G.R. No.

L-15113 January 28, 1961

ANTONIO MEDINA, petitioner,
vs.
COLLECTOR OF INTERNAL REEN!E an" T#E CO!RT OF TA$ A%%EAL& respondents.
Eusebio D. Morales for petitioner.
Office of the Solicitor General for respondents.
RE'E&, J.B.L. J.(
Petition to review a decision of the Court of Tax Appeals upholding a tax assessment of the Collector of Internal
Revenue except with respect to the imposition of so-called compromise penalties, which were set aside.
The records show that on or about a! "#, $%&&, petitioning taxpa!er Antonio edina married Antonia
Rodrigue'. (efore $%&), the spouses had neither propert! nor business of their own. *ater, however, petitioner
ac+uired forest, concessions in the municipalities of ,an ariano and Palanan in the Province of Isabela. -rom
$%&) to $%&., the logs cut and removed b! the petitioner from his concessions were sold to different persons in
anila through his agent, ariano /sorio.
,ome time in $%&%, Antonia R. edina, petitioner0s wife, started to engage in business as a lumber dealer, and
up to around $%1", petitioner sold to her almost all the logs produced in his ,an ariano, concession. rs.
edina, In turn, sold in anila the logs bought from her husband through the same agent, ariano /sorio. The
proceeds were, upon instructions from petitioner, either received b! /sorio for petitioner or deposited b! said
agent in petitioner0s current account with the Philippine 2ational (an3.
/n the thesis that the sales made b! petitioner to his wife were null and void pursuant to the provisions of
Article $&%# of the Civil Code of the Philippines 4formerl!, Art. $&1., Civil Code of $..%5, the Collector
considered the sales made b! rs. edina as the petitioner0s original sales taxable under ,ection $.) of the
2ational Internal Revenue Code and, therefore, imposed a tax assessment on petitioner, calling for the pa!ment
of P&,116.1& as deficienc! sales taxes and surcharges from $%&% to $%1". This same assessment of ,eptember
"), $%16 sought also the collection of another sum of P)&6.%& as deficienc! sales tax and surcharge based on
petitioner0s +uarterl! returns from $%&) to $%1".
/n 2ovember 6#, $%16, petitioner protested the assessment7 however, respondent Collector insisted on his
demand. /n 8ul! %, $%1&, petitioner filed a petition for reconsideration revealing for the first time the existence
of an alleged premarital agreement of complete separation of properties between him and his wife, and
contending that the assessment for the !ears $%&) to $%1" had alread! prescribed. After one hearing, the
Conference ,taff of the (ureau of Internal Revenue eliminated the 1#9 fraud penalt! and held that the taxes
assessed against him before $%&. had alread! prescribed. (ased on these findings, the Collector issued a
modified assessment, demanding the pa!ment of onl! P6,6"1.)., computed as follows:
5% tax due on P7,209.83 -1949 P 360.49
5% tax due on 16,945.55 - 1950 847.28
5% tax due on 16,874.52 - 1951 843.75
5% tax due on 11,009.94 - 1952 550.50
TOTAL sales tax due P2,602.0
25% Su!"a#e t"eeon 650.51
S"ot taxes $e %uatel& etuns, 3d 58.52
%uate, 1950
25% Su!"a#e t"eeon 14.63
TOTAL A'O()T due *
!olle!t+,le
P3,325.68
Petitioner again re+uested for reconsideration, but respondent Collector, in his letter of April &, $%11, denied the
same.
Petitioner appealed to the Court of Tax Appeals, which rendered ;udgment as aforesaid. The Court0s decision
was based on two main findings, namel!, 4a5 that there was no premarital agreement of absolute separation of
propert! between the edina spouse7 and 4b5 assuming that there was such an agreement, the sales in +uestion
made b! petitioner to his wife were fictitious, simulated, and not bona fide.
In his petition for review to this Court, petitioner raises several assignments of error revolving around the
central issue of whether or not the sales made b! the petitioner to his wife could be considered as his original
taxable sales under the provisions of ,ection $.) of the 2ational Internal Revenue Code.
Rel!ing mainl! on testimonial evidence that before their marriage, he and his wife executed and recorded a
prenuptial agreement for a regime of complete separation of propert!, and that all trace of the document was lost
on account of the war, petitioner imputes lac3 of basis for the tax court0s factual finding that no agreement of
complete separation of propert! was ever executed b! and between the spouses before their marriage. <e do not
thin3 so. Aside from the material inconsistencies in the testimon! of petitioner0s witnesses pointed out b! the
trial court, the circumstantial evidence is against petitioner0s claim. Thus, it appears that at the time of the
marriage between petitioner and his wife, the! neither had an! propert! nor business of their own, as to have
reall! urged them to enter into the supposed propert! agreement. ,econdl!, the testimon! that the separation of
propert! agreement was recorded in the Registr! of Propert! three months before the marriage, is patentl!
absurd, since such a prenuptial agreement could not be effective before marriage is celebrated, and would
automaticall! be cancelled if the union was called off. =ow then could it be accepted for recording prior to the
marriage> In the third place, despite their insistence on the existence of the ante nuptial contract, the couple,
strangel! enough, did not act in accordance with its alleged covenants. ?uite the contrar!, it was proved that
even during their taxable !ears, the ownership, usufruct, and administration of their properties and business
were in the husband. And even when the wife was engaged in lumber dealing, and she and her husband
contracted sales with each other as aforestated, the proceeds she derived from her alleged subse+uent
disposition of the logs @ incidentall!, b! and through the same agent of her husband, ariano /sorio @ were
either received b! /sorio for the petitioner or deposited b! said agent in petitioner0s current account with the
Philippine 2ational (an3. -ourth, although petitioner, a law!er b! profession, alread! 3new, after he was
informed b! the Collector on or about ,eptember of $%16, that the primar! reason wh! the sales of logs to his
wife could not be considered as the original taxable sales was because of the express prohibition found in
Article $&%# of the Civil Code of sales between spouses married under a communit! s!stem7 !et it was not until
8ul! of $%1& that he alleged, for the first time, the existence of the supposed propert! separation agreement.
-inall!, the Aa! (oo3 of the Register of Aeeds on which the agreement would have been entered, had it reall!
been registered as petitioner insists, and which boo3 was among those saved from the ravages of the war, did
not show that the document in +uestion was among those recorded therein.
<e have alread! ruled that when the credibilit! of witnesses is the one at issue, the trial court0s ;udgment as to
their degree of credence deserves serious consideration b! this Court 4Collector vs. (autista, et al., B.R. 2os. *-
$""1# C *-$""1%, a! "D, $%1%5. This is all the more true in this case because not ever! cop! of the supposed
agreement, particularl! the one that was said to have been filed with the Cler3 of Court of Isabela, was
accounted for as lost7 so that, appl!ing the Ebest evidence ruleE, the court did right in giving little or no credence
to the secondar! evidence to prove the due execution and contents of the alleged document 4see Comments on
the Rules of Court, oran, $%1D Fd., Gol. 6, pp. $#.$"5.
The foregoing findings notwithstanding, the petitioner argues that the prohibition to sell expressed under Article
$&%# of the Civil Code has no application to the sales made b! said petitioner to his wife, because said
transactions are contemplated and allowed b! the provisions of Articles D and $# of the Code of Commerce. (ut
said provisions merel! state, under certain conditions, a presumption that the wife is authori'ed to engage in
business and for the incidents that flow therefrom when she so engages therein. (ut the transactions permitted
are those entered into with strangers, and do not constitute exceptions to the prohibitor! provisions of Article
$&%# against sales between spouses.
Petitioner0s contention that the respondent Collector can not assail the +uestioned sales, he being a stranger to
said transactions, is li3ewise untenable. The government, as correctl! pointed out b! the Tax Court, is alwa!s an
interested part! to all matters involving taxable transactions and, needless to sa!, +ualified to +uestion their
validit! or legitimac! whenever necessar! to bloc3 tax evasion.
Contracts violative of the provisions of Article $&%# of the Civil Code are null and void 4H! ,ui Pin vs.
Cantollas, D# Phil. 117 H! Co+ue vs. ,ioca &1 Phil. &65. (eing void transactions, the sales made b! the
petitioner to his wife were correctl! disregarded b! the Collector in his tax assessments that considered as the
taxable sales those made b! the wife through the spouses0 common agent, ariano /sorio. In upholding that
stand, the Court below committed no error.
It is also the petitioner0s contention that the lower court erred in using illegall! sei'ed documentar! evidence
against him. (ut even assuming arguendo the truth of petitioner0s charge regarding the sei'ure, it is now settled
in this ;urisdiction that illegall! obtained documents and papers are admissible in evidence, if the! are found to
be competent and relevant to the case 4see <ong C *ee vs. Collector of Internal Revenue, B.R. 2o. *-$#$11,
August 6#, $%1.5. In fairness to the Collector, however, it should be stated that petitioner0s imputation is
vehementl! denied b! him, and rel!ing on ,ections 6, %, 66D and 66. of the Tax Code and the pertinent portions
of Revenue Regulations 2o. G-$ and citing this Court0s ruling in H.,. vs. Aviado, 6. Phil. $#, the Collector
maintains that he and other internal revenue officers and agents could re+uire the production of boo3s of
accounts and other records from a taxpa!er. =aving arrived at the foregoing conclusion, it becomes unnecessar!
to discuss the other issues raised, which are but premised on the assumption that a premarital agreement of total
separation of propert! existed between the petitioner and his wife.
<=FRF-/RF, the decision appealed from is affirmed, with costs against the petitioner.