When life gives you lemons…assert your rights under the Philippine Lemon Law

Tomorrow (August 7), Republic Act No. 10642 or the “Philippine Lemon Law” will take effect. Approved by the President last July 15, 2014, this is the first Philippine legislation designed to protect consumers who purchase defective brand-new cars.

To some, the name of the law may sound more appropriate for regulating the sale of fruits. The etymology of “lemon” as a reference for defective cars points to several possible reasons (such as the 1909 American English slang for ‘worthless thing’), but it is likely due to the 1906 British slang for “handing someone a lemon” which means “to pass off a substandard article as a good one.”

In the Philippines where cars usually cost at least twice the retail price of an equivalent car in the United States or Europe, the Philippine Lemon Law recognizes that “a motor vehicle is a major consumer purchase or investment.” Thus, the law seeks to define the rights and remedies of consumers of brand-new vehicles.

But before car owners or buyers get excited about the Philippine Lemon Law, it’s important to understand its salient points. 

Coverage

The Philippine Lemon Law only covers the purchase of “motor vehicles” defined as self-propelled, four-wheeled road vehicles that carry passengers (such as sedans, coupes, station wagons, pickups, vans, sports utility vehicles). Excluded are motorcycles, delivery trucks, buses, bulldozers or forklifts, agricultural traction engines, and the like.

Furthermore, the Philippine Lemon Law does not protect the purchase of second-hand cars. The car must be a “brand-new motor vehicle,” which means it has to be constructed entirely from new parts and covered by a manufacturer’s express warranty that it has never been previously sold or registered, nor operated in the Philippines or any foreign country.

The motor vehicle must have been purchased in the Philippines. Cars purchased abroad and thereafter brought to the Philippines are not covered by the law.

Restrictive Period

Another important aspect to know is when consumers must claim rights under the Philippine Lemon Law. A consumer or purchaser must report any defect or “nonconformity” of the brand new vehicle within 12 months, or the first 20,000 kilometers of operation (both counted from the date of its delivery), whichever comes first. Claims made after this “Lemon Law Rights Period” are not be covered by the law. 

Procedure

How much protection does the Philippine Lemon Law provide and how can a consumer claim such protection? While the Implementing Rules or IRR have yet to be issued, the Philippine Lemon Law lays out the procedure a consumer must follow to seek redress for defective motor vehicles. 

1.  Examine the car. Within the Lemon Law Rights Period, a consumer should determine if there is a defect or nonconformity in the brand new vehicle. “Nonconformity” refers to any defect or condition that substantially impairs the use, value, or safety of a brand-new vehicle which prevents it from conforming to the manufacturer’s or distributor’s standards or specifications. This excludes conditions resulting from noncompliance with the consumer’s obligations under the warranty; modifications not authorized by the manufacturer or distributor; damages caused by abuse or neglect of the motor vehicle, or accident or force majeure (i.e., acts of God like flooding).

2.  Bring the defective car for repair. If there is a defect or nonconformity in the brand new vehicle, the consumer must—during the Lemon Law Rights Period—bring it for repair to the manufacturer, distributor, authorized dealer or retailer (for simplicity, let’s call any of them the “Car Originator”). The repair may include replacement of parts components, or assemblies.

3.  Claim transportation allowance during repair. While the vehicle is under repair, a consumer is entitled to transportation allowance equivalent to the cost of traveling from the consumer’s residence to the regular workplace or destination, and vice versa. The Car Originator has the option of providing this allowance at either the cost of an air-conditioned taxi fare, or an amount agreed upon by the parties, or through a service vehicle. Disagreements on this issue are resolved by the Department of Trade & Industry (DTI).

4. Give written “Notice of Availment.” If the nonconformity issue remains unresolved after at least four separate repair attempts for the same complaint by the same Car Originator, the consumer must notify the Car Originator in writing of the unresolved complaint, and the invocation of rights under the Philippine Lemon Law within the Lemon Law Rights Period (the law refers to this as the “Notice of Availment” or “Notice of Nonconformity”). The consumer must make reference to the Car Originator’s warranty booklet which is supposed to clearly state the responsibility of the consumer, and the manner and form of the “written notice” to make it valid and legal. The wording of the law seems to imply that a Car Originator may refuse to honor a Notice of Availment if it does not comply with the manner and form stated in the warranty booklet. 

Note that if the defect based on the same complaint persists, consumers must return the vehicle within 30 calendar days from the date the consumer is notified of the motor vehicle’s release following a repair attempt. Otherwise, the repair is deemed successful.

5.  Bring the car for a final attempt to fix. After giving the Notice of Availment, the consumer must bring the vehicle to the Car Originator from where it was purchased for a final attempt to address the complaint to the satisfaction of the consumer. The Car Originator has the duty to address the complaints including making the repairs and/or undertaking actions to make the vehicle conform to the vehicle’s standards or specifications.

6.  File a complaint. The consumer may file a complaint with the DTI if the nonconformity issue remains unresolved despite the Car Originator’s efforts to repair the vehicle (which should be at least five times—four separate attempts dealing with the same defect, and one final attempt after the Notice of Availment is given). Consumers cannot go to the regular courts to file a complaint because the DTI has exclusive and original jurisdiction for claims or disputes arising under the Philippine Lemon Law. An advantage of filing the complaint with the DTI is that it uses dispute resolution mechanisms designed to be faster than litigation—i.e., mediation or adjudication (which is required to be settled within 10 working days or 20 working days, respectively, from filing of complaint), or arbitration.

Remedies

If the DTI finds that the vehicle is defective or nonconforming, the Car Originator may be required to: (1) replace the motor vehicle with a similar or comparable motor vehicle, subject to availability; or (2) accept the return of the motor vehicle and pay the consumer the purchase price plus collateral charges. In both cases, the “reasonable allowance for use” is deducted when determining at which value to peg the nonconforming vehicle.  The deduction is (sorry, this is going to be a little mathematical) the lower of either—20 percent per annum of the purchase price, or the amount arrived after multiplying the distance traveled in kilometers with the purchase price, divided by 100,000 kilometers.

To illustrate, let’s assume the purchase price of the vehicle is P1.2 million; the consumer’s rights were exercised within the Lemon Law Rights Period of one year and the distance travelled by the nonconforming vehicle was 15,000 kms. The “reasonable allowance for use” would be P180,000 (15,000km x P1.2 Million/100,000km) because this amount is lower than P240,000 (20% per annum of P1.2 Million). Thus, the consumer who returns the defective vehicle can get a refund of P1,020,000 (net amount after the reasonable allowance for use was deducted).

Decisions of the DTI Adjudication Officer may be appealed to the DTI Secretary, and thereafter to the Court of Appeals. 

Costs of the proceedings are shared by the consumer and the Car Originator.  However, if the DTI does not find any defect or nonconformity in the vehicle, the consumer must reimburse the Car Originator for costs incurred in the proceedings.

Notwithstanding the Philippine Lemon Law, consumers may also claim other remedies available to them under other applicable laws such as the Philippine Civil Code.

Protection of Other Buyers

If the defective vehicle is returned and made available for resale, the Car Originator is required to disclose in writing to the next purchaser of such vehicle: (1) that it was returned, (2) the defect or nonconformity which caused the return, and (3) the vehicle’s condition at the time of its transfer or return. Failure to give or properly make this disclosure would make the Car Originator liable to the next purchaser for damages (minimum of P100,000) without prejudice to civil or criminal liabilities under other laws.

Is the law sufficient?

Like any other law, the protection afforded by the Philippine Lemon Law to consumers is only as good as the manner of, and mechanisms for, its implementation. There must be measures to address and guard against the problem of asymmetrical information (i.e., the Car Originator, compared to the consumer, is in a better position to know the defects and quality of the vehicle). Lemon laws in other countries establish easily accessible electronic systems to flag “lemon” cars. Hopefully, the Philippine Lemon Law’s IRR can ensure that practical procedures and useful mechanisms are put in place especially for consumers who are not car savvy or faced with latent defects. For instance, accessible tools or services enabling consumers to verify the success of repairs may be needed considering the cut-off triggered by the expiration of the Lemon Law Rights Period.  After all—taking after the proverbial phrase—a consumer can only “make lemonade” if he knows for certain that life has given him “lemons.”

Karen Jimeno is a junior partner at Jimeno Cope & David Law Firm and a law professor in various law schools. She is also a TV host for LegalHD at Solar News Channel. She graduated from UP Law School and Harvard Law School and is licensed to practice law in the Philippines and in New York. She is currently the Director for Communications & External Affairs of the Presidential Assistant for Rehabilitation & Recovery of Yolanda-affected areas.