Autozentrum Alabang, Inc. vs. Spouses Bernardo

A seller commits a deceptive sales act under Article 50(c) of the Consumer Act of the Philippines when it represents a second-hand or pre-owned vehicle as brand new, new, original, or unused, and such representation may consist not only of words but also of deeds, acts, or silence amounting to suppression of material facts; consequently, the buyer may rescind the contract and demand full refund of the purchase price without deduction for depreciation.

Autozentrum Alabang, Inc., an authorized dealer of BMW vehicles, sold a 2008 BMW 320i sports car to Spouses Bernardo in November 2008 for P2,990,000, representing it as a brand new vehicle. Within less than a year, the vehicle experienced multiple mechanical failures including ABS brake system malfunctions, steering column defects, electrical system failures, air conditioning breakdowns, and fuel tank leaks. During repairs conducted by the service center, it was discovered that one of the tires lacked Running Flat Technology (RFT) which should have been standard for all tires, and the Land Transportation Office (LTO) registration revealed that Autozentrum was the previous registered owner of the vehicle. When confronted, Autozentrum's Aftersales Manager admitted in writing that the vehicle was "certified pre-owned or used," prompting the spouses to file a complaint with the Department of Trade and Industry for violation of the Consumer Act.

• On November 12, 2008, Spouses Bernardo purchased a 2008 BMW 320i sports car from Autozentrum Alabang, Inc. for P2,990,000, believing it to be a brand new vehicle as represented by the dealer.
• On October 12, 2009, the vehicle was brought to BMW Autohaus (service center of Asian Carmakers Corporation) due to malfunctioning ABS brake system and steering column.
• On October 26, 2009, six days after release, the car was returned due to malfunctioning electric warning system and door lock system.
• In March 2010, the vehicle was again brought to BMW Autohaus because the air conditioning unit broke down.
• In September 2010, the car was brought for repairs under an insurance claim for replacement of two front wheels due to damaged wishbone components, during which BMW Autohaus discovered that one rear tire lacked Running Flat Technology (RFT) when all tires should have had this feature.
• On January 13, 2011, the vehicle was brought to ACC due to a leaking fuel tank, which was replaced without cost.
• On January 17 and 26, 2011, Spouses Bernardo sent demand letters to Autozentrum requesting replacement of the car or refund of the purchase price.
• On January 29, 2011, Autozentrum's Aftersales Manager Ron T. Campilan replied via letter admitting that the vehicle was "certified pre-owned or used" and that the legal department was examining the demand.
• On February 24, 2011, Spouses Bernardo filed a complaint with the DTI alleging violations of the Consumer Act.
• In a Supplemental Complaint dated September 23, 2011, the spouses alleged that on June 4, 2011, the car's electrical system and programming control units malfunctioned, and on August 8, 2011, the engine emitted smoke inside the car, after which the vehicle was towed to Autozentrum where it remained in custody.
• Evidence revealed that LTO registration papers showed Autozentrum as the previous owner of the vehicle prior to the sale to the spouses.

• Autozentrum argued that Spouses Bernardo failed to prove the elements of deceit or misrepresentation under Article 50 of RA 7394, contending that there was no fraudulent concealment or false representation regarding the vehicle's condition.
• It claimed that the DTI Hearing Officer gravely abused discretion in ruling that it violated Article 97 of the Consumer Act, asserting that the law and evidence clearly showed no such violation occurred.
• It contended that the DTI gravely abused discretion in finding a violation of Article 50 on deceptive sales acts, arguing that the facts showed no such violation.
• It argued that the DTI exceeded its authority in ordering solely the petitioner to refund the entire purchase price of the vehicle.
• It claimed that assuming arguendo there was a violation, the DTI gravely abused discretion in imposing the amount of penalties.
• It asserted that the DTI Appeals Committee committed error in affirming the decision of the Adjudicating Officer.
• It contended that the Court of Appeals committed error in affirming with modification the DTI resolution and in denying its motion for reconsideration.

• Spouses Bernardo maintained that Autozentrum violated Article 50(b) and (c) in relation to Article 97 of RA 7394 by selling a defective and used car while representing it as brand new.
• They argued that the vehicle's numerous malfunctions within a short period of usage proved it was defective and not brand new.
• They relied on the admission of Autozentrum's Aftersales Manager that the car was pre-owned, the discovery of the non-RFT tire, and the LTO registration showing Autozentrum as the previous owner as conclusive evidence of deceptive sales practices.

• Procedural: N/A
• Substantive Issues:
  • Whether Autozentrum violated Article 97 of the Consumer Act of the Philippines (RA 7394) regarding liability for defective products.
  • Whether Autozentrum violated Article 50(c) of RA 7394 prohibiting deceptive sales acts by representing a second-hand vehicle as brand new.
  • Whether the DTI and Court of Appeals correctly ordered the refund of the full purchase price without deduction for depreciation.
  • Whether the administrative penalties imposed by the DTI were proper and within its authority.

• Procedural: N/A
• Substantive:
  • The Supreme Court held that Autozentrum could not be held liable under Article 97 of RA 7394 because Spouses Bernardo failed to present evidence that Autozentrum was the manufacturer, producer, or importer of the vehicle, or that the defects resulted from design, manufacture, construction, assembly, or presentation of the product.
  • The Court affirmed that Autozentrum violated Article 50(c) of RA 7394 by representing a second-hand or pre-owned vehicle as brand new, new, original, or unused, noting that representation includes not only words but also deeds, acts, or artifacts calculated to mislead, and that suppression of a material fact which a party is bound to disclose is equivalent to false representation.
  • The Court ruled that the DTI correctly imposed rescission of the contract under Article 164(c) of RA 7394 and DTI Department Administrative Order No. 007-06, which creates the obligation to return the price with interest and requires mutual restitution; since Autozentrum already possessed the vehicle since August 8, 2011, it was ordered to return the full purchase value of P2,990,000 without deduction for depreciation.
  • The Court affirmed the administrative fines of P160,000 plus P1,000 for each day of continuing violation as within the DTI's authority under Articles 60 and 164 of RA 7394.
  • The Court modified the decision to impose legal interest of 6% per annum on the refund amount from the finality of the decision until full payment, citing BSP Monetary Board Resolution No. 796, Series of 2013.

• Deceptive Sales Acts under Article 50(c) of RA 7394 — A deceptive act occurs when a seller represents that a consumer product is new, original, or unused when in fact it is in a deteriorated, altered, reconditioned, reclaimed, or second-hand state; representation is not confined to words but may consist of deeds, acts, or artifacts calculated to mislead, and the suppression of a material fact which a party is bound in good faith to disclose is equivalent to a false representation.
• Special Knowledge and Expertise of Administrative Agencies — By reason of the special knowledge and expertise of the DTI over matters falling under its jurisdiction, its findings of fact are generally accorded respect, if not finality, by the Supreme Court when affirmed by the Court of Appeals.
• Rescission of Contract — Rescission creates the obligation to return the things which were the object of the contract together with their fruits, and the price with its interest; it abrogates the contract from its inception and requires mutual restitution of benefits received.
• Strict Liability for Defective Products (Article 97) — Liability attaches only to manufacturers, producers, and importers for defects resulting from design, manufacture, construction, assembly, and erection, and does not extend to mere sellers or dealers who are not shown to be manufacturers.

• "A representation is not confined to words or positive assertions; it may consist as well of deeds, acts or artifacts of a nature calculated to mislead another and thus allow the fraud-feasor to obtain an undue advantage."
• "Failure to reveal a fact which the seller is, in good faith, bound to disclose may generally be classified as a deceptive act due to its inherent capacity to deceive."
• "Suppression of a material fact which a party is bound in good faith to disclose is equivalent to a false representation."
• "By reason of the special knowledge and expertise of the DTI over matters falling under its jurisdiction, it is in a better position to pass judgment on the issues; and its findings of fact in that regard, especially when affirmed by the CA, are generally accorded respect, if not finality, by this Court."

• Guinhawa v. People of the Philippines — Cited for the principle that representation may consist of deeds, acts, or artifacts calculated to mislead, and that suppression of material facts is equivalent to false representation.
• Aowa Electronic Philippines, Inc. v. Department of Trade and Industry — Cited for the doctrine that DTI findings of fact are accorded respect or finality when affirmed by the Court of Appeals.
• Supercars Management & Development Corporation v. Flores — Cited for the principle that rescission abrogates the contract from its inception and requires mutual restitution of benefits received.
• Sps. Eslao vs. Ford Cars Alabang — Referenced by the DTI Appeals Committee for the computation of depreciation in similar consumer protection cases.

• Republic Act No. 7394 (Consumer Act of the Philippines), Article 50 — Defines deceptive sales acts, particularly the prohibition against representing second-hand products as new.
• Republic Act No. 7394, Article 97 — Provides for strict liability of manufacturers, producers, and importers for defective products, held inapplicable to the seller-dealer in this case.
• Republic Act No. 7394, Articles 60 and 164 — Provide the administrative and criminal penalties for deceptive sales acts, including fines and the remedy of rescission.
• Civil Code of the Philippines, Articles 1561 and 1567 — Cited by the Court of Appeals regarding implied warranty against hidden defects and redhibitory action, though the Supreme Court based liability primarily on RA 7394.
• Civil Code of the Philippines, Article 1385 — Defines the effects of rescission, requiring mutual restitution.
• DTI Department Administrative Order No. 007-06 — Reiterates the DTI's power to impose penalties including rescission and administrative fines even if not prayed for.
• BSP Monetary Board Resolution No. 796, Series of 2013 — Establishes the legal interest rate of 6% per annum for loans, forbearances, and judgments in the absence of express contract.