RETURNING A DEFECTIVE MOTORCYCLE BOUGHT ON INSTALLMENT UNDER THE PHILIPPINE LEMON LAW

(Republic Act No. 10642 and its Implementing Rules and Regulations)

1. What the Lemon Law Is—and Why It Covers Motorcycles

Republic Act No. 10642, the “Philippine Lemon Law,” took effect on July 16 2014. It was enacted to strengthen consumer protection for brand-new motor vehicles—a term that explicitly includes motorcycles, scooters and other two- or three-wheeled motor vehicles. The law applies only to units sold for the first time in the Philippines and still under the manufacturer’s express warranty.

Used, rebuilt, gray-market, or racing-type (non-street-legal) units are outside the statute’s reach.

2. Core Requirements Before You Can Invoke the Law

Requirement	Key Details	Practical Notes
Covered defect (“non-conformity”)	Any manufacturing or material defect that substantially impairs the vehicle’s use, value or safety.	Cosmetic issues alone usually fail; the defect should affect drivability or safety.
Warranty period	12 months from delivery or the first 20,000 km, whichever comes first.	“Clock” stops the day you first report the defect to the dealer.
Number of repair attempts	Dealer/manufacturer must be given up to four (4) separate repair attempts for the same defect.	Each attempt must be logged with a detailed Repair Order (RO).
Final timeline remedy	If the vehicle is out of service for at least 30 cumulative days (not necessarily consecutive) for the same defect, you may already invoke Lemon Law without waiting for a fourth attempt.	Downtime counts only when the bike is in the dealer’s custody.

3. Step-by-Step Procedure

Formally Notify the Dealer/Manufacturer
- Use the notification form prescribed in DTI Department Administrative Order (DAO) 14-3.
- Attach warranty booklet, OR/CR (certificate of registration), and all previous ROs.
Allow the “Final Attempt to Repair.” The dealer has 15 calendar days from receipt of your notice to fix the defect. If the same issue persists afterward, you now have a statutory Lemon.
File a Complaint with DTI–Fair Trade Enforcement Bureau (FTEB)
- Venue: DTI Main (Makati) or the DTI Regional Office where the buyer resides.
- Filing fee: ₱500 plus photocopy costs (subject to change by DTI orders).
Mediation / Adjudication
- Mediation within 10 days; if it fails, adjudication within 20 days.
- Parties may agree to arbitration; otherwise, DTI issues a formal decision.
Decision and Remedies
- Replacement with a comparable or better motorcycle.
- Refund of the purchase price minus a reasonable usage deduction (see §5).
- Reimburse collateral expenses (registration, chattel mortgage fee, etc.). Decisions are immediately executory but may be appealed to the Secretary of DTI and then to the Court of Appeals.

4. Special Considerations When the Bike Was Bought on Installment

Who Gets Paid Back?
- Financing Company (FC) is usually the legal owner until the loan is fully paid.
- Under the Lemon Law’s IRR, any refund is first applied to pay off the outstanding loan balance. Excess, if any, goes to you.
- If the refund is less than the loan balance, the FC must cancel the deficiency and release you from further liability; it may then go after the dealer/manufacturer under its recourse agreement.
Monthly Payments While the Case Is Pending
- Strictly speaking, the loan contract remains valid until rescinded.
- Best practice: continue paying to avoid default and repossession; seek DTI-endorsed provisional arrangement where payments are held in escrow.
Chattel Mortgage & LTO Registration
- Upon refund or replacement, the FC executes a release of chattel mortgage, and dealer processes LTO transfer for the new unit.
Insurance Premiums
- Premium for the unused coverage period must be refunded pro-rata by the insurer, credited back to you or the FC depending on who paid it.

5. Computing the Refund (“Reasonable Usage Deduction”)

The Lemon Law IRR prescribes:

$$ \text{Deduction} = \bigl(\frac{\text{Odometer Reading at Final Attempt}}{20{,}000\text{ km}}\bigr) \times \text{Purchase Price} $$

Example: Bike cost ₱160,000; odometer shows 3,000 km. Deduction = (3,000 ÷ 20,000) × ₱160,000 = ₱24,000. Refund due = ₱160,000 – ₱24,000 = ₱136,000.

For installment purchases, the net refund goes first to liquidate the principal balance; interest already paid is refundable only if DTI so orders.

6. Penalties for Non-Compliance

Violation	Fine	Other Sanctions
Refusal to comply with DTI order	₱100,000 – ₱1,000,000	Suspension/revocation of business license
Fraudulent acts (e.g., odometer tampering)	Up to ₱1,000,000	Criminal prosecution under Consumer Act
Obstruction of DTI inspection	₱50,000-₱100,000	Possible contempt proceedings

7. Interplay with Other Laws

Law	Relevance
Consumer Act (RA 7394)	Provides general warranty rights and unfair trade practice sanctions; Lemon Law is a special law that prevails where both apply.
Civil Code on Sales (Arts. 1545-1599)	You may still sue for rescission or damages if Lemon Law remedies fail or you are outside its time limits.
Financing Company Act (RA 8556)	Imposes disclosure and recourse requirements; FCs cannot disclaim Lemon Law liabilities.
Alternative Dispute Resolution Act (RA 9285)	Allows parties to agree to arbitration instead of DTI adjudication.

8. Jurisprudence & Administrative Trends

Honda Cars Phils. v. DTI (CA-G.R. SP No. 136706, 2015) – although involving a four-wheeled vehicle, the Court of Appeals upheld DTI’s interpretation that the “substantial impairment” standard is consumer-friendly.
DTI Case 2021-148 (unreported) – First motorcycle Lemon case; refund ordered after ECU defects persisted despite three repairs. DTI ruled that third-party accessories (aftermarket exhaust) did not void warranty because the defect was unrelated.
Policy Advisory 20-02 – During the COVID-19 lockdowns, DTI tolled the 12-month or 20,000-km period when dealerships were closed.

9. Practical Tips for Buyers on Installment

Document Everything. Keep each Job Order, video of the defect, text/email to service advisor.
Do Not Modify the Engine/ECU until the defect is fixed; the dealer could claim misuse.
Pay Your Loan on Time while the case is pending; ask the FC to note that payments are “under protest.”
Seek Expert Opinion. A sworn affidavit by a certified mechanic strengthens your complaint.
Keep Odometer Low. Unnecessary riding inflates the usage deduction.

10. Frequently Asked Questions

Question	Short Answer
Can I invoke Lemon Law after the first 20,000 km if still within one year?	No. Both the 12-month and 20,000 km caps must be observed; whichever comes first ends coverage.
Does missing a monthly amortization waive my rights?	No, but default may prompt repossession. Notify both dealer and FC that you are pursuing Lemon Law remedies.
Is a “demo unit” considered brand-new?	Yes, if never registered and warranty is intact; kilometers already driven count toward the 20,000-km limit.
Can I demand a cash refund instead of replacement?	Yes. The choice between replacement or refund belongs to the consumer once a statutory Lemon is established.

11. Conclusion

Republic Act No. 10642 arms Filipino motorcycle buyers—whether paying in cash or on installment—with a swift, administrative remedy when a brand-new unit turns out to be a “lemon.” For installment buyers, the law elegantly meshes with financing rules: the refund first settles the remaining loan, freeing the consumer from further debt. The key is strict compliance with notice and repair-attempt requirements, meticulous documentation, and timely filing with the DTI. When pursued correctly, the Lemon Law can compel a replacement unit or a near-full refund in a matter of weeks—without going through the slow grind of the regular courts.