Definitions and key terms
- A “Brand new motor vehicle” is a vehicle constructed entirely from new parts, covered by a manufacturer’s express warranty at the time of purchase, and never sold or registered with the DOTC (or appropriate agency), and never operated on any highway of the Philippines or in any foreign state or country.
- “Collateral charges” include fees paid to the Land Transportation Office (LTO) for registration of a brand new motor vehicle and other incidental expenses such as the cost of insurance, chattel mortgage fees, and interest expenses if applicable.
- A “Comparable motor vehicle” is identical or reasonably equivalent to the motor vehicle to be replaced, in specifications and values (subject to availability as the vehicle existed at the time of purchase), with an offsetting for reasonable allowance for its use.
- A “Consumer” is any natural or juridical person who purchases a brand new motor vehicle in the Philippines by cash or credit from an authorized distributor, dealer, or retailer.
- A “Dealer or retailer” is any person authorized by the manufacturer or distributor to sell brand new motor vehicles directly to retail buyers and the public.
- A “Distributor” is any person authorized by the manufacturer to sell brand new motor vehicles to duly authorized dealers or retailers.
- An “Implementing agency” is the Department of Trade and Industry (DTI), reorganized under Title X, Book IV of Executive Order No. 292, series of 1987 (the Administrative Code of 1987).
- The “Lemon Law rights period” ends twelve (12) months after original delivery to the consumer or the first twenty thousand (20,000) kilometers of operation after delivery, whichever comes first; during this period, the consumer may report a nonconformity and pursue rights under the Act.
- A “Manufacturer” is any person engaged in business of manufacturing or assembling motor vehicles.
- A “Motor vehicle” is any self-propelled, four (4) wheeled road vehicle designed to carry passengers (including sedans, coupes, station wagons, convertibles, pick-ups, vans, SUVs, and AUVs) excluding motorcycles, delivery trucks, dump trucks, buses, road rollers, trolley cars, street sweepers, sprinklers, lawn mowers, heavy equipment (including bulldozers, payloaders, graders, forklifts, amphibian trucks, cranes), and rail/track vehicles, and excluding tractors, trailers, and traction engines used exclusively for agricultural purposes; trailers propelled or intended by attachment to a motor vehicle are treated as separate motor vehicles without power rating.
- A “Nonconformity” is any defect or condition that substantially impairs use, value, or safety and prevents the vehicle from conforming to the manufacturer’s or distributor’s standards/specifications, and cannot be repaired, but it excludes conditions resulting from the consumer’s noncompliance with warranty obligations, unauthorized modifications, abuse or neglect, and accident or force majeure damage.
- “Purchase price” is the invoice price or the amount of money the dealer or retailer actually received for the brand new motor vehicle as consideration for the sale.
- A “Warranty” is the written assurance, so labeled, of the manufacturer of a brand new motor vehicle including any term or condition precedent to enforcement of warranty obligations.
- A “Warranty rights period” is the contract period during which the manufacturer guarantees materials, workmanship, and roadworthiness for ordinary use or reasonable intended purposes.
Exclusions and coverage limits
- The Act covers brand new motor vehicles purchased in the Philippines reported within the Lemon Law rights period (twelve (12) months or 20,000 kilometers, whichever comes first).
- The Act recognizes the following causes of nonconformity are excluded from coverage:
- Noncompliance by the consumer with warranty obligations;
- Modifications not authorized by the manufacturer, distributor, authorized dealer, or retailer;
- Abuse or neglect of the brand new motor vehicle; and
- Accident or force majeure damage.
Repair attempts and notice requirements
- During the Lemon Law rights period, a consumer may invoke rights under the Act after at least four (4) separate repair attempts by the same manufacturer, distributor, authorized dealer, or retailer for the same complaint and the nonconformity remains unresolved.
- The repair may include replacement of parts, components, or assemblies.
- Before availing any remedy under the Act, the consumer must in writing notify the manufacturer, distributor, authorized dealer, or retailer of:
- the unresolved complaint, and
- the consumer’s intention to invoke rights under the Act, within the Lemon Law rights period.
- The warranty booklet issued by the manufacturer, distributor, authorized dealer, or retailer must clearly state:
- the manner and form of the notice that constitutes a valid and legal notice, and
- the consumer’s responsibility under the notice requirement.
- After filing the required notice, the consumer must bring the vehicle for a final attempt to address the complaint to the consumer’s satisfaction.
- Upon receipt of the motor vehicle and the notice of nonconformity required by Section 6, the manufacturer, distributor, authorized dealer, or retailer must attend to the consumer’s complaints, including making repairs and undertaking actions to make the vehicle conform to the applicable standards/specifications.
- If the nonconformity remains unresolved despite the manufacturer/distributor/dealer/retailer’s efforts, the consumer may file a complaint before the DTI under the Act.
- If the vehicle is not returned for repair for the same complaint within thirty (30) calendar days from the date of release to the consumer following that repair attempt within the Lemon Law rights period, the repair is deemed successful.
- If the nonconformity persists after the thirty (30)-day period but still within the Lemon Law rights period, the consumer may avail remedies under Sections 5 and 6.
- To compensate for non-use while under repair and during the Lemon Law rights period availment:
- the consumer must receive a reasonable daily transportation allowance covering transportation between residence and regular workplace/destination, equivalent to air-conditioned taxi fare (supported by official receipt), or an amount agreed by the parties, or a service vehicle at the option of the manufacturer/distributor/dealer/retailer; and
- disputes over the allowance must be resolved by the DTI.
- The Act does not limit or impair consumer rights and remedies under any other law.
DTI jurisdiction and dispute resolution process
- The DTI exercises exclusive and original jurisdiction over disputes arising from the Act.
- All disputes under the Act are settled by the DTI using the following mechanisms:
Mediation
- The DTI must enforce negotiation, conciliation, and mediation principles for amicable settlement between the manufacturer/distributor/authorized dealer/retailer and the consumer.
- The DTI must independently establish the validity of the consumer’s outstanding complaint and may use other government agencies or qualified independent private entities to ascertain validity.
- Costs incurred in validating the consumer’s complaint must be jointly borne by the consumer and the manufacturer/distributor/authorized dealer/retailer.
- The complaint is deemed valid if the DTI independently establishes that the motor vehicle does not conform to the applicable standards/specifications.
- Upon failure of negotiation or mediation, the parties must execute a certificate attesting to the failure.
- All disputes submitted for mediation must be settled not later than ten (10) working days from the date of filing of the complaint with the DTI.
Arbitration
- If mediation fails, both parties may voluntarily decide to undertake arbitration proceedings.
Adjudication
- If arbitration is not undertaken, at least one party may commence adjudication administered by the DTI.
- The DTI relies on qualified independent findings on conformity to standards and specifications.
- Adjudication proceedings must not exceed twenty (20) working days.
- If nonconformity is found, the DTI must rule for the consumer and direct one of the following remedies:
- Replace the motor vehicle with a similar or comparable motor vehicle (specifications and values, subject to availability); or
- Accept return of the motor vehicle and pay the consumer purchase price plus collateral charges.
- If the consumer chooses to purchase another vehicle with higher value/specifications from the same manufacturer/distributor/authorized dealer/retailer, the consumer must pay the difference in cost.
- In determining the value of the nonconforming motor vehicle for both replacement and repurchase, the reasonable allowance for use under the Act must be deducted.
- If nonconformity is not found, the DTI must rule for the manufacturer/distributor/authorized dealer/retailer and direct the consumer to reimburse validation costs incurred in validating the consumer’s complaint.
- A party may appeal a final judgment/order that completely disposes of the case within fifteen (15) days from receipt by filing:
- a Memorandum of Appeal with the Secretary of the DTI,
- a Notice of Appeal to the Adjudication Officer, and
- copies duly furnished to the adverse party or parties.
- Appeals must raise one or more of the grounds:
- Grave abuse of discretion;
- the decision/order is in excess of jurisdiction or authority; or
- the decision/order is not supported by evidence or there is serious error in findings of facts.
- The Secretary of the DTI must decide on the appeal within thirty (30) days from receipt.
- Further appeal may be pursued by filing a petition for certiorari to the Court of Appeals under Section 4, Rule 65 of the Revised Rules of Court.
Reasonable allowance for use formula
- “Reasonable allowance for use” means the lower of:
- twenty percent (20%) per annum deduction from the purchase price, or
- the product of (distance traveled in kilometers × purchase price) divided by one hundred thousand (100,000) kilometers.
Resale disclosure and damages penalty
- If a returned motor vehicle is made available for resale, the manufacturer, distributor, authorized dealer, or retailer must disclose in writing to the next purchaser prior to sale/transfer:
- that the motor vehicle was returned to them,
- the nature of the nonconformity that caused the return, and
- the condition of the motor vehicle at the time of transfer to them.
- The responsibility under the resale disclosure requirement ends upon the sale of the affected motor vehicle to the first purchaser.
- The manufacturer/distributor/authorized dealer/retailer adjudged to have violated the resale disclosure requirement must pay a minimum PHP 100,000.00 in damages to the aggrieved party, without prejudice to any civil or criminal liability of the entity and/or responsible officer under existing laws.
Implementing authority, assistance, IRR, and effectivity
- The Department of Transportation and Communications (DOTC) and other agencies, political subdivisions, local government units, including government-owned and/or controlled corporations, must render assistance required by the DTI to implement the Act.
- The DTI must promulgate necessary implementing rules and regulations within ninety (90) days from effectivity of the Act.
- The Act includes separability: invalidity of any part does not affect the other provisions.
- The Act includes a repealing clause: all inconsistent laws, decrees, executive orders, issuances, rules and regulations, or parts thereof are repealed, amended, or modified accordingly.
- The Act takes effect fifteen (15) days after its publication in the Official Gazette or in any newspaper of general circulation.