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Hyderabad State Bank v. Ranganath Rathi .
Concise Analytical Summary of the Opinion (per Kumarayya, J.)
Factual and Procedural Background
The defendant, Ranganath Rathe, opened a current account with the plaintiff, the Hyderabad State Bank, on 22-1-1946. He had no overdraft facility under the bank's rules. The defendant drew cheque No. 108779 dated 4-2-1947 in the sum of Rs. 5,500/- in favour of Mansani Rajeeru, but only had Rs. 307-11-8 to his credit. The drawee presented the cheque on 5-2-1947 and it was returned marked “refer to the drawer”; it was presented again through Raghunathmal Bank Ltd. on 10-2-1947 and again returned with the same remark.
The plaintiffs allege that, by clerical mistake, the dishonoured cheque was sent to the defendant (which the defendant denied), and after some correspondence the plaintiffs recovered the cheque from the defendant and returned it to the collecting bank. The collecting bank refused to accept it because, under its rules, a dishonoured cheque should have been returned the same day or the next day and, having not received it in time, it had already paid Mansani Rajeeru on the assumption the cheque had been honoured. The plaintiffs thereupon credited the collecting bank and debited the defendant's account on 4-6-1947.
The plaintiffs obtained from the defendant a letter dated 1-10-1947 in which the defendant promised to settle the overdraft by the end of October 1947. The plaintiffs' later statement (filed 16-3-1950 with court permission) introduced facts about misdirection of the cheque and subsequent events that were not in the original plaint filed in April 1949. The plaint originally alleged that the bank had honoured the cheque on 4-2-1947 to maintain the defendant's credit and that the defendant thereafter agreed by his 1-10-1947 letter to pay off the overdraft and offer security.
The defendant admitted drawing the cheque but said it was post-dated, that he had not intended it to be cashed, that he did not give instructions to stop payment, and that he later signed the 1-10-1947 letter under the mistaken belief (induced by the bank's secretary) that the bank had honoured the cheque on 4-2-1947 to protect his credit. He later alleged the bank had in fact paid only on 4-6-1947, and that the 1-10-1947 letter was without consideration and obtained by the plaintiffs' fraud. He also denied that the dishonoured cheque had ever been sent to him or that he had returned it.
At trial seven witnesses were called for the plaintiffs and two for the defendant. The City Civil Court (First Judge) found in favour of the defendant and dismissed the suit with costs. The plaintiffs appealed.
Legal Issues Presented
- Whether the appeal was barred by limitation because the last day of limitation fell during the High Court's summer vacation and whether filing when the Court re-opened complied with Section 4 of the Limitation Act.
- Whether the defendant is liable to pay the Rs. 5,500/- on the basis of the letter dated 1-10-1947 — specifically whether that document is enforceable as a contract (i.e., whether it was supported by consideration within Section 2(d) of the Contract Act or covered by the exceptions in Section 25(2)).
- Whether the document (the 1-10-1947 letter) was vitiated by misrepresentation/fraud and hence hit by Section 19 of the Contract Act.
- Whether the plaintiffs could recover under the equitable restitution principle in Section 70 of the Contract Act (i.e., whether payment was made lawfully, not gratuitously, for the defendant, and whether the defendant enjoyed the benefit).
Arguments of the Parties
Plaintiff (Appellant) — Hyderabad State Bank
- The plaintiffs' case (as later elaborated) was that the dishonoured cheque had been mistakenly sent to the defendant, that they recovered it, returned it to the collecting bank, and because the collecting bank had already paid the payee it was necessary for the plaintiffs to credit the collecting bank and debit the defendant's account (debit entry dated 4-6-1947).
- In the plaint (earlier pleading) the plaintiffs alleged that the bank honoured the cheque on 4-2-1947 to maintain the defendant's credit and informed the defendant, who then agreed (by letter dated 1-10-1947) to pay off the overdraft and offer security.
- The plaintiffs relied on contractual and restitutionary principles, arguing that the defendant's promise should be enforced — they invoked Section 25(2) (an exception permitting enforcement of some agreements made without consideration) and Section 70 of the Contract Act (for compensation where a person lawfully does something for another, not intending it gratuitously, and the other enjoys the benefit).
Defendant (Respondent) — Ranganath Rathe
- The defendant admitted drawing the cheque but contended it was post-dated and was not meant to be cashed because the underlying transaction failed; he therefore did not provide funds nor thought it necessary to instruct stoppage of payment.
- He denied that the dishonoured cheque was ever sent to him or that he had returned it to the plaintiffs.
- He stated that he signed the 1-10-1947 letter only because the bank's secretary led him to believe the bank had honoured the cheque on 4-2-1947 to preserve his credit; once he learned the true facts (that the bank had only paid on 4-6-1947), he contended the letter was given without consideration and was the product of the plaintiffs' misrepresentation and fraud, and therefore unenforceable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Raja of Venkatagiri v. Krishnayya, A.I.R. 1948 P.C. 150 | Authority for proposition that a promissory note (or promise) given where money was advanced under an undertaking by a third person and not at the desire of the defendant is without consideration. | The court relied on this authority to support the conclusion that the defendant's letter (1-10-1947) lacked consideration because the plaintiffs' payment flowed from their own undertaking/mistake and was not made at the defendant's desire. |
| Govind Ram v. Piran Ditta, A.I.R. 1935 Lahore 561 | Definition and understanding of the word “voluntary” (as applied in considering Section 25(2) exceptions) — something done of one's own will, impulse and choice, not constrained or prompted by another. | The court applied the meaning of “voluntary” to hold that the alleged payment was not “voluntarily done” for the defendant within the sense required by Section 25(2), because the payment resulted from the plaintiffs' obligation to the collecting bank rather than from any voluntary act for the defendant. |
| Ishar Fatma Bibi v. Ansar Fatma Bibi | Support for the proposition that gratuitous admissions or promises made in ignorance of facts may be withdrawn in absence of estoppel; follows the Privy Council dictum in Mohammed Imam Ali Khan v. Hussain Khan. | The court invoked this authority to show that the defendant's implied admission (in the 1-10-1947 letter) obtained in ignorance of the real facts could be withdrawn and had no legal significance where it was gratuitous and not coupled with estoppel. |
| Mohammed Imam Ali Khan v. Hussain Khan (Privy Council) — dictum referred | Principle regarding the withdrawal of gratuitous admissions or similar gratuitous acts where there is no estoppel. | The court referred to this dictum (via Ishar Fatma Bibi) to support the view that the defendant's gratuitous implied admission could be retracted when made in ignorance of material facts. |
| Panchakore Ghosh v. Haridas Joshi, 21 C.W.N. 394 | Interpretation of “lawfully” in Section 70 — the payer must have a lawful interest in making the payment. | The court applied this reasoning to hold that the plaintiffs did not make the payment “lawfully for the defendant” (they acted in their own interest to discharge an obligation to the collecting bank), and therefore Section 70 did not assist the plaintiffs. |
| Avudayappa v. Thilli Thandavaroya, A.I.R. 1928 Mad 320 | Test for when an act is done “for another” under Section 70 — the actor must have acted in the place of the other or in such a position that compensation can reasonably be expected. | The court relied on this case to conclude the plaintiffs acted on their own account to discharge their liability (arising from their mistake) and not in the position of the defendant; therefore the requirements of Section 70 were not satisfied. |
Court's Reasoning and Analysis
The court's analysis proceeded in distinct stages:
-
Preliminary issue — Limitation.
The decree was dated 2-3-1953. The appeal had to be filed within 90 days (excluding time for obtaining copies). The last day of limitation fell during the High Court's summer vacation. The appellants filed the appeal on 15-6-1953, the day the Court reopened. The court relied on Section 4 of the Limitation Act which permits institution of suit, appeal or application on the day the court reopens if the period expires on a day when the court is closed. The court examined the official notification (No. 10896 dated 26-2-1953) published in the Jarida which expressly fixed the summer vacation from 13th April to 12th June 1953 (both days inclusive). Because the notification did not state that the Court would be open for receiving appeals during the vacation, the court held the vacation amounted to the Court being closed and that filing on re-opening complied with Section 4; the limitation plea was untenable.
-
Findings on primary facts and credibility.
On the evidence (seven witnesses for plaintiffs, two for defendant), the trial judge found: (i) the dishonoured cheque was not sent to the defendant; (ii) the 1-10-1947 letter was given by the defendant under the mistaken apprehension that the bank had paid on 4-2-1947 to preserve his credit, not because the bank was under an obligation to pay as a result of its laches; (iii) the letter lacked consideration within the meaning of Section 2(d) of the Contract Act and was not an enforceable agreement; and (iv) the plaintiffs' payment was not voluntary or intended to benefit the defendant, so the plaintiffs could not recover the amount from the defendant. The High Court affirmed these findings after considering the oral and documentary evidence.
-
Application of Contract Act provisions — Section 19 and Section 2(d).
The court held that the document (1-10-1947 letter) procured under the circumstances of mistaken belief and misrepresentation was hit by Section 19 of the Contract Act (i.e., agreements induced by misrepresentation are voidable). Further, under Section 2(d) (definition of "consideration"), the payment made by the plaintiffs was not at the desire of the defendant; instead the plaintiffs paid because of their own mistake/laches and in order to meet their undertaking to the collecting bank. Therefore the defendant's promise lacked consideration and was unenforceable.
The court relied on Raja of Venkatagiri v. Krishnayya to illustrate that promises are without consideration where the money or act was not done at the defendant's desire but pursuant to a third-party undertaking. The court concluded that the plaintiffs' obligation to pay flowed from their mistake and was independent of any obligation of the defendant.
-
Consideration of Section 25(2) exception.
The plaintiffs argued that Section 25(2) (an exception allowing promise to compensate a person who has already voluntarily done something for the promisor) applied. The court analyzed whether the plaintiffs' payment was a “voluntary” act for the defendant. Invoking the meaning of “voluntary” (as in Govind Ram v. Piran Ditta), the court concluded that the payment was not voluntary for the defendant — it was compelled by the plaintiffs' liability to the collecting bank and therefore Section 25(2) did not apply.
-
Consideration of Section 70 (restitution).
The plaintiffs also invoked Section 70 (liability to compensate where one lawfully does something for another, not intending it gratuitously, and the other enjoys the benefit). The court identified four requisites for Section 70 and applied authorities (Panchakore Ghosh and Avudayappa) to interpret them: the act must be lawful (the payer must have lawful interest), it must be done not intending to be gratuitous, it must be done for another, and the other must enjoy the benefit.
The court found that the plaintiffs acted to discharge their own liability to the collecting bank and not in the position of acting for the defendant; the benefit to the defendant was thrust upon him rather than being something he had the option to accept. Consequently Section 70 did not entitle the plaintiffs to recover from the defendant.
-
Overall conclusion based on combined analysis.
Because the 1-10-1947 document was obtained under mistaken/imperfect knowledge (Section 19), lacked consideration (Section 2(d)), was not covered by the exception in Section 25(2), and did not satisfy the requirements of Section 70, the court held that the plaintiffs had failed to establish the defendant's liability. The High Court confirmed the trial court's judgment dismissing the suit and dismissed the appeal with costs.
Holding and Implications
Holding: The High Court affirmed the judgment and decree of the City Civil Court and DISMISSED THE APPEAL with costs. The defendant was held not liable to pay the Rs. 5,500/- to the plaintiffs based on the 1-10-1947 letter or on restitutionary grounds.
Implications:
- Direct effect: The plaintiff bank's suit fails and the defendant is not ordered to pay the amount sought; the trial court's dismissal with costs is confirmed.
- Legal consequence on the law applied: The court applied established principles of contract law — invalidity of promises obtained by misrepresentation (Section 19), the necessity of consideration (Section 2(d)), narrow application of the exception in Section 25(2), and the strict requisites for restitution under Section 70 — to deny recovery to a bank whose payment arose from its own mistake and obligations to a collecting bank. The court relied on cited precedents to support these applications.
- No broader novel precedent was announced beyond the application of the cited statutory provisions and established authorities to the facts of this dispute; the decision confirms the limits on recovery where payment is made by the claimant due to its own mistake and not at the promisor's desire.
Disposition: Appeal dismissed.
Kumarayya, J.:— The facts out of which this appeal arises are few and simple. The defendant Ranganath Rathe opened a current account with the plaintiff, the Hyderabad State Bank on 22-1-1946. It is common ground that the defendant did not enjoy under the rules any overdraft concession. He drew a cheque Ex.-20 dated 4-2-1947 bearing No. 108779 for a sum of Rs. 5,500/- in favour of one Mansani Rajeeru. He had at the time only a sum of Rs. 307-11-8 to his credit in the Bank account. The drawee presented the cheque for payment on 5-2-1947 personally at the Bank. It was returned with the remark “refer to the drawer”. It was again presented through Raghunathmal Bank Ltd. on 10-2-1947 and was returned for a second time with the same remark. Obviously enough, neither the defendant had any right nor had the plaintiffs any intention of granting over-draft. The cheque thus dishonoured ought to have been returned to the Raghunathmal Bank itself on the same day or the next day. But the plaintiff's case is that by mistake of their clerk it was sent to the defendant, a fact which has been categorically denied by the defendant. This mistake is said to have been discovered when on receipt of statement of accounts, the Raghunathmal Bank Ltd. complained of a debit entry of Rs. 5,500/- and thereafter in response to the plaintiff's letter asked for the name of the officer who had signed in the delivery book. Though there is no document to establish, it is said that the plaintiffs tried to get back the dishonoured cheque from the defendant and that eventually they suceeded therein. The same dishonoured cheque was sent back to the Raghunathmal Bank Ltd., but the bank refused to accept the same as, according to the rules, in case of dishonour it ought to have been returned the very day or the next day at the latest to the collecting Bank and as that was not done they had already made payment to M. Rajeeru on the assumption that it has been honoured. The plaintiff bank was now placed in an ??? position. They could not but acknowledge payment of the cheque. They therefore credited the amount to the Raghunathmal Bank but, at the same time, debited the same in defendant's account. This was done on 4-6-1947. The plaintiffs bank then tried to obtain a letter from the defendant and were succesful in obtaining the same on 1-10-1947 which is to the effect that the defendant promised to the secretary that he will settle the overdraft account by the end of October 1947. It will be noticed that the facts relating to the misdirection of the dishonoured cheque, its subsequent recovery from the defendant and the payment of cheque amount on 4-6-1947 to the collecting bank do no find a place in the plaint but were introduced for the first time on 16-3-1950 in the statement filed with the permission of the court. The story in the plaint filed at early as in April 1949 is somewhat different. It was stated therein that though the amount to the credit of defendant was only Rs. 307-11-8, the Bank in order to maintain his credit honoured the cheque for Rs. 5,500/- on 4-2-1950 itself and then informed the defendant accordingly and that the defendant thereafter through his letter dated 1-10-1947 agreed to pay off the over draft by the end of October, 1947 and to offer certain shares by way of security meanwhile for the same. The defendant in his written statement admitted the cheque drawn on plaintiff Bank in favour of Rajeeru but his contention was that it was a post dated cheque deliberately drawn as such having regard to the nature of the transaction between himself and Rajeeru which might warrant stoppage of payment before the due date. That transaction having fallen through he did not wish that the cheque should be cashed. He did not therefore supply necessary funds and was sure that the cheque if presented on due date will be dishonoured as he enjoyed no overdraft facility. He thought it unnecessary under these circumstances to advise the bank to stop the payment. Later on however he was made to believe by the Secretary of the Bank that inspite of lack of adequate funds to his credit, the Bank did honour the cheque on 4-2-1947 lest the fair name and credit of the defendant may be tarnished. He took the secretary at his word and became honour-bound to undertake the liability. He wrote the letter on 1-10-1947. But subsequently he came to know of the real state of affairs that the bank had paid him false as the cheque was not in fact honoured on 4-2-1947 but only on 4-6-1947. The defendant contends that the letter dated 1-10-1947 is without consideration and cannot be availed of being a creature of plaintiff's fraud. He categorically denied in his additional written statement filed in reply to the statement of the plaintiff that the dishonoured cheque was ever sent to him or that he had returned the same to the plaintiff's bank.
2. Seven witnesses were examined on behalf of the plaintiff and two on behalf of the defendant. The learned First Judge, City Civil Court, on the basis of the evidence found (i) that the dishonoured cheque was not sent to the defendant at all; (ii) that the letter dated 1-10-1947 was given by the defendant under am sapprehension that the amount of the cheque was paid on 4-2-1947 with the avowed object of preserving his prestige and credit and not, under any obligation of the plaintiff to pay off the amount to the Raghunathmal Bank Ltd. as a result of it's lacaes; (iii) that the letter is without consideration within the meaning of Section 2(d) of the Contract Act and is not an enforceable agreement; and (iv) that as the payment made by the plaintiffs was not voluntary nor with a view to benefit the defendant, the plaintiffs are not entitled to recover the amount from the defendant in law. With these findings he dismissed the suit with costs.
3. Before we consider the appeal on merits, we would like to dispose of a plea, though belated, taken as a preliminary objection. This relates to the question of limitation. The decree was passed by the lower court on 2-3-1953. The appeal ought to be filed within 90 days from that date after excluding the time spent in getting copies. The last day of limitation fell in the summer vacation. Therefore it was filed on 15-6-1953, the day on which actually the court reopened after the vacation. It was argued that it should have been filed on the last day of limitation as the High Court was in fact kept open for this purpose. No notification or circular has been produced to support this contention. It is alleged that in point of fact the appeals during that period were being received by this court. Apart from the fact that its veracity is disputed, such a contention is of no avail unless there is authority for such acts of receiving. Section 4 of the Limitation Act reads thus:
“Where the period of limitation prescribed for any suit, appeal or application expires on a day when the court is closed the suit, appeal or application may be instituted, preferred or made on the day that court reopens.”
4. The question therefore is, whether or not on account of summer vacation, the court shall be deemed to be closed within the meaning of Section 4 of the Limitation Act. That the summer vacation used to be notified in the Jarida every year is an admitted fact. For the year in question, the notification No. 10896 dated 26-2-1953 published in the Jarida reads thus:
“It is notified for the information of all concerned that the Administration Bench of the High Court of Judicature at Hyderabad has decided that the summer vacation for the High Court during the year 1953 will be from Monday, 13th April to Friday the 12th June 1953 (both days inclusive).”
5. The notification is express and explicit and admits of no construction that the High Court was kept open for the purpose of receiving the appeals. It is only where the notification states in clear terms that the court will be open on certain days for the reception of appeals or other papers, the court can be treated as open on those days for that purpose but not otherwise. As that is not the case here, having regard to the clear wording of the notification, the plea that the appeal ought to have been filed during the vacation on the last day of the limitation is untenable.
6. [After discussing the evidence, oral and documentary, adduced in the case. Their Lorships held that the defendant was not liable for the delay caused in returning the dishonoured cheque by the plaintiff to the collecting bank and that the letter was sent by the defendant under a mistaken impression that the Bank had paid the amount to save his credit and not to discharge their own liability occassioned by their laches.]
7. The document obtained under such circumstances is hit by Section 19 of the Contract Act. That apart, as there is no consideration for the promise embodied in the document with the meaning of Section 2(d) of the Contract Act is an agreement unenforceable in law. Section 2(d) reads thus:
“When at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”
8. Evidently, the alleged payment made by the plaintiff bank was not at the desire of the defendant within the meaning of Section 2(d). As has been already stated, the plaintiff bank had refused to make payment but they forced to pay the same as a result of their own mistake in not sending the cheque to the collecting bank in time. Obviously the obligation to pay flowed from the mistake or laches of the bank and was independent of or in no way connected with the obligation of the defendant to make payment to the drawee. At any rate, it did not arise from the request of the defendant to make payment nor was the payment infact made at the desire of the defendant. If a payment is made in pursuance of some subsisting undertaking between the two banks to which the defendant is not a party nor interested therein, it is not a legal consideration so for as the defendant is concerned. If any authority is required for this proposition it is found in Raja of Venkatagiri v. Krishnayya . A.I.R 1948 P.C 150. where a promissory note for the amount advanced for the litigation was held to be without consideration on the ground that the money was advanced under an undertaking given by the plaintiff's father and not at the desire of the defendant. It is clear that agreements without consideration are void in law unless they are covered by the provisions of Section 25. It is argued that the present case falls under Section 25(2) of the Contract Act which reads as below:
“An agreement made without consideration is void unless—
(1) ****
(2) It is a promise to compensate, wholly or in part, a person who has already voluntarily done same thing for the promisor or some thing which the promisor was legally compellable ??? do; or unless
(3) ****”
9. The question therefore is, was there a promise by the defendant to compensate the plaintiff for something which he had voluntarily done for the defendant and which the defendant was legally compellable to do the expression ‘voluntarily done’ when applied to actions denotes something performed or done of one's own will, impulse and choice not constrianed, prompted or suggested by another. That is the meaning attached to the word ‘voluntary’ according to Murray's New English Dictionary referred to in Govind Ram v. Piran Ditta . A.I.R 1935 Lahore 561.. The letter of the defendant does no doubt contain a promise which implies an admission that the plaintiff had paid the amount for him but this admission, as already stated, was obtained by misrepresention and hence has no legal significance. At any rate, such implied admission being gratuitous made in ignorance of the real facts may be withdrawn, in law, in the absence of any legal bar like estoppel etc. Similar was the view taken in Ishar Fatma Bibi v. Ansar Fatma Bibi following the dictum of the Privy Council in Mohammed Imam Ali Khan v. Hussain Khan. It is evident that the payment made by the plaintiff was neither voluntary nor for the defendant but was the inevitable consequence of the plaintiff's undertaking with the collecting bank. Indubitably, the defendant could not be compelled to make such payment arising from the mistake of the bank, Section 25(2) of the Contract Act therefore does not apply.
10. It is next urged that the plaintiff is entitled to the relief claimed even under the provisions of Section 70 of the Contract Act which reads thus:
“When a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or restore, the so done or delivered.”
11. For the application of this section, four conditions must be satisfied: (i) the thing must be done lawfully; (ii) it must be done by a person not intending to act gratuitously; (iii) it must be done for another person; and (iv) the person for whom it is done must enjoy the benefit of it. The term ‘lawfully’ as observed by the Calcutta High Court in Panchakore Ghosh v. Haridas Joshi . 21 C.W.N 394. indicates that the man making the payment must have lawful interest in making it. Whether what is done by a person has been done for another within the meaning of Section 70 always is a question of fact. The test is, whether the person who is acting holds such a position in relation to the other as to raise expressly or by reasonable implication an inference that by the act done for the other person he could be entitled to look for compensation for it to the person for whom it was done. He must be not only interested in doing the thing but must act in the place of the defendant and not merely on his own account. As observed in Avudayappa v. Thilli Thandavaroya . A.I.R 1928 Mad 320. the position should be this: He must say, ‘I acted in his place, therefore I am entitled to compensation, because he has not proved that I intended gratuitously.’ That is really what is meant by acting for another. In the in ??? case, in making payment to the collecting bank it cannot be said that the plaintiff had acted for the defendant. He infact acted in his own account in order to discharge his liability occasioned by his mistake. Further if is not only necessary that the act should be done for anther but also the person for whom the act is done must enjoy the benefit of it. The benefit however must not be thrust upon him. He must be in a position to exercise the position whether or not to avail himself of the benefit. It is no doubt true that on account of the payment made, the defendant may be said to have got in effect some benefit but evidently, it is a benefit, having regard to the circumstances, thrust upon him. The bank was compelled to pay even though it had never intended to pay the same under the authority of the defendant express or implied. The defendant whose credit in the bank was low knew for certain that the cheque will not be honoured. As a matter of fact he did not wish that the eheque should be hououred. That is the reason why according to him he did not make any deposit nor advise stoppage of payment of the post dated cheque. But, curiously enough, on account of the obligation of the plaintiff towards the collecting bank, the benefit was thrust upon him. Such a benefit cannot be reclaimed by the plaintiff under the provisions of Section 70 of the Contract Act and the defendant is not bound to compensate under the provisions of the same section. The court below has therefore held that plaintiff's suit should fail. We see no reason to differ from the view taken by the Court below. Not only the plaintiffs did not come to the court with a full and true account of the story in their plaint but also failed to establish the liability of the defendant even according to the statement filed on 16-3-1950. We therefore confirm the judgment and decree of the Court below and dismiss his appeal with costs.
Ch. R.
12. Appeal dismissed.
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