SC affirms CA ruling to refund or replace purchased car with ‘product imperfection’

Published November 14, 2021, 5:40 PM

by Rey Panaligan 

Supreme Court (SC)

The Supreme Court (SC) has ruled that dealers of motor vehicles are liable to refund or replace the unit sold to a buyer if the defects complained of and admitted by the seller could not be fixed within the warranty period due to “product imperfection.”.

In a decision released last Nov. 11, the SC also declared that the two-year prescriptive period for legal action based on violation of Republic Act No. 7394, the Consumer Act of the Philippines, only runs from the expiration of the warranty period agreed upon by the parties in the sale.

With the decision written by Associate Justice Marvic M.V.F. Leonen, the SC affirmed the 2017 ruling of the Court of Appeals (CA) which upheld the orders issued by the adjudication officer and appeals committee of the Department of Trade and Industry (DTI).

On complaint by buyer Alexander Caruncho against Mazda Quezon Avenue, the DTI ordered “to replace the car of another brand new unit or of higher brand with the price difference, if there will be any, to be paid by complainant, or to reimburse the total purchase amount, in case complainant decides to avail of it, less the three (3) year beneficial use of the subject car for reasons of equity.”

Mazda Quezon Avenue was also ordered to pay an administrative fine of P25,000 and additional fine of P1,000 every day of delay until finality of the decision.

On Jan. 12, 2011, Caruncho bought from Mazda Quezon Avenue a brand-new, luxury, mid-sized, top-of-the-line 2011 Mazda 6 sedan. But after only a week from purchasing the car, he noticed a strange knocking and rattling sound from under the vehicle’s hood.

Caruncho brought the car back to the car dealer and sought a refund. His plea was denied and the car dealer assured to fix the problem.

The car dealer’s technicians found defects in the vehicles rack and pinion mechanism. The dealer assured the replacement of the defective parts during the first 1,000-kilometer check-up.

Despite the replacement of the defective part, the knocking and rattling sound still persisted. The defective part was changed five times during the three-year warranty period.

On Feb. 19, 2014, Mazda Quezon Avenue’s service manager and mechanic conducted a vehicle test drive and confirmed that the knocking and rattling sound persisted.

Caruncho then requested full refund of the purchase price and asked for damages. When his requests were denied, he filed a complaint before the DTI on July 31, 2014. The DTI granted his claims in the complaint.

Mazda Quezon Avenue elevated the DTI’s ruling before the CA which rejected the appeal. It brought the issue to the SC.

In its petition, the car dealer told the SC, among other things, that the car’s engine and parts were all within their standard operating specifications during the technical inspection, and the unit was in good running condition; it honored the warranty provisions of the Warranty Information and Maintenance Record; Caruncho’s suit had no basis since what he was complaining of was not a factory defect; and that Caruncho’s legal action had already prescribed since he had been using the vehicle for three years.

In his comment to the petition, Caruncho cited the Consumer Act which provices that “in case of breach of express warranty, the consumer may elect to have the goods repaired or its purchase price refunded by the warrantor….”

He also reiterated the CA’s ruling that “the defective part has been established as an integral part of the vehicle, directly affecting the vehicle’s roadworthiness and making it unfit or inadequate for the purpose for which it was then designed.”

In dismissing the petition and affirming the CA’s decision, the SC said:

“The Court of Appeals correctly sustained Appeals Committee’s (of DTI) conclusion that, based on substantial evidence, the defect was a product imperfection.

“The Vehicle Service History and the Technical Report show that petitioner confirmed that the vehicle had a defective rack and pinion mechanism. Petitioner replaced this part five times, but the problem remained unresolved. The rack and pinion mechanism is an integral part of the vehicle and is used for maneuvering; its defect affected the vehicle’s roadworthiness, making it unfit for its intended use.

As observed by the Appeals Committee, the five replacements would have resolved the problem had it not been a product imperfection. It also did not find proof other than petitioner’s (Mazda Quezon Avenue) bare allegations that the problem did not warrant a refund or replacement of the entire unit

“Petitioner cannot escape liability by referring to its Warranty Information and Maintenance Record provisions, which only require it to maintain and service the vehicle without charge. That it did so does not free it from the operation of and its liability under the Consumer Act. More specifically, the law allows the consumer the remedy of full reimbursement.

“Thus, considering the vehicle’s imperfection, respondent was well within his right to demand the reimbursement of the purchase price. The Consumer Act’s provisions and the remedies it affords consumers are deemed written into contracts without the need for express reference.

“Petitioner likewise insists that respondent’s claim had prescribed because it was filed beyond the two-year prescription period fixed by law. As noted by the Court of Appeals, the vehicle purchase on January 12, 2011 was covered by a three-year warranty, as stated in the Warranty Information and Maintenance Record.

“When respondent discovered the knocking and rattling sound after only a week from the purchase, he immediately complained to petitioner and asked for a refund. Petitioner declined the request and instead assured respondent that the problem would be fixed free of charge.

“The attempts at resolving the vehicle’s problem, including five replacements of the defective parts, spanned a total of three years. It was only after a test drive on Feb. 19, 2014 that petitioner’s manager and mechanic on board confirmed that the problem persisted, prompting respondent to demand a full refund and compensation for consequential losses.

“Respondent cannot be expected to file a complaint within the two-year prescription period fixed by law when petitioner made continuous representations that it would resolve the problem. That respondent chose to use the remedies available in the warranty instead of resorting to filing a claim should not be taken against him.

“Therefore, it is reasonable to reckon the two-year prescriptive period from the end of the three-year warranty period. Only after exhaustion of the remedies under warranty can it be said that the defect was discovered with certainty.

“WHEREFORE, the Petition is DENIED. The Court of Appeals’ April 3, 2017 Decision and July 6, 2017 Resolution in CA-G.R. SP No. 141371 are AFFIRMED. SO ORDERED.”