A Primer

A. Introduction

Republic Act 10642, or the Lemon Law, endeavors to protect consumers should they purchase new, albeit nonconforming, motor vehicles from manufacturers, distributors, dealers, or retailers (collectively, “Seller”). This Primer seeks to present the rights of such consumers, and the concurrent obligations of the Seller under the Lemon Law.

B. The Lemon Law

1. What motor vehicles are covered under the Lemon Law?

The Lemon Law covers only brand new motor vehicles: meaning vehicles constructed entirely from new parts, and have never been sold nor operated in any country. The Lemon Law further limits its coverage to only common four-wheeled road vehicles such as cars, pick-ups, vans, sports utility vehicles, and Asian utility vehicles. It specifically excludes motorcycles, delivery trucks, dump trucks, buses, lawn mowers, heavy equipment, and farm equipment.

2. What defects are covered under the Lemon Law?

The Lemon Law covers those irreparable nonconformities which substantially impair the use, value, or safety of these new vehicles and prevent such motor vehicles from conforming to the manufacturers’ or distributors’ standards or specifications. However, the Lemon Law specifically excludes the following causes of nonconformity:

Noncompliance by the consumer of the obligations under the manufacturer’s or distributor’s warranty such as:

a. Modifications upon the motor vehicle which were not allowed by the manufacturer or distributor;
b. Abuse or neglect of the motor vehicle; and
c. Damage to the vehicle due to accident or force majeure.

3. Within what period may a consumer avail of his rights under the Lemon Law?

The consumer may invoke his rights under the Lemon Law within the Coverage Period which is 12 months from the date of the delivery of the motor vehicle, or for as long as the motor vehicle has not run more than 20,000 km after such delivery, whichever comes first.

4. What else needs to be done before a consumer can invoke his rights under the Lemon Law?

The consumer must have had the affected motor vehicle brought in for repair with the Seller at least four separate times for the same complaint, and for all those times, the nonconformity remains unresolved. Such repair attempts include the replacement of parts, components, or assemblies of the motor vehicle.

However, this comes with the caveat that should a motor vehicle not be returned for repair for the same nonconformity within 30 days from notification that the motor vehicle has been repaired, and after the expiration of the Coverage Period, the repair will be deemed to have been successful.

5. After four (4) unsuccessful repair attempts, can the consumer now avail of his rights under the Lemon Law?

The consumer must first notify the Seller, in writing that he wishes to invoke his rights under the Lemon Law, and such notification must comply with the form and procedure set forth in the Seller’s warranty booklet before such notice may be binding upon the Seller.

After such notification, the Seller is given a final attempt to fix the nonconformity. In case there is still a failure to fix the nonconformity, the consumer may then file a complaint with the Department of Trade and Industry (“DTI”), invoking his rights under the Lemon Law.

6. Is the consumer compensated for the unavailability of the motor vehicle during the period it is under repair?

Yes. During the period that the motor vehicle is being repaired, or after the consumer has notified the Seller of his invocation of his rights under the Lemon Law, the consumer shall be provided (i) a reasonable daily transportation allowance, equal to an amount which covers the transportation of the consumer from his residence to his regular workplace or destination and vice versa, equivalent to air-conditioned taxi fare, as evidenced by official receipt; (ii) such amount to be agreed upon by the parties; or (iii) a service vehicle at the option of the Seller. Any disagreement on this matter shall be resolved by the DTI.

7. What follows after the filing of the complaint with the DTI?

The DTI is the only body which can exercise jurisdiction over complaints arising from the Lemon Law. It may retain other government agencies, or qualified third parties, to verify the alleged nonconformity in determining the validity of the complaint. The costs for such a determination shall be borne jointly by the consumer and the Seller. The DTI shall settle the dispute through the following dispute resolution mechanisms:

a. Mediation. After receipt of the complaint, the DTI shall initiate mediation proceedings between the parties to attempt to settle the matter amicably. These mediation proceedings shall not last for more than 10 working days from the date of the filing of the complaint. Should the parties fail to settle the dispute at this stage, they shall execute a certification of such failure.

b. Arbitration. The parties would then have the option to enter into arbitration, and rely on the judgment of their chosen arbiter to settle their dispute.

c. Adjudication. Should the parties not enter into arbitration, any one of the parties may ask the DTI to commence adjudication proceedings. The DTI shall then assign the complaint to an adjudication officer to hear the matter. The adjudication officer shall rely on qualified independent findings to resolve the claim of nonconformity. The adjudication proceedings shall not exceed 20 working days.

8. What happens if the DTI rules in favor of the consumer?

The consumer may:

a. Return the motor vehicle to the Seller, who must in turn return the full purchase price, plus collateral damages;

b. Have the motor vehicle replaced by the Seller with a similar or comparable motor vehicle in terms of specification and values, subject to availability; or

c. Purchase a vehicle with a higher value or specifications from the same Seller, in which case, the consumer must pay the difference in cost.

In case the consumer chooses any of the last two options, a “reasonable allowance” for the use of the subject motor vehicle shall be deducted in determining the value of the nonconforming motor vehicle. Such “reasonable allowance” is equal to 20% per annum deduction from the purchase price, or the product of the distance traveled in kilometers and the purchase price divided by one 100,000 km, whichever is lower.

9. What happens to the motor vehicle if the consumer opted to return it to the Seller?

The Seller may resell the nonconforming motor vehicle. However, the Seller is obligated to inform the next purchaser, in writing, (i) that the motor vehicle was returned to the Seller; (ii) the nature of the nonconformity which caused such return; and (iii) the condition of the motor vehicle at the time of its return to the Seller. This obligation on the part of the Seller ceases upon the sale of the nonconforming motor vehicle to the first purchaser after it was returned. Neither is there a corresponding obligation on the part of the first purchaser, or any subsequent purchaser, to disclose that the motor vehicle had previously been returned.

10. What happens if the Seller is found to have violated his obligation to disclose?

The Seller shall be penalized by at least Php 100,000 as damages to the uninformed purchaser, without prejudice to any further civil or criminal liability which it may have incurred under other laws.

11. What happens if the DTI rules in favor of the Seller?

The consumer shall be ordered to reimburse the costs of the Seller in determining the validity of the complaint.

12. May a party appeal from the decision of the adjudication officer?

Yes. Within 15 days of receipt of the decision, a party may do so by filing a Memorandum of Appeal to the Secretary of the DTI, with a Notice of Appeal to the adjudication officer, and with copies furnished to the other parties. An appeal may be based on grounds that (i) that the decision was rendered with grave abuse of discretion; (ii) the decision was rendered in excess of the jurisdiction or the authority of the adjudication officer; or (iii) the decision is not supported by the evidence or there is serious error in the finding of facts.

The Secretary of the DTI shall then decide on the appeal within 30 days of his receipt thereof. Should a party wish to thereafter appeal the decision of the Secretary of the DTI, that party may file a case for certiorari with the Court of Appeals under Rule 65 of the Rules of Court.


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