Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City

FIFTEENTH CONGRESS
First Regular Session

4295

HOUSE BILL NO.,

Introduced by: Representative AUGUSTO Boboy SYJUCO, Ph.D,

EXPLANATORY NOTE

This bill secks to provide protection for consumers against the fraudulent
sale of defective motor vehicles machineries and appliances and breach of
warranties by its seller or manufacturer.

‘There have been reported cases of newly purchased motor vehicle proving
10 be defective or failing to meet standards of quality and performance guaranteed
by its seller or manufacturer. Unfortunately, there is no “Lemon Law” in the
Philippines. In the United States, the “Lemon Law” provides full protection to
consumers against sales and trade practices of sellers or manufacturers of motor
vehicles which are deceptive, unfair or otherwise inimical to consumers and the
public interest. With the proposed “Lemon Law” protection is provided not only
to buyers of motor vehicles but it also protects the right of buyers of machineries
and appliances

Under the proposed measure, if the seller or the manufacturer fails to repair
a new motor vehicle machinery or appliance to meet the terms of an express
written warranty, after reasonable notice and atternpts, the manufacturer shall be
required to replace the vehicle machinery or appliance with a new one of the same
kind and vatue, or return the purchase price to the buyer, at the option of the latter.
The manufacturer shall also be responsible to pay for sales or license, registration
and other official fees including incidental damages that the buyer or lessee may
have incurred due to the breach of warranty.

This measure intends to provide the same protection to consumers in the
Philippines against breach of warranties of motor vehicle machinery and appliance
sellers or manufacturers. . This bill will also ensure that the consumers will get the
full value of their hard earned money or investment when buying a new motor
vehicle machinery or appliance.

In view of the foregoing, approval of this bill is urgently recommended.

rt

AUGUSTO BOBOY SYJUCO, Ph.D.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City
FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 4295

Introduced by: Representative AUGUSTO Boboy SYJUCO, Ph.D.

AN ACT
PROTECTING CONSUMERS AGAINST THE SALE OF DEFECTIVE MOTOR
VEHICLE, MACHINERIES AND APPLIANCES USUALLY SOLD TO
COMMON CONSUMERS AND IMPOSING PENALTIES FOR VIOLATION
THEREOF

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

SECTION 1. Short Title. — This Act shall be known as the “Philippine
Lemon Law.”

SEC.2. Declaration of Policy. —It is hereby declared the policy of the State
to promote consumer rights and provide full protection to buyers of motor vehicles,
machineries and appliances usually sold to common consumers against trade practices of
sellers or manufacturers. which are inimical to the economy and the public interest.

SEC.3. Definition of Terms. — As used in this Act:

a) Common Consumer refers to the purchaser, other than for purposes of
resale, of a motor vehicles, machineries and appliances which is used primarily for
personal, family, or household purposes, and any person to whom the motor vehicle,
machineries or appliance is transferred for the same purposes during the duration of any
warranty applicable to the the item bought, and any other person entitled by the terms of
such warranty to enforce the obligations of the warranty;

b} Manufacturer refers to a person, partnership, association, corporation or
entity engaged in the business of manufacturing or assembling motor vehicles,
machineries or appliances or of distributing motor vehicles, machineries and appliances
to sellers;

c) Express warranty refers to the written warranty of the manufacturer of a
new motor vehicle, machinery or appliance: including any terms or conditions precedent
to the enforcement of obligations under that warranty;

d) Motor vehicle refers to passenger cars, pick-up or panel -trucks, sports
utility vehicles, Asian utility vehicles, vans, motorcycles, and demonstrators or lease
purchase vehicles which was subject.to a manufacturer’s express warranty at the time of
the delivery and was purchased and registered in the Philippines;


2
©)  Machineries-devise designed to yield a high mechanical advantage to reduce the
effort needed to do that work.

f)  Appliances- A device or instrument designed to perform a specific function,
especially an electrical device usually used within the household

g) Seller refers to any person other than a manufacturer which sells motor
vehicles, machineries or appliances to the public. It includes manufacturers’ authorized
dealer, retailer, distributor or agent;

h) — Collateral charges refer to sales-related charges including but not limited to
sales tax, license fees, finance charges and interest, transportation charges, dealer
preparation charges or any other charges for service contracts, undergoing rust-proofing
or installed options, not recoverable from a third party;

i) Comparable motor vehicle/machinery/appliance refers to a, motor vehicle
or machinery or appliance that is identical or reasonably equivalent to the motor vehicle
or machinery or appliance to be replaced, in terms of specifications and value;

j) Non-conformity refers to a failure to conform to a warranty, a defect or a
condition, including those that do not affect the driveability of the vehicle or the
operation of machinery or the appliance but significantly impairs the use, market value,
or safety of a motor vehicle;

k) Notification means a written complaint of the defect or defects
communicated to the manufacturer who has responded to the consumer in writing
regarding said complaint, or that a representative of the manufacturer or seller has either
inspected the vehicle or machinery or the appliance or met with the consumer
regarding the non-conformity;

1) Reasonable allowance for use refers to 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), whichever is higher;
and

k) Warranty refers to any undertaking, written or otherwise, of the
manufacturer, or any affirmations of fact or promise made by the manufacturer in
connection with the sale of a motor vehicle/machinery or appliance that become part of
the basis of the bargain which includes the obligations of the manufacturer in relation to
materials, workmanship, and fitness of a motor vehicle/machinery/appliance for
ordinary use or reasonable intended purposes throughout the duration of the lemon law
rights period as defined in this section.

SEC. 4. Lemon Law Rights Period, — The period ending twenty four (24)
months after the date of original delivery of a brand new motor vehicle to a consumer or
the first ten (10) thousand kilometers of operation after such delivery, whichever comes
first, during which the consumer can report any non-conformity to the standards and
specifications of the manufacturer or seller, and pursue any right provided for under this
Act. In the case of machineries, the period of 24 months after the date of original
delivery, the consumer may pursue any right under this Act. Consumers who bought
appliances shal} have 6 months from the date of purchase to pursue their rights under
this Act.

SEC. 5. Conformity to Warranties. — \€ a new motor vehicle or machinery
does not conform to all express warranties, and the consumer reports the non-conformity
within the Jemon rights period, the seller shall make such repairs within seven (7) days
after the receipt of the written notice to correct the defect or the non-conformity. The
repair shall be free of any charges against the consumer, notwithstanding the fact that


3
such repairs are made after the expiration of the manufacturer’s or seller’s warranty
period. In the case of purchasers of appliances, if the appliance prove to be defective
within one month after purchase, the seller is required to replace the same with a similar
appliance. Any defect of the appliance on the succeding months but not longer than six
months, repair of which shall be made by the seller without cost.

SEC. 6. Lemon Law Rights. ~ If the seller does not repair the defect within
the seven (7) day period despite receipt of the notification, the consumer may forward a
written notice of refusal or failure to correct the non-conformity to the manufacturer.
The manufacturer shall repair the non-conformity within twenty (20) days.

if the manufacturer fails to repair the non-conformity within the twenty (20) day
period or afier a reasonable number of attempts, the manufacturer or seller shall:

a) Replace the motor vehicle or machinery with a comparable motor vehicle or
machinery; or

b) Accept the rewum of the motor vehicle or machinery and refund to the
consumer and any lien holder as their interest may appear the full purchase price,
including all collateral charges, incidental charges, incidental damages, less reasonable
allowance for use of the vehicle up to the date of the first notice of non-conformity that
is given to the manufacturer or seller.

The consumer shall have the unconditional right to choose 2 refund rather than a
replacement vehicle or machinery and to drive a motor service vehicle or temporary
replacement to be used in cases of machinery which shall be provided by the
manufacturer, until he receives either a replacement or a refund. The subtraction of a
reasonable allowance for the use of the vehicle in excess of the first five thousand
Kilometers of operation shail apply to either a replacement or refund of the motor
vehicle. Mileage, expenses, and reasonable loss of use necessitated by attempts to
conform such motor vehicle to the express warranty may be recovered by the consumer.

Four (4) attempts to repair the same defect shall be presumed to be reasonable.

In the case of appliances if there be failure to replace or repair the defective
appliance, after due notice to the seller, the consumer may right away file complaint
with the Department of Trade and Industry.

Any disagreement on this matter shall be resolved by the Department of Trade and
Industry (DTD.

SEC. 7. Notification Requirement. — Prior to availing himself of the rights
under the preceding section, it shall be the responsibility of the consumer or his
representative to notify the manufacturer or seller in writing of the need for the
correction or repair of the non-conformity and ensure that the same is properly received
by the latter. If the seller was the one notified, the latter shall, upon receipt, forward a
copy of such notification to the manufacturer.

SEC. 8. Remedies. - Any consumer who suffers loss by reason of a violation
of any provision of this Act may file a complaint before the Department of Trade and
Industry (DTI) for mediation proceedings as provided for in this Act.

Nothing in this Act shall be construed to limit or impair the rights and remedies of
a consumer under any other law.

SEC. 9. 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:


‘

2) Mediation Proceedings. — Prior to litigation, the parties shall be required to
undergo mediation proceedings under the Bureau of Trade Regulation and Consumer
Protection and the Consumer Welfare and Trade Regulation Group or any office under
DTI as may be designated by the Secretary of the Department of Trade and Industry
which has the necessary capability and expertise pertaining to motor vehicles.

Within six (6) months after the effectivity of this Act, the offices above mentioned
are mandated to draft and promulgate its rules and procedures for said mediation
proceedings. The rules shall incorporate an evaluation by the experts of the government
on any technical issues, which shall be considered with finality.

The principles of negotiation, conciliation and mediation towards amicable
settlement between the manufacturer or seller and the consumer shall be strictly
observed.

In the course of its dispute resolution efforts, the DTI shall endeavor to
independently establish the validity of the outstanding complaint of the consumer. The
DTI shall likewise retain the services of other government agencies or independent
private entities in the ascertainment of the validity of the complaint. Any cost incurred in
establishing the validity of the complaint shall be borne jointly by the consumer and the
manufacturer.

The complaint shall be deemed valid if it is independently established that the
vehicle does not conform to the standards or specifications set by the manufacturer.

Upon failure of the negotiation or mediation between the manufacturer and the
consumer, the DTI shall issue a certificate attesting to such failure and, at any time
during the dispute resolution period, the manufacturer or seller and the consumer shall
be encouraged to settle amicably.

All disputes that have been submitted for mediation shail be settled not tater than.
forty-five (45) working days from the date of filing of thé complaint with the DTI.

In case a non-conformity of the vehicle is not found by the DTI, it shail rule in
favor of the manufacturer and direct the consumer to reimburse the manufacturer the
costs incurred by the Jatter in validating the complaints.

(0) Arbitration proceedings. — In the event there is a failure to settle the
complaint during the mediation proceedings, the parties may voluntarily enter into
arbitration proceedings which shall be governed by Republic Act (RA) No. 876,
otherwise known as. “The Arbitration Law” and Republic Act (RA) No. 9285,
otherwise known as “The Alternative Dispute Resolution Act of 2004.”

The arbitral tribunal which shall be constituted to settle the dispute arising from
the provisions of this Act shal] have a representative from DTI, as member.

The parties are free to agree on the place of arbitration. Failing such agreement,
the place of arbitration shall be in Metro Manila, unless the arbitral tribunal, having
regard to the circumstances of the case, including the convenience of the parties, shall
decide on a different place of arbitration.

The arbitral tribunal may, unless otherwise agreed by the parties, meet at any
place it considers appropriate for consultation among its members, for hearing
witnesses, experts, or the parties, or for inspection of goods, properties or documents.

SEC. 10. Defenses. — The manufacturer or any other person against whom an
action is brought may deny liability by raising the following affirmative defenses:

a) The alleged non-conformity, defect or condition does not substantially impair
its value neither there is a significant impairment or is a serious safety defect as defined
under this Act; and


3

b) The non-conformity is the result of abuse, neglect, or unauthorized
modification or alteration of a motor vehicle by a consumer.

SEC. 11. Court Action. ~ At any time after the mediation proceedings, the
consumer may elect to voluntarily submit to arbitration proceedings or bring an action
with the court to enforce the provisions of this Act.

SEC. 12. Award of Damages. — In any action brought by the consumer due to
the failure of the manufacturer to comply with the decision rendered in a dispute
resolution proceeding or court. order, the consumer shall have the right to recover
attorneys fees, moral and exemplary damages, and other equitable relief as the court
may deems appropriate.

SEC. 13. Prescriptive Period. - Any action brought to enforce the provisions
of this Act shall be commenced within four (4) years from the date of the original
delivery of the motor vehicle to’ the consumer.

SEC. 14, Disclosure on Resale or Transfer of Vehicles or Machinery. — Uf a
motor vehicle or machinery that is retumed to the manufacturer or distributor either
under this Act or by judgment, decreé or award is then transferred to a dealer, the
manofacturer or distributor shall disclose this information to the dealer prior to any sale,
lease, or transfer. The manufacturer or distributor shall disclose the same to the Land
Transportation Office (LTO) which shall then inscribe the ownership certificate with
notation “Lemon Buyback” and affix a decal to the vehicle if the manufacturer knew or
should have known that the vehicle is required by law to be replaced or accepted for
restitution due to failure to comply with warranties.

SEC. 15, Yax Refund, ~ The manufacturer who accepts a returned motor vehicle,
machinery and appliance shall be entitled to a tax refund or credit for the sales taxes paid’
on the returned vehicle: Provided, That the claim for the tax refund or credit was made
in accordance with the provisions of applicable tax laws.

SEC. 16. Prohibitions. - Any motor vehicle/: machinery or appliance
manufacturer or seller or lien-holder who reacquires, or assists in reacquiring a motor
vehicle or machinery or appliance whether by judgment, decree, arbitration award,
settlement agreement, or voluntary agreement, is prohibited from:

a) Requiring as a condition of the reacquisition of the motor vehicle, machinery
or appliance that a buyer or lessee who is a resident of the Philippines agrees not to
disclose the problems with the vehicle experienced by the buyer or lessee or the non-
financial terms of the reacquisition; and

2) Including in any release or other agreement, whether prepared by the
manufacturer, seller or lien-holder for signature by the buyer or lessee, a confidentiality
clause, gag clause, or similar clauses prohibiting the buyer or lessee from disclosing
information to anyone about the problems with the vehicle, or the non-financial terms of
the reacquisition of the vehicle by the manufacturer or seller.

Any confidentiality clause, gag clause, or similar clauses in such a release or other
agreement in violation of this section shall be null and void.

Nothing in this section is intended to prevent any confidentiality clause, gag
clauses, or similar clause regarding the financial terms of the reacquisition of the
vehicle.

SEC.17. Consumer Waiver of Rights. — Any agreement entered into by a
consumer for the purchase of a new motor vehicle/machinery or appliance which
waives, limits or disclaims the rights set forth in this Act shall be void as contrary to
public policy. Said rights shall inure to a subsequent transferee of such motor vehicle.


6
SEC. 18. Lemon Law Rights Notice. — Any motor vehicle machinery or appliance
seller, manufacturer, agent or authorized dealer shall notify its buyers of the lemon law
rights provided under Section 6 of this Act and shall post a written notice of these rights
printed in bold face type, and displayed in conspicuous places in its sales offices.

SEC. 19, Penatties. — Any person found guilty of violating any of the
provisions of this Act shall be penalized with a fine of not less than One hundred
thousand pesos {P100,000.00) in the case of motor vehicles and machineries and in the
case of appliances the fine equivalent to fifty percent (50%) of the original price of the
said appliance.

The foregoing penalty shall be without prejudice to any civil or criminal liability
that the offender or the responsible officers of the manufacturer, agent or authorized
dealer may incur under existing law. If the offender is an alien, he shall be deported
after payment of fine without further deportation proceedings.

In case the offender is a naturalized citizen, he shall, in addition to the penalty
prescribed herein, suffer the penalty of cancellation of his naturalization certificate and
its registration in the civil registrar and immediate deportation after payment of fine.

Any director, officer, agent of a corporation who shall authorize, order or perform
any of the acts or practices constituting in whole or in part a violation of the preceding
section, and who has knowledge or notice of non-compliance received by the
corporation from the concerned department, shall be subject to penalties to which that
corporation may be subject. .

In case the violation is committed by, or in the interest of a foreign juridical
person duly licensed to engage in business in the Philippines, such license to engage in
business in the Philippines shall immediately be revoked.

SEC. 20. Assistance by Other Agencies, - The Land Transportation Office,
Bureau of Internal Revenue and other government agencies, political subdivisions and.
local government units, including government-owned and controlled corporations, shall
render such assistance as required by the DTI in order to effectively implement the
provisions of this Act.

SEC. 21. Implementing Agency. - The Secretary of Trade and Industry shall
promulgate the necessary implementing rules and regulations within ninety (90) days
from the effectivity of this Act.

SEC. 22. Repeating Clause, — All laws, decrees, executive orders, issuances,
rules or regulations or parts thereof, which are inconsistent with the provisions of this
Act, are hereby deemed repealed, amended or modified accordingly.

SEC. 23.  Separability Clause. — If any provision or part of this Act is declared
invalid or unconstitutional, the remaining parts or provisions not affected shall remain in
full force and effect.

SEC. 24. Effectivity. - This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in two (2) national newspapers: of general
circulation,

Approved,