Alabang, Inc. for PHP 2,990,000. The vehicle was to be delivered as a brand new unit by the authorized dealer. Within the first year of ownership the vehicle manifested a series of serious defects: malfunctioning ABS brakes and steering column in October 2009, electrical warning and door lock failures later that month, air conditioning failure in March 2010, and wishbone damage requiring wheel replacement in September 2010. Repairs were performed by Asian Carmakers Corporation as BMW service center. In January 2011 the fuel tank leaked and was replaced at no cost. Correspondence between the parties in January 2011 included a demand by the Spouses for refund or replacement and a reply from Autozentrum’s Aftersales Manager, Ron T. Campilan, stating that the vehicle was certified pre-owned or used. Additional complaints, including engine smoking and electrical control failures, were recorded in 2011, and Autozentrum retained custody of the car from August 8, 2011.

Procedural History

The Spouses filed a complaint with the Department of Trade and Industry on February 24, 2011, alleging sale of a defective and used vehicle represented as new, invoking Articles 50(b) and (c) and Article 97 of RA 7394. A DTI Hearing Officer rendered a decision on April 30, 2012 finding Autozentrum liable for defective product and deceptive sales, ordering administrative fines and refund of purchase price. The DTI Appeals Committee affirmed the finding of violation but modified the refund by applying a two-year depreciation formula and ordering return of the vehicle to the respondent, in a resolution dated September 14, 2012. Autozentrum appealed to the Court of Appeals. The Court of Appeals issued a decision on June 30, 2014 affirming liability but ordered full refund of PHP 2,990,000 without depreciation; it denied Autozentrum’s motion for reconsideration on September 4, 2014. Autozentrum filed a petition for review under Rule 45 with the Supreme Court.

DTI Ruling

The DTI Hearing Officer concluded that the vehicle was defective and that Autozentrum committed deceptive sales by representing the vehicle as brand new when it was not. The Hearing Officer assessed PHP 160,000 in administrative fines plus an additional fine of up to PHP 1,000 per day of continuing violation and ordered a refund of the purchase price of PHP 2,990,000. The DTI Appeals Committee affirmed the violation but, relying on COA Circular No. 2003-07 by analogy, applied a two-year depreciation computation and reduced the refund to PHP 2,221,142.90 while requiring return of the vehicle to Autozentrum.

Court of Appeals Ruling

The Court of Appeals sustained the factual findings that the vehicle was defective and not brand new. It held that the proper basis for Autozentrum’s liability was contractual warranty under Article 1561, in relation to Article 1567, of the Civil Code, rather than Articles 97 and 98 of RA 7394, and rejected the DTI Appeals Committee’s depreciation deduction for lack of proof of depreciation. The CA also affirmed deceptive sales liability under Article 50(c) of RA 7394 because the vehicle was represented as new though it was altered and second-hand. The CA ordered Autozentrum to pay the full purchase price of PHP 2,990,000.

Issues Presented to the Supreme Court

Autozentrum contended that the DTI Hearing Officer gravely abused discretion in finding violations of Articles 97 and 50 of RA 7394, in ordering full refund without considering depreciation, and in imposing the fines ordered. The petition claimed error in the DTI Appeals Committee’s affirmation and in the Court of Appeals’ decision and denial of reconsideration. The central legal questions presented were whether Autozentrum committed deceptive sales and whether the DTI and appellate tribunals correctly ordered rescission and full restitution without depreciation and properly imposed administrative penalties.

Parties' Contentions

The complainants, Spouses Bernardo, insisted that the vehicle was defective and was represented as a brand new unit though it was pre-owned, relying on the vehicle’s early and recurring defects, Campilan’s letter acknowledging the vehicle as certified pre-owned, one tire lacking Running Flat Technology, and Land Transportation Office registration records showing prior registration in Autozentrum’s name. Autozentrum argued absence of proof of deceit or misrepresentation under Article 50, absence of proof of injury under Article 97, and lack of entitlement to full refund without deduction for beneficial use or depreciation.

Supreme Court Ruling

The Supreme Court denied the petition and affirmed with modification the Court of Appeals’ decision. The Court ordered Autozentrum to return to Spouses Bernardo the value of the car amounting to PHP 2,990,000, with legal interest at six percent per annum from finality of the decision until full payment. The Court also affirmed the imposition of administrative fines previously ordered by the DTI where appropriate under RA 7394 and its implementing rules.

Legal Basis and Reasoning

The Court reiterated that Article 50 of RA 7394 deems deceptive any representation that a product is new when it is in fact altered or second-hand, and that representations may be made by acts or artifacts, not only words. Suppression of material facts that a seller is bound in good faith to disclose equates to false representation. The Court found substantial evidentiary support for deceptive sales in the rapid onset of serious defects, Campilan’s letter classifying the vehicle as certified pre-owned, one tire lacking Running Flat Technology contrary to the vehicle’s expected configuration, and LTO registration records showing prior ownership by Autozentrum; those public records were treated as prima facie evidence. The Court emphasized the DTI’s institutional expertise and the deference accorded to its factual findings when affirmed by the CA. Conversely, the Court held that Article 97 of RA 7394 imposes strict liability on manufacturers, producers, and importers for defective products and therefore did not apply to Autozentrum, which was not proven to be a manufacturer, producer, or importer; consequently, the DTI’s findings of deception and defective condition were sustained under the statute’s provisions on deceptive sales rather than manufacturer strict liability.

Relief

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