Consideration in Contract under Indian Contract Act
In simple words, Consideration is the mutual benefit that would accrue on performance of the contract. You may also say that Consideration is the price of the Contract, that is exchanged between the parties to the contract. So, you may view Consideration as 2 faced coin, mutual benefit that accrues to the party, in one hand, and the price that is exchanged between the parties, on the other hand, when the contract is performed.
For example, the promisor promises to pay the price. In return, the Promisee promises to provide the agreed goods & services. You may think other way also, the promisor promises to provide the agreed goods & services and in return, the promisee promises to pay the Price.
An Agreement made without consideration is void.
Definition : Consideration is an act (or abstinence from acting) for promise; done at the desire of the promisor, by the promisee or any other person [s.2 (d)].
On the basis of above statement, Consideration is :
- Doing something : It is an act of doing something, or
- Abstinence or forbearance : It may also be an abstinence or forbearance (which means NOT to do something), e.g not to file a court case, complaint etc.
- Benefit in Return: The term ‘consideration’ ordinarily means quid pro quo, i.e., something in return. So, Consideration is the benefit gained by a party to the contract in return of promise made by him.
So, a consideration may consist of either in some right, interest, profit or benefit accruing to one party. Conversely, it may also be some forbearance, detriment, loss or responsibility undertaken by the other.
Consideration (प्रतिफल) – सरल हिंदी में समझे
Indian Contract Act – Essential elements of Consideration
- Benefit to one Party : It must give rise to some benefit to one party (or loss to the other party) in return to the promise. The beneficiary may be third person.
Ex. X promised to pay donation to a club. This is not a valid contract as there is no benefit accruing to X.
- Move through Promise: It must move through a promise. A voluntary act does not give rise to a consideration.
Ex. A saved B’s goods from fire without being asked by B. A cannot demand payment from B for the voluntary services not asked by B.
Essential elements of Consideration – English Video
Essential elements of Consideration – Listen in English
Indian Contract Act – Classification of Consideration
According to the time of accrual of benefit, Consideration may be classified as follows:
- Past consideration: The consideration received by a party in the past (i.e., before formation of the contract), is called as past consideration. Where a party has already performed his obligation (i.e., before formation of the contract), he has supplied past consideration (as per English Law, Past Consideration is not valid).
Ex. A rendered some service to B on his request. Later B agreed to pay A for the service done. A can now recover the amount promised from B. Here the promise is made on past consideration.
Consideration का प्रकार: सरल हिंदी में समझे
Past Consideration – सरल हिंदी में समझे
- Present consideration: The consideration which is received by a party at the time of formation of contract, is called as present consideration. Thus, where a party performs his obligation simultaneously with the formation of the contract, he has supplied present consideration.
Present Consideration – सरल हिंदी में समझे
- Future consideration: The consideration which will to be received by a party in future (i.e., after formation of the contract), is called as future consideration. Thus, where a party agrees to perform his obligation after formation of the contract (e.g., at a future date), it is said that he has supplied future consideration.
Ex. A promises B to deliver some goods after a week. B promises A to pay within 7 days of receipt of goods. Both A and B must fulfill their respective obligations as per terms of contract. Here the promise is made on future consideration.
Future Consideration – सरल हिंदी में समझे
Classification of Consideration – English Video
Classification of Consideration – Listen in English
Indian Contract Act – Characteristics of Consideration
Following are the characteristics of valid Consideration.
- Consideration Need not be adequate : Normally, the Consideration, which is the mutual benefit to accrue to he parties to the contract, should be adequate to induce both the parties to come into contract. However, from legal point of view, Consideration must be of some value, but must need not be adequate. The law requires that there must be consideration in every contract. The contract is valid even on inadequate consideration, provided the consent of the parties is freely given (i.e given with free consent).
Ex. A promised to B to sell his entire lot of antique furniture at Rs.10,000 only, which B accepted. Held, this is a valid contract, even if the consideration is inadequate. The consideration need not have any regard to the actual value of the furniture.
- Consideration Must be real : Consideration must be real and not illusory. A contract to do something illusory, unreal & impossible is not valid.
Ex. A promises B to bring life to his dead wife from the bed. This is a void contract as it is unreal & impossible.
- Consideration mut not be duty of the promisor : Consideration must not be something which is duty of the promisor. No consideration emerges for something done which the person is bound to do under the law or a part of duty.
Ex. A’s son is missing. He registers a police diary. Meanwhile he also declares a reward whoever can fetch his son. A policeman of that police station brings back his son and asks for the reward. Held, the policeman cannot claim the reward because it is his duty to fetch his missing son for which he has already reported to the police station.
- Consideration must be Lawful : Consideration must be lawful. It must not be prohibited by law, illegal, immoral or opposed to public policy, involve injury to any person or property.
Ex. A promises B to pay Rs 1 lakh to abduct C. This is not enforceable as the object is illegal.
- Consideration of Abstinence or forbearance : Abstinence or forbearance may be a consideration. Sometimes, the consideration may be abstaining from doing of some act (i.e., not to do some specified act). Non-doing of certain act by a party results in negative consideration.
Ex. A’s verandah on 1st floor fell down and injured B in the ground floor. A threatened to sue B unless B promised to pay Rs.500 for as compensation for B’s injury. B promised but later refused to pay, claiming that there was no consideration for his promise. B can recover the amount because B’s abstinence from legal suit is a valid consideration.
- Consideration May move from promisee : Consideration should move from Promisor to Promisee. But, it may also move from promisee or any other person. Where a third party furnishes the consideration, it is valid consideration (sometimes referred as Doctrine of ‘constructive consideration’). This is also stated as ‘Privity of consideration is not required’.
Ex. A & B, two brothers, on partition of joint family property, agree between themselves to invest some money to support their mother. The mother may now enforce A & B to make the investment, as she was the beneficiary of the consideration to the Contract, though she was not a direct party to the agreement (the agreement of investment was between the 2 brothers A & B),
Ex. A lady A had an old sister C, whom she loved. A transferred her property to daughter R, to regularly pay C. R made an agreement with A promising her to pay C regularly. Later on R refused to pay C on the plea that there is no consideration moving from C to R. Held, R was liable to pay C as the consideration has moved from A to C. So, consideration may move from third Party also (Chimayaa vs Ramaiyya.)
Characteristics of Consideration – English Video
Characteristics of Consideration :Consideration के लक्षण / चरित्र - सरल हिंदी में समझे
Adequacy of Consideration- सरल हिंदी में समझे
Consideration must be real- सरल हिंदी में समझे
Consideration must not be duty of the promisor- सरल हिंदी में समझे
Consideration must be Lawful – सरल हिंदी में समझे
Consideration of Abstinence or forbearance – सरल हिंदी में समझे
Consideration may move from Promisee- सरल हिंदी में समझे
Characteristics of Consideration – Listen in English
Indian Contract Act – Characteristics of Consideration
Though Consideration is essential in a valid Contract, however, in certain cases, a contract is valid even without any consideration (exception to the rule : ‘ no consideration, no contract’, such as:
- Time barred debt: Time barred debt is normally unenforceable. However, a time barred debt becomes enforceable, if payment of time barred debt is promised in writing and signed by debtor or specifically authorized on his behalf [s.25(3)].
Ex. A took loan of Rs 2000 from B, five years back, which he did not pay. The debt is now barred by limitation (so B can no more sue A for the time barred debt). A now promises in writing, to pay B Rs.1000 towards the past debt. This is a valid contract (of the new promise to pay Rs 1000) and A must pay Rs 1000 to B as per contract. Now, if A does not pay, B may sue for recovery of Rs 1000 as promised.
- Agency: No consideration is necessary to create an Agency [s.185]. An agent may enter into a valid contract, even if there is no consideration for him (i.e, even if Agent is not taking any commission).
Ex. A, appoints B to sell his house giving him a power of attorney. B makes contract with C to sell him the house on behalf of A. Held, the contract is valid if it is made by B within his authority, even if B does not get any commission or benefit out of the deal.
- Promise for past voluntary services : Normally, no liability arises for voluntary act, as consideration must flow from promisor. However, a promise to compensate voluntary services is enforceable even without consideration [s. 25(2)].
Ex. While B is away on holiday, a storm damages the roof of his house. A, his neighbourcarries out the necessary repairs. On his return, B promises to pay A for the expenses of repairs. A can recover the money from B (if B did not promise to pay, B is not bound to pay, but he became bound by his subsequent promise).
- Bailment: Bailment is temporary transfer of possession of goods to another. Consideration is not necessary to effect a valid bailment of goods (called Gratuitous Bailment, like Delivery of valuables to neighbour for safe custody, lending bicycle to a friend for his use).
- Charity: If a person promises to contribute to charity and on this faith, the Promisee undertakes a liability not exceeding the promised subscription, the contract shall be valid.
Ex. X promises Y, the owner of a temple, to donate Rs 50,000 for renovation. On the promise, Y incurred expenses for renovation. Held, X must pay Y for expenses incurred, upto Rs 50,000, though there was no consideration for X.
- Remission: Where a person agrees to receive less than what is due to him, such an agreement is remission. No consideration is required for a contract of remission. (Sec. 63).
Ex A owed B Rs 5000. B agreed to Accept Rs 4000 in full settlement of the Debt. Hence the B must Accept Rs 4000 to settle the debt.
- Guarantee: A ‘contract of guarantee’ is a contract to perform the promise or discharge the liability of a third person, in case of his default. A contract of guarantee is not valid if made without consideration. However, the consideration received by the principal debtor is a sufficient consideration for the surety and the contract of guarantee shall be valid even if no consideration is received by the surety. (s.127).
Ex P requests C to sell and deliver the goods on Credit. C agrees if S promises to guarantee to payment in default of P. This is valid contract as there is consideration between P & C, though S did not receive any commission (or benefit) of guarantee.
- Agreement with Relatives: Agreements made in writing with Relative and out of natural love and affection is enforceable, even without any consideration in following cases:[s. 25(1)]
- The agreement is made in writing. Though oral agreement is binding on the parties, agreement out of love & affection, without consideration, will be binding only if it is made in writing.
- The agreement is registered. Ordinarily, an agreement is not required be registered. However, an agreement falling under this exception shall not be valid unless registered, as required by law.
- With Relatives. The parties must stand in ‘immediate relation to each other’ (blood relation or relation out of marriage).
- Natural love and affection between the parties. The act must be out of love and affection between parties.
Ex. Out of love and affection, X promises his son to give Rs 1 Lac and executes a deed. It is valid contract, though there is no consideration for X for executing the deed for his son, because this contract has been done out of natural love and affection between the parties.
- Contract with Seal: A contract made in the form of a deed under seal is valid, even if it is made without consideration.
- Gifts: In case of completed Gift (requires completed documentation where neceassry), consideration is not needed between donor and donee. Hence, contract of gift, even without consideration, is valid.
Ex. A gifts Jewellery to B. Now the jewellery is B’s property and A cannot take it back.
Contract without Consideration – सरल हिंदी में समझे
Time barred debt – सरल हिंदी में समझे
Agency – सरल हिंदी में समझे
Promise for past voluntary services : – सरल हिंदी में समझे
Bailment – सरल हिंदी में समझे
Charity – सरल हिंदी में समझे
Remission – सरल हिंदी में समझे
Guarantee – सरल हिंदी में समझे
Agreement with Relatives – सरल हिंदी में समझे
Contract with Seal – सरल हिंदी में समझे
Gift – सरल हिंदी में समझे
Contract without Consideration – English Video
Contract without Consideration – Listen in English
Indian Contract Act – Stranger acting in a Contract
Stranger cannot act in a contract : As a general rule, only the parties to a contract can sue and be sued on that contract. This rule is referred as doctrine of Privity of Contract. A person who is not a party to a contract, cannot sue upon it.
Ex. D, a Tyre company sold its tyres to its dealer T, on the condition that the tyres would not be retailed below D’s list price and anyone selling below the list price would pay D Rs 100 per tyre. T sold some tyres to a sub dealer S, who retailed a few tyres at a lower rate than the list price of D. D claims from S Rs 100 per tyre undersold. D cannot recover as there is no contract between D & S.
Third party acting in a contract : Though, Stranger (who is not Party to Contract), cannot act in a contract, However, this rule is not applicable to a party having consideration. This means, a person, though stranger to contract, but has an interest in the contract (who is not a party to the contract, but has interest in the benefit of the contract) may also act in a contract, like a party to the contract. This is referred as doctrine of ‘Privity of consideration is not required’.
- Trust : In a Trust, the beneficiary may enforce a contract, though beneficiary is not a party to the agreement creating a trust. As the trust is created for beneficiary, the beneficiary is entitled to sue the trustee for the enforcement of duties of trustee, even though the beneficiary is not a party to the agreement.
Ex. A agrees to B to transfer some property to B which B must hold as trustee for benefit of C (the beneficiary). Now C can enforce the contract even if C is not party to the agreement (the agreement is between A & B).
- Marriage / partition / family settlement: In Marriage, partition or family settlement, the beneficiary may enforce a contract (made in writing), even though he may not be a party to such settlement.
Ex. A & B, two brothers, on partition of joint family property, agree between themselves to invest some money to support their mother. The mother may now enforce A & B to make the investment, though she was not a party to the agreement (the agreement of investment was between the 2 brothers A & B).
- Contracts of Agency : Contracts entered into by Agent, is enforceable by Principal also, if done by Agent within his authority on behalf of the Principal. The Principal can enforce the contracts entered into by his Agent, provided the Agent has acted within the scope of his authority and in the name of the principal.
Ex. A, appoints B to sell his house giving him a power of attorney. B makes contract with C to sell him the house on behalf of A. Held, the contract is valid if it is made by B within his authority, even if B does not get any commission or benefit out the deal.
- Assignment of a Contract.Assignment is the right transferred from one person (Assignor) to another person (Assignee), under Transfer of Property Act. After assignment, the assignee may exercise all the rights the assignor previously could, even though the assignee was not a party to the contract originally made. (e.g assignee of life insurance policies, official assignee of liquidator, etc).
- Covenants. Covenants means previous owner of Land. In case of transfer of immovable property, the purchaser of land is bound by certain conditions or covenants with original land owner, though he is not a party to the original agreement of the conditions or covenants relating the land.
Stranger acting in a Contract – English Video
Stranger acting in Contract : Contract में अजनवी का कारवाई – सरल हिंदी में समझे
Trust – सरल हिंदी में समझे
Marriage / partition / family settlement – सरल हिंदी में समझे
Contracts of Agency – सरल हिंदी में समझे
Assignment of Contract – सरल हिंदी में समझे
Covenant – सरल हिंदी में समझे
Stranger acting in a Contract – Listen in English
Indian Contract Act – Quasi Contracts
Legal relationship without entering into Contract : In some cases, a legal responsibility emerges even without entering into Contract by any party (no offer / acceptance). It is based on the principle of equity that no one gains at the expense of another.
The term Quasi means similarity or resemblance. Quasi contracts, though not contracts, are named so, because, even without entering into any contract, a legal relationship comes up with enforceable rights and obligations, attached to a Quasi Contract, like a Contract.
A contract is entered into by two or more parties to create a legal relationship between them. But in Quasi Contract, the legal relationship is imposed by law.
Strictly speaking, a Quasi-contract is not a contract, as a contract is intentionally entered into. So, quasi contracts are sometimes called as ‘contracts Implied by Law’.
Quasi Contracts – सरल हिंदी में समझे
Instances of Quasi Contracts
- Supply of necessaries (s.68) : Sometimes a person is legally bound to support another incapable person (person with incapability , like Minor etc.,), with necessaries suited to his condition in life. The person providing the supplies is entitled to be reimbursed from the property of such supported person, in cases like :
- Necessaries suitable to conditions in life : ‘Necessities’ means necessaries suitable to the conditions in life of the person to whom such necessities are supplied. Thus, necessities are determined with reference to the status of such person and the circumstances of the case.
- Food, clothing and housing : Food, clothing and housing are basic necessities. Other items of necessities are education expenses, medical expenses, legal expenses for defending minor in civil and criminal proceedings, etc.
- Loan taken for purchase of necessities : A loan taken for purchase of necessities shall bind the incapable person.
- Fund supplied to a minor : Any fund supplied to a minor for the marriage of a female member of his family is considered as necessaries of minor.
- Payment by an interested person (s. 69) : A person, to protect his interest, makes payment on behalf of someone which was legally due, is entitled to be reimbursed by the person. The general rules are:
- Bona fide : The payment made should be bona fide for the protection of one’s interest.
Ex. Aleft his carriage on B’s premises. B’s landlord seized the carriage as distress for rent. A paid the rent on behalf of B to obtain the release of his carriage. Held, A could recover the amount from B.
- Bound by law to pay : The payment must be such as the other party was bound by law to pay (should not be a voluntary one).
Ex. The goods belonging to A were wrongfully attached on account of arrears of Government revenue due from B. A paid the amount to save the goods from sale. Held, A was entitled to recover the amount from B.
- Obligation to pay for non-gratuitous acts (s. 70) : When a person lawfully does anything for the benefit of another person, not gratuitously, the person enjoying the benefit should compensate the person. The general rules are:
- Lawfully : The act must have been done lawfully.
- Not Gratuitously : The person should not do it gratuitously.
- Benefit Enjoyed:The person for whom the act is done must have enjoyed the benefit of the act.
Ex. X, a tradesman, leaves goods at Y’s house by mistake. Y treats the goods as his own. Y is bound to compensate X.
- Finder of lost goods (s. 71) : A person, who finds goods belonging to another and takes them into his custody, becomes like a bailee of goods, and acquires following legal duties & rights (particular lien on the goods)
- Care of goods : The finder must take care of the goods (like his own goods) . He cannot mix the goods with his own.
Ex. X gave is gold jewellery to Y for safe keeping. Y just kept it in is drawer without lock & key. It was stolen. Y is responsible for the loss, as he did not take proper care.
Ex. X gave is gold jewellery to Y for safe keeping. Y kept it in under lock & key. Next day, the jewellery of Y along with Jewelley of X were burgled. Y is not responsible, as he took care of X’s goods as good as his own.
- Trace the Owner : He must take steps to trace its owner. Till the owner is found, the finder can retain the goods.
- Sell the goods : Though the Finder is not owner of the goods, but merely acting like a bailee, the finder can sell the goods in his custody, in following situations: (S.169)
- Perishing : The thing found is in danger of perishing
- Owner cannot be found out : The owner cannot with reasonable diligence, be found out;
- Owner refuses to pay : The owner refuses to pay the lawful charges of the finder
- Lawful charges at least two-thirds of the value : The lawful charges of the finder, in respect of the thing found, amounts to at least two-thirds of the value of the thing found.
- Return of accretion to goods : If there is any accretion of goods (like a cow gives a calf), he must return the accretion.
Ex. X finds a diamond in a diamond shop. X gave it shop owner asking him to find out the true owner of the diamond and give it to him. After reasonable time of search, the shopkeeper could not find the true owner of the diamond. The original finder then asked the shopkeeper to return the diamond. The shopkeeper refused to hand over the diamond to the original finder (because the finder was also not the true owner of the diamond). The original finder can now sue the shopkeeper for recovery of the diamond (because he is the nearest person after the true owner).
- Mistake or Coersion (s.72) : Aperson to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it to the person.
Ex. Aand B jointly owe Rs. 100 to C. A alone pays the amount to C, B, not knowing this fact pays Rs. 100 over again to C. C is bound to pay the amount to B.
Instances of Quasi Contracts : Quasi Contract के उदाहरण / दृष्टांत – सरल हिंदी में समझे
Payment by Interested Person – सरल हिंदी में समझे
Obligation to pay for Non Gratuitous Act – सरल हिंदी में समझे
Finder of lost Goods – सरल हिंदी में समझे
Mistake or Coercion – सरल हिंदी में समझे
Characteristics of Quasi Contract
- Imposed by law : A Quasi contract does not arise from any formal agreement, but is imposed by law. The parties are put in the same position as if there were a contract between them.
- Principle of equity and conscience : Quasi contract is imposed by law. It is subject to the principle of equity (no one should benefit at the cost of other), and good conscience.Thus, duty (not promise) constitutes the basis of a quasi contract.
- Right to one party, liability on the other : It grants a right to one party and imposes a liability on the other party, in connection with the benefit already received.
- Right against specific person : The right granted to a party under a quasi contract is not available to him against the whole world, but against particular person(s) only. In this respect, it resembles a contractual right.
- Compensation for Non-performance : When an obligation created by Quasi-contracts is not discharged, the aggrieved party is entitled to compensation in the same way as if he had made a contract and the other party broken it (s.73).
- Remedies for breach of contract : The aggrieved party is entitled to all remedies available for breach of contractual obligation. So, a suit for breach of a quasi contract may be filed like normal contract.
Quasi Contract – English Video
Characteristics of Quasi Contract : Quasi Contract के तत्त्व / चरित्र – सरल हिंदी में समझे
Imposed by law – सरल हिंदी में समझे
Principle of equity and conscience – सरल हिंदी में समझे
Right to one party, liability on the other – सरल हिंदी में समझे
Right against specific person – सरल हिंदी में समझे
Compensation for Non-performance – सरल हिंदी में समझे
Remedies for breach of contract – सरल हिंदी में समझे
Quasi Contract – Listen in English
Indian Contract Act – Quantum Meruit
Quantum Meruit means ‘As Much as one deserves’. When a person has done something under a contract, and the other party repudiates the contract, or further performance of the contract becomes impossible, then the performing party can claim remuneration to the extent of the work done.
Quantum Meruit – सरल हिंदी में समझे
Quantum Meruit – Characteristics
- Quasi-contractual obligation : The right to claim quantum meruit does not arise out of contract, butis claimed on the quasi-contractual obligation,implied upon by law.
- Claim for quantum meruit :The claim for quantum meruit arises only when the original contract is discharged. If the original contract exists, the party not in default cannot have quantum meruit remedy, but can claim damages. The party who is not in default only can claim for qunatum meruit.
- Compensation for quantum meruit: When an obligation created by a quasi-contract is not discharged, the injured party is entitled to receive the same compensation from the party in default, as if that person had contracted to discharge it and had broken his contract.
Ex. A was employed as a Manager in a company. After rendering service for three months, it was found that the directors were not qualified to appoint him. Held, A could recover remuneration for the services rendered by him on quantum meruit.
Quantum Meruit Characteristics : Quantum Meruit के तत्त्व / चरित्र – सरल हिंदी में समझे
Quasi-contractual obligation – सरल हिंदी में समझे
Claim for quantum meruit – सरल हिंदी में समझे
Compensation for quantum meruit – सरल हिंदी में समझे
Quantum meruit – When not allowed
- Contract not divisible : When the work done is such that it is of no value
- Party himself guilty : When the Party himself prevents performance, the defaulting party may not be entitled to quantum meruit
Ex. A contracted with B to build a house for Rs 10000, to be paid only after completion of the entire work. After having done the work to the value of Rs 4000, A abandoned the contract. B then completed the work himself. A can not recover the value of the part he had completed because the payment was to be made only on the completion of the entire work. Due to abandonment by A, B had no alternative but to complete the rest of the work.
Quantum meruit – English Video
Quantum meruit – When not allowed : सरल हिंदी में समझे
Contract not divisible: सरल हिंदी में समझे
Party itself guilty: सरल हिंदी में समझे
Quantum meruit – Listen in English
Contracts uberrimae fidei
Contracts based on utmost good faith : Uberrimae fidei means utmost good faith. In such contract, the law imposes a duty upon the parties to the contract to disclose all material facts and information pertaining to the contract. Non-disclosure of it may vitiate the contract on the ground of fraud.
Contracts based on utmost good faith- सरल हिंदी में समझे
Instances of Uberrimae fideicontracts
- Contract of Insurance: Contract of insurance of any kind is a contract uberrimae fidei. The insured must inform the insurer all material facts fully and correctly.
- Company Prospectus: Company prospectus inviting public to subscribe for its shares is a contract uberrimae fidei. The obligation for disclosure of all material facts is statutory. Non-disclosure of it will tantamount to fraud.
- Seller of Land: The seller of land is under an obligation to disclose the defects in the title over the property.
- Family Management:When the members of a family make agreements for the settlement of property, each member must make full and correct disclosure of every material fact of which he has the knowledge.
- Marriage Engagements:In contract of marriage engagements, both the parties must observe good faith and disclosure of all material facts regarding age, disease, prior marriage etc. Otherwise the party deceived or misrepresented may avoid the engagement.
Contracts uberrimae fidei – English Video
Instances of Uberrimae fideicontracts- सरल हिंदी में समझे
Contract of Insurance- सरल हिंदी में समझे
Company Prospectus – सरल हिंदी में समझे
Seller of Land – सरल हिंदी में समझे
Family Management – सरल हिंदी में समझे
Marriage Engagements – सरल हिंदी में समझे
Contracts uberrimae fidei – Listen in English
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