G.R. No. 240047 - Authority of the Freeport Area of Bataan vs. F.F. Cruz and Co., Inc.

Case Summary (G.R. No. 240047)

Statutory and Historical Setting of the Reserved Lands

On June 21, 1969, Republic Act (R.A.) No. 5490 was enacted, establishing Mariveles, Bataan as a principal port of entry and Foreign Trade Zone under the management of the Foreign Trade Zone Authority (FTZA). On August 31, 1971, former President Ferdinand E. Marcos issued Proclamation No. 899, reserving parcels of land in Mariveles, Bataan, with an area of approximately 497.034 hectares, for quarry site purposes under the Foreign Trade Zone. On December 10, 1971, Proclamation No. 939 reserved additional parcels totaling approximately 267.69 hectares for Foreign Trade Zone purposes.

On November 20, 1972, Presidential Decree (P.D.) No. 66 created the Export Processing Zone Authority (EPZA), which took over FTZA’s functions and assumed ownership over its properties, monies, assets, rights, contracts, and obligations. EPZA was eventually converted into the Philippine Economic Zone Authority (PEZA) through R.A. No. 7916, the “Special Economic Zone Act of 1995.” Later, Executive Order No. 282 ordered PEZA to assume EPZA’s powers and take over funds and property records and assets under its control.

On July 27, 2009, R.A. No. 9728, the “Freeport Area of Bataan, Act of 2009,” was enacted, converting the Bataan Economic Zone into the FAB. The law created the Authority of the Freeport Area of Bataan (AFAB) to manage and operate the FAB, and transferred to AFAB all properties, assets, funds, rights, obligations, and liabilities of PEZA in the Bataan Economic Zone. AFAB then began transferring titles over real properties owned by PEZA to AFAB’s name.

Discovery of the Subject Properties and AFAB’s Amended Complaint

In surveying and inspecting the properties it received from PEZA, AFAB discovered that several parcels reserved under Proclamation Nos. 899 and 939 were erroneously registered under FFCCI’s name. AFAB identified the parcels through the following TCTs issued in FFCCI’s name: TCT No. T-144045, with an area of approximately 31,353 sq. m.; TCT No. T-144046, with an area of approximately 10,000 sq. m.; TCT No. T-144047, with an area of approximately 50,007 sq. m.; TCT No. T-144225, with an area of approximately 39,997 sq. m.; and TCT No. T-144226, with an area of approximately 20,000 sq. m. AFAB alleged that these titles derived from OCT 234, issued on 28 December 1972.

AFAB’s theory was that Proclamation Nos. 899 and 939 effectively withdrew the reserved lands from disposition. AFAB asserted that the lands covered by OCT 234 were already inalienable and indisposable at the time of OCT 234’s issuance in 1972, making the subsequent title null and void. It further maintained that even if FFCCI were treated as a successor in interest, FFCCI could not acquire a better right than its predecessor. Based on these allegations, AFAB filed an Amended Complaint for Declaration of Nullity and Cancellation of Title, praying for: the nullification of OCT 234 and the corresponding TCTs; the reconveyance and surrender of possession of the subject properties to AFAB; the cancellation of the questioned TCTs; and other equitable relief.

FFCCI’s Motion to Dismiss and the Parties’ Positions

Instead of filing an Answer, FFCCI filed a Motion to Dismiss, arguing principally that the Amended Complaint failed to state a cause of action because AFAB supposedly did not identify a clear legal right and corresponding obligation; the action was allegedly in the nature of expropriation which AFAB allegedly was not empowered to undertake; FFCCI supposedly was a buyer in good faith protected by the Torrens system because its title was allegedly indefeasible; it raised defenses of res judicata and the conclusive evidentiary effect of a Torrens title; it asserted that the action was barred by prescription and laches; and it questioned the sufficiency of the filing fees.

AFAB opposed the motion. It maintained that the Amended Complaint sufficiently alleged ultimate facts and demarcated AFAB’s territory by attaching copies of Proclamation Nos. 899 and 939. It argued that the case was not expropriation because the properties involved were lands of the public domain reserved for the FAB. It also contended that FFCCI could not claim the protection extended to purchasers in good faith when the land involved belonged to the public domain. AFAB further argued that prescription and laches did not lie against the State and that as a government instrumentality, it was exempt from paying legal fees pursuant to Section 22, Rule 141 of the Rules of Court.

In reply and rejoinder, FFCCI insisted that AFAB failed to provide adequate technical descriptions and boundary delineations for the reserved parcels, and reiterated that AFAB allegedly lacked standing because the proper party for reversion was the State represented by the Office of the Solicitor General (OSG). AFAB responded that technical details were evidentiary matters not required to be alleged in full, that the Subject Properties belonged to AFAB under R.A. No. 9728, and that AFAB was the real party in interest. AFAB also argued that FFCCI violated the Omnibus Motion Rule by raising new arguments in its Reply.

RTC’s Ruling: Denial of the Motion to Dismiss

The RTC, in an Order dated December 21, 2015, denied FFCCI’s Motion to Dismiss. The RTC held that the Amended Complaint sufficiently stated a cause of action. It ruled that FFCCI’s contention that AFAB failed to clearly identify territorial boundaries involved evidentiary matters best left for trial. The RTC further found that the case was not expropriation and that the theory of buyer in good faith could not shield FFCCI where the lands involved were allegedly inalienable lands of the public domain owned by AFAB.

On the issue of res judicata, the RTC held that the prior court which ordered the issuance of OCT 234 lacked jurisdiction to issue such order, and therefore FFCCI’s res judicata defense could not stand. It likewise ruled that prescription could not lie against the State.

FFCCI moved for reconsideration. In an Order dated March 30, 2016, the RTC denied reconsideration, treating FFCCI’s arguments as a rehash of matters already passed upon.

CA Proceedings: Certiorari and the Reversal Through the Amended Decision

FFCCI filed a petition for certiorari with the CA. In its petition, FFCCI argued, among others, that: the hypothetical admission rule applies only to factual allegations; the RTC erroneously accepted allegations about inalienability and indisposability as hypothetical admissions; the Amended Complaint’s description of the subject parcels was unidentifiable and immeasurable because technical descriptions and boundary records were allegedly insufficient; the complaint allegedly failed to establish AFAB’s right because it allegedly did not allege that FFCCI’s properties were within AFAB’s parcels or encroached upon them; the complaint allegedly alleged only contiguity, which did not establish a right based on law or contract; res judicata applied because titles issued pursuant to a judicial decision allegedly cannot be collaterally attacked; and the action to annul judgment was allegedly prescribed.

The CA first denied FFCCI’s petition in a Decision dated July 7, 2017, affirming the RTC Orders. The CA held that technical descriptions were evidentiary matters and that the Amended Complaint sufficiently alleged the ultimate facts necessary for adjudication. It agreed that the RTC erred in hypothetically admitting that the subject properties were inalienable lands of the public domain. However, the CA treated this as an error of judgment beyond the scope of certiorari, reasoning that the parties should proceed to trial to determine their respective rights.

FFCCI then moved for reconsideration. The CA ultimately granted it and issued an Amended Decision dated June 7, 2018. The CA reversed its earlier decision and ordered dismissal of AFAB’s Amended Complaint. The CA’s summarized grounds included the following: the complaint allegedly failed to state a cause of action; the RTC allegedly lacked jurisdiction because the prayer to nullify OCT 234 allegedly required nullification of a prior RTC decision, which the CA treated as within the CA’s proper jurisdiction; and the Amended Complaint, though denominated as one for nullification of title, allegedly sought reversion of privately held land to inalienable land of the public domain—an action that the CA viewed as one properly brought only by the State through the OSG.

Issues Before the Supreme Court

AFAB raised several issues, essentially asking the Supreme Court to determine whether: the CA erred in granting certiorari and setting aside the RTC rulings; the CA gravely erred in amending a decision that had allegedly become final and executory; the CA gravely erred in ruling that the Amended Complaint failed to state a cause of action; the CA erred in deciding issues not raised; the CA erred in treating the RTC action as reversion reserved only to the State and the OSG; and the CA erred in ruling that the RTC lacked jurisdiction.

The core issue the Supreme Court framed was whether the CA committed reversible error in setting aside its previous decision and granting FFCCI’s motion to dismiss.

Supreme Court’s Ruling: Petition Denied; CA Amended Decision Affirmed

The Supreme Court denied AFAB’s petition and affirmed the CA’s Amended Decision. The Court held that an action for reversion is the proper remedy when public land has been fraudulently or unlawfully included in patents or certificates of title, or when unlawful grants are made by mistake or oversight. It anchored this discussion on cases such as Republic v. Guerrero, Republic v. Hachero, and the extension of reversion to similar erroneous governmental grants. The Court reiterated that Section 101 of the Public Land Act provides that all actions for reversion shall be instituted by the Solicitor General (or the officer acting in his stead) in the proper courts, in the name of the Republic.

Applyi

Case Syllabus (G.R. No. 240047)

The case arose from a petition for review on certiorari seeking to annul and set aside an Amended Decision of the Court of Appeals (CA) in CA-G.R. SP No. 146039.
The CA had initially denied FFCCI’s petition for certiorari and affirmed the Regional Trial Court (RTC) orders denying FFCCI’s Motion to Dismiss.
The CA later granted FFCCI’s Motion for Reconsideration and reversed its earlier ruling by dismissing AFAB’s Amended Complaint.
The Supreme Court denied AFAB’s petition and affirmed the CA’s Amended Decision, while clarifying that dismissal was without prejudice to the proper institution of a reversion case by the State through the Office of the Solicitor General (OSG).

Parties and Procedural Posture

The petitioner was the Authority of the Freeport Area of Bataan (AFAB).
The respondent was F.F. Cruz & Company, Inc. (FFCCI).
The RTC case was Civil Case No. 1066-ML involving AFAB (represented by its Chairman and Administrator, Deogracias G.P. Custodio) versus FFCCI and the Register of Deeds of Balanga, Bataan.
The RTC denied FFCCI’s Motion to Dismiss, and the denial was later upheld in a subsequent RTC order denying FFCCI’s Motion for Reconsideration.
FFCCI then filed a Petition for Certiorari with the CA assailing the RTC orders.
The CA initially denied FFCCI’s petition for certiorari, but on reconsideration the CA dismissed AFAB’s Amended Complaint.
AFAB elevated the matter to the Supreme Court through a petition for review on certiorari under Rule 65 controversy context, focusing on alleged CA errors.

Key Factual Background

The law and executive issuances created and developed the port and foreign trade zone in Mariveles, Bataan through R.A. No. 5490 enacted on June 21, 1969.
Proclamation No. 899 reserved parcels totaling about 497.034 hectares in Mariveles, Bataan for quarry site purposes under the foreign trade zone framework.
Proclamation No. 939 later reserved additional parcels totaling about 267.69 hectares in Mariveles, Bataan for foreign trade zone purposes.
P.D. No. 66 issued on November 20, 1972 created the Export Processing Zone Authority (EPZA), and EPZA took over FTZA functions and properties.
EPZA was converted into PEZA by R.A. No. 7916, and Executive Order No. 282 required PEZA to assume EPZA powers and transfer its funds, assets, and rights.
R.A. No. 9728 enacted on July 27, 2009 converted the Bataan Economic Zone into the Freeport Area of Bataan (FAB) and created AFAB to manage and operate the FAB.
Under AFAB’s mandate, properties and assets of PEZA in the Bataan Economic Zone were transferred to AFAB, and AFAB proceeded to transfer titles over real properties under its name.
During surveying and inspection, AFAB discovered that several parcels reserved under Proclamation Nos. 899 and 939 were erroneously registered under FFCCI’s name.
AFAB identified the subject properties as TCT Nos. T-144045, T-144046, T-144047, T-144225, and T-144226, all issued in FFCCI’s name.
AFAB alleged that these TCTs derived from OCT 234 issued on December 28, 1972.
AFAB claimed that because Proclamation Nos. 899 and 939 effectively withdrew the lands from sale or other disposition, the lands covered by OCT 234 were already inalienable and indisposable, rendering the later issuance void.
AFAB further asserted that FFCCI, as a successor in interest, could not acquire a better title than its predecessor.
AFAB therefore sought judicial relief to declare OCT 234 and the corresponding TCTs null and void, order reconveyance and surrender of possession, and direct the Register of Deeds to cancel FFCCI’s titles.

Claims in the Amended Complaint

AFAB denominated its pleading as an Amended Complaint for Declaration of Nullity and Cancellation of Title.
AFAB anchored its factual theory on the asserted reserved status of the subject parcels under Proclamation Nos. 899 and 939 for foreign trade zone purposes.
AFAB alleged that the reserved lands remained inalienable and outside disposition until released only by presidential fiat or congressional act.
AFAB asserted that the issuance of OCT 234 after the reservation was already void as it covered inalienable land.
AFAB sought cancellation of FFCCI’s TCTs and reconveyance/surrender in favor of AFAB.
AFAB asked for equitable reliefs in addition to cancellation and reconveyance.

FFCCI’s Motion to Dismiss Grounds

FFCCI argued that the Amended Complaint failed to state a cause of action because AFAB supposedly failed to identify its legal right, the obligation violated, and the bases for action.
FFCCI contended that R.A. No. 5490 did not provide clear demarcations to delineate AFAB’s territory, and AFAB allegedly did not ask for reversion of the properties.
FFCCI asserted that the pleading was in substance an expropriation case, which AFAB allegedly lacked authority to undertake.
FFCCI invoked good faith and claimed entitlement to protection under the Torrens system, arguing that its Torrens title was indefeasible.
FFCCI raised res judicata, maintaining that the prior judicial order that produced OCT 234 barred relitigation.
FFCCI argued that the action was barred by prescription and laches.
FFCCI argued that the complaint was defective for not being accompanied by the required filing fees paid in full.
AFAB opposed by asserting that the amended complaint sufficiently alleged the ultimate facts, that the matter concerned public domain reserved lands, and that prescription and laches did not run against the State.

RTC Ruling on Motion to Dismiss

The RTC denied FFCCI’s Motion to Dismiss, holding that AFAB’s Amended Complaint sufficiently stated a cause of action.
The RTC treated AFAB’s alleged failure to clearly delineate territorial boundaries as involving evidentiary matters, not ultimate facts, which should be resolved at trial.
The RTC rejected FFCCI’s expropriation theory on the ground that the subject properties involved inalienable lands of the public domain rather than private lands.
The RTC held that the buyer-in-good-faith protection principle could not apply because the land allegedly involved belonged to the public domain.
The RTC denied FFCCI’s res judicata defense by concluding that the court which ordered the issuance of OCT 234 lacked jurisdiction over the matter.
The RTC also affirmed that prescription could not lie against the State in this context.
The RTC subsequently denied FFCCI’s Motion for Reconsideration, stating that the grounds raised were rehash and found no cogent reason to reverse.

CA Review and Amended Decision

FFCCI filed a Petition for Certiorari with the CA, raising arguments focused on hypothetical admission in motions to dismiss and alleged errors in treating inalienability as hypothetically admitted.
FFCCI argued that the subject matter was unidentifiable due to technical descriptions lacking adequate segregated parcel boundaries and allegedly missing plan records.
FFCCI asserted that AFAB was not the real party in interest because, if the properties were part of the public domain, the action should be reversion which only the State through the OSG may institute.
The CA initially denied FFCCI’s petition, holding that technical descriptions in Proclamation Nos. 899 and 939 were evidentiary matters for trial and that the complaint alleged ultimate facts.
The CA initially agreed that the RTC erred in hypothetically admitting that the subject properties were inalienable and indisposable public domain lands but characterized that as an error of judgment not proper for certiorari.
Upon reconsideration, the CA granted FFCCI’s Motion and dismissed AFAB’s Amended Complaint.
The CA ruled, in substance, that AFAB failed to state a cause of action, that the RTC had no jurisdiction over the case to the extent that it sought nullification of OCT 234, and that the pleading—although styled as title nullification—ultimately sought reversion of privately held land to inalienable land of the public domain.
The CA further held that actions for reversion could be brought onl