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Chapter 4 - OBLIGATIONS OF THE VENDOR Section 1. General Provisions

1. Principal obligations of the vendor.(Art. 1495) a. To transfer ownership of the determinate thing b. To deliver the thing c. To warrant against eviction and hidden defects d. To preserve the thing from perfection to delivery with proper diligence e. To pay for the expenses for the execution and registration of the deed of sale, unless there is stipulation to the contrary. 2. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him (actual or constructive) or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. (Art. 1496) PROBLEM: S sold his piano to B, who immediately paid the price. Because the piano was at the repair shop at the time the contract was perfected, no delivery was made. Before the delivery could be made, C, a creditor of S, who has filed a lawsuit against him, attached the piano. What right has B over the piano? May B oppose the attachment levied by C?

Section 2. Delivery of the Thing Sold

1. Concept of tradition or delivery. It is a mode of acquiring ownership as a consequence of certain contracts such as sale, by virtue of which, actually or constructively, the object is placed in the control and possession of the vendee. 2. Ways of effecting delivery. a. Actual or real delivery. When the thing sold is placed in the control and possession of the vendee (Art. 1497). This involves the physical delivery if the thing and is usually done by passing of a movable thing from hand to hand. b. Constructive or legal delivery i. execution of public instrument PROBLEMS: 1) S sold a parcel of land to B for P500,000 in a public instrument. Who had ownership of the parcel of land at the moment next after B had paid the P500,000 to S? 2) S sold a piano to B by private instrument for P50,000. Who had ownership of the piano at the moment next after B had paid the P50,000 to S? ii. symbolical tradition or traditio symbolica - when the parties make use of a token to represent the thing delivered. iii. traditio longa manu - by mere consent or agreement of the contracting parties. iv. traditio brevi manu - if the buyer had already the possession of the object even before the purchase. v. traditio constitutum possessorium - the vendor continues in possession of the property sold not as owner but in some other capacity. vi. quasi-delivery or quasi-tradition (delivery of rights, credits or incorporeal rights, made by: placing titles of ownership in the hands of a buyer or allowing the buyer to make use of the right EXAMPLE: S sold to B 100 shares of stocks. If S endorsed the certificate of stock to B, the ownership is transferred. This transfer or delivery is called quasi-tradition) 3. Sale or return or on approval (Art. 1502) a. On sale or return - the ownership passes to the buyer on delivery, but he may revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract, or, if no other time has been fixed, within a reasonable time. PROBLEMS:
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1) S delivered to B a refrigerator on sale or return. Did B become the owner upon delivery? 2) In the preceding problem, can B return the goods even if he finds nothing wrong with the quality of the goods? 3) In number (1), if B does not return the refrigerator in due time, what will be the consequences of his inaction? 4) In number (1), if B had not yet returned the goods, does he have to pay for them even if the refrigerator has been destroyed by fortuitous event? b. Sale on Approval or on Trial or on Satisfaction, or other similar terms, the ownership do not pass to the buyer except: 1. When he signifies his approval or acceptance to the seller or does any other act adopting the transaction; 2. If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact. 4. Transfer of ownership by delivery if specific goods to carrier or other bailee General Rule: Ownership of the goods sold passes to the buyer upon their delivery to the carrier Exception: a. When there is stipulation to that effect. b. When by the terms of the bill of lading, the goods are to be delivered to the seller or his agent or to the order of the seller or his agent. c. When by the terms of the bill of lading, the goods are to be delivered to the order of the buyer or his agent, but the bill of lading is retained by the seller or his agent. d. When the seller draws on the buyer a bill of exchange for the price of the goods and transmits the bill of exchange and the bill of lading to the buyer to secure acceptance or payment of the bill of exchange, but the buyer dishonors such bill of exchange. However, if the bill of lading is negotiated to a purchaser for value in good faith, ownership of the goods is passed to him. (Art. 1503) EXAMPLE: S sold to B a radio; the radio was shipped on board a carrier. The bill of lading stated that the radio is deliverable to the order of B. The bill of lading was sent to B, accompanied by a bill of exchange which B was supposed to honor. If B does not honor the bill of exchange, but wrongfully retains the bill of lading, ownership remains with the seller. If B sells the bill of lading to X, X can obtain ownership of the goods if he is an innocent purchaser. 5. Sale by a person who is not the owner of the thing sold General Rule: Where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had (Art. 1505) Exception: a. The owner of the goods is by his conduct precluded from denying the seller's authority to sell. EXAMPLE: If A sells Bs property to C, and B consents, B is stopped from denying the authority to sell. b. The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof; c. The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction; Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same. If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid thereof. d. Purchases made in a merchants store, or in fairs, or markets, in accordance with the Code of Commerce and special laws. PROBLEMS:

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1) B bought a pair of shoes from a shoe store and repair shop. It was later discovered, however, that the shoes did not belong to the store but to a customer who had left it there for repair. Did B acquire good title to the shoes? Reason. 2) B in good faith, has purchased a diamond ring from S, a friend of his. S gave B a bill of sale. Later on, X identified the ring as one she had lost about a year ago. There is no question as to the veracity of Xs claim. In the meantime, S has disappeared. What advice would yo u give B in reference to Xs demand that the ring be returned or surrendered to her? e. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the sellers defect of title. (Art. 1506) EXAMPLE: B bought a car from S (an insane man), and in turn sold the car to X who is in good faith. After delivery of the car to X, he becomes its owner if, at the time he bought it, the contract between B and S had not yet been annulled. Where the seller subsequently acquires title

f.

6. Document of title to goods. This includes any document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by the document. (Art. 1636) 7. Classes of documents of titles. a. Negotiable document of title - a document of title in which it is stated that the goods referred therein will be delivered to the bearer or to the order of any person named in such document. The following are the kinds of negotiable documents of titles: i. bill of lading - a contract or receipt for the transport of goods and their delivery to the person named therein,; to order, or to bearer. ii. dock warrant - an instrument given by dock owners to an importer of goods warehoused on the dock recognizing the importers title to the said goods. iii. quedan - a warehouse receipt usually for sugar received by a warehouseman. iv. warehouse receipts or order - a contract or receipt for the goods deposited with a warehouseman containing the latters undertaking to hold and deliver the said goods to a specified person, to order, or to bearer. v. any other document used as proof of possession or as authority to transfer the goods represented by it. b. Non-negotiable document of title - a document of title which does not state that the goods referred to therein will be delivered either to bearer or to the order of any person named therein. 8. How negotiable document of title is negotiated. a. Mere delivery b. Indorsement plus delivery EXAMPLE: The document says deliver to the order of Mr. X. To negotiate it, Mr. X must sign his name at the back and then deliver. Mere delivery without signing is not sufficient 9. Negotiable documents of title marked non-negotiable. A negotiable document of title even if marked non-negotiable remains to be negotiable. (Art. 1510) 10. Effect of delivery when document cannot be negotiated by mere delivery. The delivery of an order document of title without any indorsement does not constitute negotiation, but a mere assignment by the holder to the purchaser or donee. (Art. 1511) The transferee shall have a right to the goods as against the transferor; and the right to compel the transferor to indorse the indorsement. (Art. 1515) PROBLEM: A document of title contained the words deliver to X or his order. X wanted to negotiate it to Y, but instead of indorsing it, he merely delivered it to Y. Has there been a negotiation? 11. Effect of negotiation and indorsement of non-negotiable instrument. A non-negotiable document of title cannot be negotiated. It can only be transferred or assigned. Its indorsement does not constitute negotiation and gives the transferee no additional rights. (Art. 1511) 12. Who may negotiate negotiable document of title (Art. 1512) a. By the owner thereof b. By the person to whom the possession or custody of the document has been entrusted by the owner in the following cases:
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i. If, by the terms of the document, the bailee issuing the document, undertakes to deliver the goods to the person to whom the possession or custody of the document has been entrusted. ii. If at the time of such entrusting the document, it is in such form that it may be negotiated by delivery. 13. Rights of a person to whom negotiable document is negotiated. (Art. 1513) Such person acquires: a. The title of the person negotiating the document, over the goods covered by the document b. The title of the person (depositor or owner) to whose order by the terms of the document the goods were to be delivered, over such goods c. The direct obligation of the bailee (warehouseman or carrier) to hold possession of the goods for him, as if the bailee had contracted directly with him. 14. Rights of a person to whom document has been transferred. (Art. 1514) a. The title to the goods as against the transferor b. The right to notify the bailee of the transfer thereof c. The right, thereafter, to acquire the obligation of the bailee to hold the goods for him 15. IMPLIED Warranties of the person who negotiates a document of title by indorsement or delivery a. That the document is genuine; b. That he has legal right to negotiate or transfer it; c. That he has knowledge of no fact which would impair validity or worth of the document; and d. That he has a right to transfer the title to the goods and that the goods are merchantable or fit for particular purpose. (Art. 1516) 16. Effect of failure of bailee or previous indorsers to fulfill their obligations. The indorser shall not be liable for any failure on the part on the bailee who issued the document or previous indorsers to fulfill their respective obligations. (Art. 1517) 17. Effect if owner of document was deprived of it (Art. 1518) PROBLEM: A document of title contained the words deliver to bearer. The document was stolen by T. T subsequently indorsed it to S, a purchaser in good faith. Is the negotiation to S valid? 18. Time and place of delivery of thing sold (Art. 1521) a. Place of delivery i. Place stipulated ii. If there is no stipulation, placed fixed by usage or trade iii. In the absence of both, the sellers place of business if he has one; if none, the sellers place of residence. However in the case of sale of specific goods, which to the knowledge of the parties when the contract was made were in some other place, that place shall be the place of delivery. b. Time for delivery of goods i. Time stipulated ii. If there is no stipulation, delivery must be made within a reasonable time from the execution of the contract c. Goods in the possession of a third person. The seller has not fulfilled his obligation to deliver the goods unless such third person acknowledges to the buyer that he holds the goods on the buyers behalf d. Demand or tender of delivery. It must be made at a reasonable hour to be effectual. e. Expenses of delivery. The seller bears the expenses unless otherwise stipulated. 19. When vendor is not bound to deliver the thing sold a. If the vendee has not paid him the price. (Art. 1524) b. If no period for the payment of then price has been fixed in the contract. (Art. 1524) c. If a period has been fixed for the payment of the price, the vendor is bound to deliver the thing sold. However, he is not bound to deliver if the vendee loses the right to make use of the period (Art. 1536) as follows: i. When the vendee becomes insolvent, unless he gives a guaranty or security for the payment of the price; ii. When the vendee fails to furnish the guaranties or securities that he has promised; iii. When the guaranties or securities have been impaired through his own acts or when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; iv. When the vendee violates any undertaking in consideration of which the vendor agreed to the period; v. When the vendee attempts to abscond.

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20. Remedies of the buyer when the quantity or quality of goods delivered is different from that which the seller contracted to sell. (Art. 1522) a. When the quantity delivered is less than that which the parties had agreed upon, the buyer may: i. Reject the goods ii. Accept the goods PROBLEM: B bought 100 suits, only 60 of which arrived. He sold some of them (perhaps even for a lesser price for purposes of propaganda or advertisement), thinking that the others were coming. Can he return the rest, if they are unsold? What price must he pay? b. When the quantity delivered is more than that which the parties agreed upon, the buyer may: i. Accept the goods agreed upon and reject the rest. ii. Accept the whole of the goods delivered and pay for them at the contract rate. iii. Reject the whole of the goods if they are indivisible. PROBLEM: B bought from S 100 cans of tomato sauce, 120 of which arrived. What is Bs right? c. When the seller delivers agreed upon but are mixed with goods of different description, the buyer may: i. Accept he goods agreed upon and reject the rest, if the sale is divisible. ii. Reject the whole of the goods, if the sale is indivisible. PROBLEM: B accepted the correct (as ordered) goods, rejected the rest (because incorrect). He then purchased the rest that he needed in the market, without first giving the seller opportunity to make proper substitution. Can he charge the seller for the consequent difference in price? 21. When delivery to carrier is delivery to buyer GENERAL RULE: Delivery to carrier is delivery to buyer, if it is in the duty of the seller to send the goods to the buyer. Kinds of delivery to carrier a. C.I.F. (cost, insurance, freight) - Since the selling price includes insurance and freight, it is understood that said insurance and freight should now be paid by the seller. b. F.O.B. (free on board) - the sale may be: i. f.o.b. at the place of shipment - buyer must pay the freight ii. f.o.b. alongside (the vessel) - the moment the goods are brought alongside the vessel, the buyer must pay for the freight or expenses iii. f.o.b. at the place of destination - the seller must pay the freight, since the contract states free on board till destination PROBLEM: S in Manila agrees to ship to B at Vigan, F.O,B. Vigan. Before the goods reach Vigan, they are destroyed by a fortuitous event. Who bears the loss? 22. Unpaid seller: a. When the whole of the price has not been paid or tendered; and b. When a bill of exchange or other negotiable instrument has been received as a conditional payment and the condition was broken by reason of dishonor, insolvency of the buyer or otherwise. (Art. 1525) 23. Rights of an unpaid seller a. Possessory lien on the goods or right to retain them for the price while he is in possession of them; b. In case of insolvency of the buyer, right of stoppage in transitu after he has parted with the possession of them; c. Right of resale; and d. Right to rescind sale. 24. Instances where the unpaid seller may retain the goods a. Where the goods have been sold without any stipulation as to credit b. Where the goods have been sold on credit, but the term of credit has expired c. Where the buyer becomes insolvent The seller may exercise his right of lien or retention notwithstanding that he is in possession of the goods as agent or bailee for the buyer (Art. 1527) PROBLEM: S sold B a specific diamond ring to be paid 6 months later. By mutual agreement, B is made already the owner, but S will act as the depositary of the ring in the meantime. If the term expires, and B has not yet paid, may S still continue possessing the ring even if he is no longer the owner?
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25. The unpaid seller of goods, having lien thereon, does not lose his lien by reason only that he has obtained judgment for the price of the goods (Art. 1529) a. When he delivers the goods to a carrier or other bailee for transmission to the buyer without reserving ownership in the goods or the right to possession thereof; b. When the buyer or his agent lawfully obtains possessions of the goods; and c. By waiver thereof. The unpaid seller of goods, having lien thereon, does not lose his lien by reason only that he has obtained judgment for the price of the goods. PROBLEMS: i. S delivered the goods to the carrier for transmission to the buyer. He, however, reserved his right to the ownership in the goods. Does he lose his possessory lien? ii. An unpaid seller still in possession of the goods sold brought an action to get the purchase price. Does he lose his possessory lien? iii. An unpaid seller, who possessed the goods thru a warehouseman, delivered to the buyer a negotiable warehouse receipt. Does the unpaid seller still have a possessory lien? iv. An unpaid seller actually delivered the goods to the buyer. The buyer however decided to cancel the sale, so he returned the goods to the seller. Is the possessory lien revived? 26. Requisites for the exercise of right of stoppage in transitu a. The seller must be unpaid b. The buyer must be insolvent c. The goods must be in transit d. The seller must either actually take possession of the goods sold or give notice of his claim to the carrier or other person in possession e. The seller must surrender the negotiable document of title, if any, issued by the carrier or bailee f. The seller must bear the expenses of delivery of the goods after the exercise of the right. 27. When goods are in transit (Art. 1531) a. After delivery to a carrier or other bailee and before the buyer or his agent takes delivery of them b. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them 28. When goods considered no longer in transit (Art. 1531) a. After delivery to the buyer or his agent in that behalf b. If the buyer or his agent obtains possession of the goods at a point before the destination originally fixed c. If the carrier or bailee acknowledges to hold the goods on behalf of the buyer d. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer 29. Exercise of the right of stoppage in transit (Art. 1532) a. Obtaining actual possession; or b. Giving notice of claim to the carrier or other bailee i. When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. ii. The expenses of such delivery must be borne by the seller. iii. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation 30. Effect of sale of goods subject to lien or stoppage in transit a. Where goods not covered by negotiable document of title - The purchaser can acquire only such right as that buyer then had. b. Where goods covered by negotiable document of title. - No seller's lien or right of stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated. 31. When resale is allowable (Art. 1533) a. Where the goods are perishable in nature b. When the right to resell is expressly reserved in case the buyer should make a default; and c. Where the buyer delays in the payment of the price for an unreasonable time.
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Not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer but giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. It is, however, essential before the rescission be made that the unpaid seller should have a right of lien or stopped the goods in transitu. (Art. 1533) 32. Effect of resale a. The seller is not liable for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale. b. It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. c. It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. d. The seller is bound to exercise reasonable care and judgment in making a resale, and may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. (Art. 1533) 33. Instances where the unpaid seller has the right of rescission a. Where he expressly reserved the right to do so in case the buyer should make default; and b. Where the buyer has been in default in the payment of the price for unreasonable length of time. It is, however, essential before the rescission be made that the unpaid seller should have a right of lien or stopped the goods in transitu. (Art. 1534) The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. 34. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the terms as provided in Article 1198 (Debtor lose every right to make use of the period) (Art. 1536) Under Art. 1198, the debtor shall lose every right to make use of the period: a. When he becomes insolvent, unless he gives a guaranty or security for the debt b. When he fails to furnish the guaranties or securities which he has promised c. When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory d. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period e. When the debtor attempts to abscond. 35. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. (Art. 1537) All the fruits shall pertain to the vendee from the day on which the contract was perfected. a. No date stipulated for the delivery - From the perfection of the contract b. Date stipulated - from the obligation to deliver arise. 36. The rules in Article 1189 shall be observed in case of loss deterioration or improvement of the thing before its delivery, the vendor being considered the debtor. (Art. 1538) Without fault (Debtor) With fault (Debtor) Loss Extinguish Damages Deterioration Impairment borne by the creditor Rescission or fulfillment + damages Nature or Time Benefit of the creditor Expense of the debtor Right only of a usufruct

Improvement

37. Sale of real estate a. With statement of its area at the rate of a certain price for a unit of measure or number
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The vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should this be not possible, the vendee may choose between. (1539) i. A proportional reduction of the price ii. Rescission of the contract 1) If the lack in area is at least 1/10 than that stated or stipulated (Applies to area stated in the contract, not to the true or actual are) 2) If the deficiency in quality specified in the contract exceeds 1/10 of the price agreed upon. 3) If the vendee would not have bought the immovable had he known of its smaller area or inferior quality irrespective of the extent of the lack in area or quality. EXAMPLE: A buys from B a piece of land supposed to contain 1,000 square meters at the rate of P10,000 a square meter, but the land has only 800 sq. m., the additional 200 must be given to A should a demand them. If this cannot be done, A may pay only P8 million (for the 800 sq. m.) or rescind the contract. If there are only 950 square meters, can A ask for rescission? b. Made for a lump sum and not at the rate of a certain sum for a unit of measure or number or when two or more immovables as sold for a single price There shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in the contract. (Reason: The parties ascertained its area and quality before the contract was perfected) (Art. 1542) c. When area or number stated together with boundaries The vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so. i. Reduction in the price, in proportion to what is lacking in the area or number ii. Contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. (Art. 1542) Nota bene: The actions for rescission or reduction in price shall prescribe in six months, counted from the day of delivery PROBLEMS: 1) A buys a piece of land from B at the lump sum of P10 million. In the contract, the area is stated to be 1,000 square meters. The boundaries are f course mentioned in the contract. Now then it was discovered that the land within the boundaries really contains 1,500 square meters. Is B bound to deliver the extra 500? d. If there is a greater area or number in the immovable than that stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the contract rate. (Art. 1540) PROBLEM: A buys from B a piece of land supposed to contain 1,000 square meters at the rate of P10,000 a square meter. But the land really contains 1,500 square meters. What can A do? 38. Requisites of Double Sales a. The two (or more) sales transactions must constitute valid sales. b. The two (or more) sales transactions must pertain to exactly the same subject matter. c. The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests. d. The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller. 39. Rules of preference in case of double sale (1544) a. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. b. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. c. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and in the absence thereof, to the person who presents the oldest title, provided there is good faith. (Art 1544)

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