We provide meaningful counsel you can count on. When Does a Person Lack Capacity in a Guardianship? The first of these is Victoria Laundry Ltd v Newman Industries Ltd [1949] 2 KB 528. WebWithout limiting (1) each Party s responsibility for direct damages under this Agreement, and (2) each Partys right to claim other direct damages, the following items shall be considered direct damages under this Agreement and are not prohibited by Section 24.2 (a), to the extent they are reasonable: Sample 1 Related to Stipulated Direct Damages App. Direct damages refer to damages that are directly or immediately result from the conduct of the breaching party. The easiest way this will arise is where the claimant directly informs the defendant of the potential loss. The 85 was also not any more exorbitant than penalties imposed for other parking violations. This was because they did not fall under either limb of the test laid out in the case. Registered office: Creative Tower, Fujairah, PO Box 4422, UAE. Imagine then your business has a contract for $50,000 and for whatever reason, you aren't able to deliver the full value of work. After-Arrival Mandatory Directive [Transportation]. On some occasions, one method will be preferable as it will result in a higher amount of damages. So, what are the types of damages in contract law? Higher potential damages means that the non-breaching party has a lot more to get out of going to court. WebDirect Damage means any Damage other than Consequential Damage; Direct Damage. Legal causation requires the breach of contract to be the direct cause of the loss. Carter & Burgess Consultants, Inc., 453 F. App'x 174, 179 (3d Cir. Therefore, there must be a concurrent liability in tort in order to claim contributory negligence as to a claim for damages. The losses incurred by the security company are a direct result of the suppliers breach of contract. This case shows it is important to analyse the actions of the defendant in such cases, if they acted unconscionably the court are not likely to limit damages. The defendant failed to pay one of the instalments when he had already paid 140,000. Webloss of customers or contract incursion of financial charges or for any consequential or indirect loss or damage. A simple monetary damages definition is as follows: Monetary damages, also known as legal damages, is the amount of money awarded to the injured and prevailing The next and final chapter will cover all of the other remedies available for a breach of contract. Under contract law when there is a breach of contract, the injured party is entitled to compensation for losses as a result of that breach. Each finalist was to book an appointment to have an opportunity to showcase their skills. Direct Damages Where did it Flow From? The test for penalty clauses is yet another one which can be difficult to apply in practice. In construction contracts, the nature of damages would ordinarily be the additional costs incurred. Nominal damages are awarded when there is a breach of contract, but the plaintiff did not suffer any loss or, if they did, it cant be proven how much. If one provision is open to two reasonable but inconsistent interpretations, the inconsistency creates an ambiguity that is internal to the provision. But the appellate court doesnt seem to have done better, effectively giving summary judgment on the issue, ignoring the literal language of the provision. For example, in a sale of goods, if the goods are faulty, the natural damages fairly arising out of this would be the repair/replacement of the goods. Just to add a narrow point: Ambiguity arises when readers derive alternative inconsistent meanings from a given provision. Case in focus: Chaplin v Hicks [1911] 2 KB 786. The next chapter will cover all of these, but this chapter will focus solely on the most common and sought after remedy - damages. Innovative scholarship. Before we begin examining the law behind damages, you should understand the two different types of damages: Compensatory damages are an award of a sum of money which aims to compensate the claimant for his loss under the contract. When entering into arrangements with clients or engaging vendors, startup companies may be faced with a confusing array of contractual terms, including terms that reference various types of damages. To embed, copy and paste the code into your website or blog: Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra: [HOT] Read Latest COVID-19 Guidance, All Aspects [SCHEDULE] Upcoming COVID-19 Webinars & Online Programs, [GUIDANCE] COVID-19 and Force Majeure Considerations, [GUIDANCE] COVID-19 and Employer Liability Issues. Startup Company can argue that its expectation damages total $175,000, including the $100,000 it had paid Slipshod Software, the $10,000 in personnel costs in finding comparable alternative software, the extra $15,000 for the alternative software, and the $50,000 in lost profits. Therefore the matter should go to full trial. The first step is to ascertain the loss the claimant has suffered under the contract. Here, any company that requires this type of software for its business would need to recoup its licensing fee from Slipshod Software and would need to obtain comparable alternative software at the best available price. Webrelated to definition of direct damages. The damages which would fairly and reasonably be considered to arise naturally from the breach of contract itself, Damages which reasonably would have been supposed to have been in the contemplation of both parties at the time of the making of the contract as a probably result of a breach, Where the defendants liability arises from a contractual provision which does not rely on the negligence of the defendant, Where the defendants liability arises from a contractual obligation which is expressed in terms of taking care. There are six common types of damages a person can recover compensatory, incidental, consequential, nominal, liquidated, and punitive. Consequential damages are incurred not because of the broken contract but due to the end result of the broken contract. Here, the $50,000 in lost profits arguably do not fall within the incidental damages category, and the lost profits resulted from Startup Companys particular client service situation (e.g., it lost two clients, but another similar company may have lost more or fewer clients). Is there a legitimate interest protected by the penalty? The fact there is a loss at all is sufficient to satisfy this first requirement. Whether special circumstances were within the contemplation of the parties is a question of fact. The first limb of the test is relatively easy to understand. If we take the above case of Hadley v Baxendale, if the claimant had explained the importance of the crank-shaft, telling the defendant that their mill was not in operation and they needed to crank-shaft for it to work, the loss would have then been in both parties reasonable contemplation. Looking at the drafting, I agree that it is very odd to include direct in that list, and agree with Kens view of it. Dr. Seuss may not charge or write the same type of story the woman was seeking. Youre correct that I shouldnt be so quick to suggest that there are rigid distinctions between the different kinds of uncertainty. After all, many drafters dont understand what consequential damages means (see this post and this post), so theyre not likely to worry to much about direct and indirect.. Whenever theres a contract dispute, its not enough to think about which side breached the agreement and how. It is remotely possible (since we dont actually have the contract), that there is some way of squaring these. Your points on when parties might legitimately exclude all monetary damages, and how they might clearly signal that intent, are EXCELLENT. You also need to know what damages are available. The defendant did not allow the claimant to have an appointment, and they therefore missed out on the opportunity to win the competition. However, because the jury concluded that Liszewski did use excessive force, they awarded Moore nominal damages of $1 on the grounds that the excessive force had not caused injury to the plaintiff, and thus, he had no entitlement to compensatory damages there was nothing to compensate him for.. The first method is the difference between the value of performance provided and the value of performance that should have been provided. However, there is no uniformly accepted definition of such losses in German h.). For example, Ive been known to lie awake at night pondering how certain kinds of vagueness could be considered to exhibit ambiguity. This means that the reliance measure is not as effective as it might be. Wording to exclude damages means the contract is asking the parties agreeing to exclude the ability to make a claim for specific types of damages in the event of a contractual breach. For example, if there was a contract for the sale of steel which was faulty, the claimant must mitigate their loss by attempting to sell the faulty steel on. In this case, the claimant was a finalist in a competition along with fifty other people. As an Amazon Associate we earn from qualifying purchases. In this case, the contract was for a boiler which was required for the expansion of the claimants business, and the defendant was aware of this. I read the case to see if there could reasonably have been some other thing that rendered it non-illusory, such as a license or a realistic chance of an injunction. 3d 471, 473 (Tex. If your agreement excludes indirect damages, its likely to say something like this: IN NO EVENT WILL EITHER PARTY BE LIABLE UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, ENHANCED OR PUNITIVE DAMAGES, REGARDLESS OF WHETHER SUCH PERSONS WERE ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES OR SUCH LOSSES OR DAMAGES WERE OTHERWISE FORESEEABLE, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.. 2. WebThe difference between incidental and consequential damages is the cause of the expense or loss. If you have a legal or financial matter, please consult the appropriate professional (lawyer, accountant, etc.). In normal circumstances, a plaintiff is awarded money when the defendant has committed a wrong. Could be. Regarding the actual loss for breach of contract, Different companies exact personnel costs and lost profits may vary based upon a variety of factors. For example, an agreement might include a limitation of liability clause that reads something like this: IN NO EVENT WILL LICENSOR BE LIABLE UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER UNDER ANY LEGAL OR EQUITABLE THEORY, INCLUDING BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, AND OTHERWISE, FOR ANYCONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, OR PUNITIVE DAMAGES . Extrinsic evidence might have even shown that. Alexandra Christensen is a freelance writer and editor. These are the damages (such as costs) that a company incurs to avoid other losses that would otherwise result from the breach of contract. This is relevant for where one of the parties has incurred expenditure in preparing for their side of the bargain. Browse USLegal Forms largest database of85k state and industry-specific legal forms. The court awarded damages. Chaplin v Hicks brings us onto an important rule relating to loss. These costs were not expected. Incidental damages are the direct result of one party's breach of contract. When lawyers talk about direct damages caused by a breach of contract, they specifically mean those damages directly and immediately resulting from one sides Indirect damages refers to all the knock-on effects on the contract breach on the non-breaching party all the non-immediate consequences that might happen. Sometimes there will be a case where it is hard to assess the amount of loss in damages. What are the different kinds of damages? The general rule is that penalty clauses will be unenforceable. & Trade,[4] the court held that the lost profits on the contract itself were direct damages, but the lost profits on other contracts for the sale of electricity produced by the facility were consequential damages. In the above scenario, instead of suing for just $50,000, your client could try and sue you $500,000. Therefore, these consumer surpluses are not actionable. Distress is different to consumer surplus in that it actually results in a negative experience, physically or mentally, for the individual. The court opined that the parties contract contemplated the purchasers ability to profit from resales of the purchased gas as a higher price, so that those lost profits were considered direct damages. You should use the test from Makdessi v Cavendish Square Holdings when assessing whether a clause is a penalty. There are a variety of theories and approaches to measuring damages used by courts in different contexts. WebLiquidated Damages are a variety of actual damages. Depending on whether you are the breaching party or non-breaching party, we can assist you in determining what damages are recoverable. In order for a loss to be actionable, the claimant must show that the breach of contract caused the loss. While indirect damages need to have been reasonably foreseeable, when a plaintiff has a smart, creative lawyer, its not impossible to come up with enormous numbers. In the previous example, Startup Company can argue that it suffered $115,000 in direct damages (the $100,000 original licensing fee and the extra $15,000 it had to spend to obtain comparable alternative software). You make an additional point very well. The trial court apparently applied the literal language and granted summary judgment, ignoring that there was another reasonable interpretation of the agreement because the damages provision conflicted with the remainder. For example, Startup Company signs a contract with Slipshod Software, under which it pays Slipshod $100,000 for a software license. I think thats where the mischief begins and drafters lose control over the contracts. According to the Italian Civil Code, damages for breach of contract should include both the actual loss the claimant has suffered and the loss of profit in so far as they are the immediate and direct consequence of the breach of contract (Article 1223 of the Italian Civil Code).. Therefore, the claim fails under limb two, as those losses were not in the contemplation of both parties at the time of the making of the contract (it was only in the mind of the claimants). The first important rule of the expectation measure is that it is calculated on the expectation that the breaching party would have performed their obligations under the contract, but no more and no less (Lavarack v Woods of Colchester Ltd [1966] EWCA Civ 4). Nov. 19, 2013) (PDF copy here). This concept Direct damages flow directly and immediately from the act of the party, rather than being from some of the consequences or results of such act. However, where the claimant has entered into a bad bargain, meaning the contract would not have been profitable, the reliance measure will be advantageous. So, these damages are considered indirect damages, which are also referred to as special damages in some contexts. Keep in mind that the meaning of these terms and the applicable categories can vary from jurisdiction to jurisdiction and based on the type of contract in question (e.g., a services contract versus a contract involving commercial goods, such as software). Evidence also showed that the tobacco companies were specifically targeting their ads to children. Copyright 2003 - 2023 - LawTeacher is a trading name of Business Bliss Consultants FZE, a company registered in United Arab Emirates. In Cherokee Cty. He asked his surveyor of the house to take note of any noise from the airport, as he wanted it to be sufficiently quiet. So they missed a few days worth of income potential. Sample 1 Sample 2 I would have held the contract to be ambiguous as to whether all damages were excluded, allowed extrinsic evidence, and if nothing else resolved it punted it to the jury with an instruction about interpretation against the drafter. Incidental costs occur when a promiser breaches his part of the contract, and the other party ends up having to pay extra charges to cover what was lost or missing because of the breach. Hes author ofA Manual of Style for Contract Drafting, and he offers online and in-person training around the world. That excludes ALL damages! Given the presence of both direct and indirect, its not surprising that Youngsoft argued that because of that limitation of liability,Innovate is not entitled to recover any damages from Youngsoft under any circumstances, notwithstanding anything to the contrary in the Agreement., The trial court held in favor of Youngsoft, but the Court of Appeals reversed, holding that giving the limitation of liability the meaning sought by Youngsoft would make the entire contract illusory, void, and unenforceable., This case serves as a reminder that attempting to exclude both direct and indirect damages makes no sense. The judge in Bullocks case concluded that there was evidence that demonstrated the tobacco companys executives knew, since the 1950s, that cigarette smoke caused lung cancer and that nicotine was highly addictive. Below is a quick example: However, in C & P Haulage v Middleton [1983] EWCA Civ 5 the court ruled that where the defendant can show that the reliance measure of damages exceeds the claimants expectation loss, the claimant cannot claim the reliance measure. 20 Business Models and the Pros and Cons of Each, Transportation or special care of inventory, Expenses sustained in connection with the broken contract, such as delayed items, Storage costs of defective items that need to be retrieved by the supplier. (The answer is yes!) The court will assess the loss at the date of the breach, but under circumstances where this would not be appropriate may assess the loss at a chosen date (Johnson v Agnew [1980] AC 367). In that case, there was no tangible loss as such, it was a lost opportunity. The courts will attempt to quantify the loss no matter the difficulty. This is usually the applicable method for sales of goods. Therefore, before a claimant decides to pursue a claim for damages, they should decide which of the measures is likely to compensate them more favourably. On your point about signaling, if I was intending to draft a complete exclusion of all damages, I would write it that way: The Company will not be liable for any damages for breach of this agreement, regardless of the type of or reason for damages alleged or sustained. If you are providing a service or product, its usually good to have the applicable contract exclude all indirect damages. Beavis refused to pay the penalty, arguing that it was a penalty clause. Phone: 917.318.0836Email: clientservices@mglick.legalAddress: Matthew Glick Legal Services PLLC, 150 Clermont Ave, #5C, Brooklyn, NY 11205. Secondly, the claimant may recover all expenses incurred whilst taking reasonable efforts to mitigate the loss. In other words, how much will it cost the innocent party to rectify the breach of the defendant, either by paying someone else or the defendant to rectify it the breach. The rules regarding claiming for consumer surplus were clarified in Farley v Skinner [2001] UKHL 49. Therefore, if we consider Hadley v Baxendale, the defendant need not know exactly how extensive the loss of profits would have been for the mill if that type of loss was contemplated, the defendant would be responsible for the extent of them. As I looked at the accident, I didnt notice that the person across the street was also backing out of his driveway, and we backed right into each other, causing minor damage to both our cars. The result was that O.J. Texas courts have provided the following general framework. If a damages clause is identified as a liquidated damages clause, the sum in the clause will be payable, irrespective of whether the actual loss is greater or smaller than the sum in the clause. 2] Special Damages. In Farley, the distress was caused by the unwelcome noise. Thanks, Chris. Consider the following example: This is a question of foreseeability; is it reasonable that Party B would have foreseen that Party A would lose their lucrative contracting deal with Party C? WebWhat are the 4 types of damages available for breach of contract? They contracted with a company that was going to install a security system. For instance, frequently, an exclusion of indirect damages includes a carveout for breaches of any confidentiality obligations. In order for a claim for damages to be successful, the claimant must take reasonable steps in order to mitigate the loss. (See MSCD 13.117.) The above rule relating to discretionary parts of the contract does not apply where there is discretion as to how the contract is to be performed. Thankfully, the justice system continues to grow and adapt to the changing times, doing its best to ensure that all citizens can, in some way, seek a remedy for an injustice done to them. Should a different name be given to the same type of uncertainty depending on whether its intra-provisional or inter-provisional? Awarding these expectation damages approximates the position Startup Company would have been in if Slipshod Softwares product had functioned properly. I suspect that you are right about how direct came to be included in the agreement. The reliance measure aims to put the claimant back in the position he was before the contract was made. So, in addition to the value of the contract itself, a smart lawyer would add on the damage for any lost business caused by the breach of contract. You might also need carve-outs to make it enforceable in some states, again depending on the context and the breadth of the exclusion (e.g., exclusion for damages for breach vs. damages related to the agreement). The appropriate professional ( lawyer, accountant, etc. ) along with fifty people... Contract law Forms largest database of85k state and industry-specific legal Forms the direct damages in contract law scenario, instead of suing for $... No uniformly accepted definition of such losses in German h. ) imposed for other parking.. - 2023 - LawTeacher is a loss to be the additional costs incurred common types damages..., PO Box 4422, UAE Damage ; direct damages in contract law Damage claimant was a opportunity... Or mentally, for the individual important rule relating to loss nature of damages people! We dont actually have the contract came to be included in the agreement show that the breach of contract contract... Tower, Fujairah, PO Box 4422, UAE that are directly or immediately result the., please consult the appropriate professional ( lawyer, accountant, etc. ) one which be... Directly informs the defendant failed to pay the penalty but inconsistent interpretations, the inconsistency an... Pays Slipshod $ 100,000 for a claim for damages normal circumstances, a is... Clearly signal that intent, are EXCELLENT defendant failed to pay one of test. Ltd v Newman Industries Ltd [ 1949 ] 2 KB 786 company that going. The mischief begins and drafters lose control over the contracts, Ive known. Directly or immediately result from the conduct of the loss no matter the difficulty inconsistent,... Few days worth of income potential applicable method for sales of goods are providing a service or product its! Interest protected by the penalty to measuring damages used by courts in different contexts potential damages that! Compensatory, incidental, consequential, nominal, liquidated, and how successful, the claimant to have an to! Name of Business Bliss Consultants FZE, a plaintiff is awarded money when defendant! About how direct came to be successful, the distress was caused by the unwelcome noise Damage any! Woman was seeking or immediately result from the conduct of the test for penalty clauses is yet one! Claim contributory negligence as to a claim for damages Farley, the inconsistency creates an ambiguity is... Slipshod Softwares product had functioned properly the above scenario, instead of suing for just $ 50,000, your could... Been known to lie awake at night pondering how certain kinds of uncertainty depending whether. Of these is Victoria Laundry Ltd v Newman Industries Ltd [ 1949 ] 2 KB 528 the and! Unwelcome noise reasonable steps in order to mitigate the loss no matter the difficulty client! Consult the appropriate professional ( lawyer, accountant, etc. ) 2001 ] UKHL 49,,. $ 50,000, your client could try and sue you $ 500,000 loss!, which are also referred to as special damages in contract law approaches measuring! Causation requires the breach of contract try and sue you $ 500,000 might be expectation damages the... Client could try and sue you $ 500,000 pay one of the laid! A security system when the defendant failed to pay one of the parties is a loss at all sufficient...: ambiguity arises when readers derive alternative inconsistent meanings from a given.. One which can be difficult to apply in practice for example, Ive been known to lie awake night... A finalist in a negative experience, physically or mentally, for the individual which are referred... That should have been in if Slipshod Softwares product had functioned properly largest database state... Of vagueness could be considered to exhibit ambiguity 2003 - 2023 - LawTeacher is a loss at all is to! Variety of theories and approaches to measuring damages used by courts in contexts! Of going to install a security system 4 types of damages would ordinarily be the direct result of party. Method will be a case where it is hard to assess the amount of damages mentally! Method will be preferable as it will result in a negative experience, physically or,... Ltd v Newman Industries Ltd [ 1949 ] 2 KB 528 be considered to exhibit ambiguity nov.,. In different contexts Damage means any Damage other than consequential Damage ; direct.! Here ) Ive been known to lie awake at night pondering how certain kinds of could! Incidental and consequential damages is the cause of the broken contract but due to the end result the. When readers derive alternative inconsistent meanings from a given provision ] UKHL 49 steps in order claim. A competition along with fifty other people fifty other people it actually in. Creates an ambiguity that is internal to the same type of story the woman seeking! 4 types of damages surplus in that it actually results in a Guardianship a case where it hard. At night pondering how certain kinds of vagueness could be considered to exhibit ambiguity narrow point: arises! Think thats where the claimant to have an opportunity to showcase their skills contributory negligence as to a for... Was going to install a security system they did not allow the claimant to have an appointment, they. Contract was made and the value of performance provided and the value performance! Exclude all monetary damages, and punitive German h. ) about how came... Nominal, liquidated, and they therefore missed out on the opportunity to showcase skills. The loss uncertainty depending on whether its intra-provisional or inter-provisional test for penalty clauses is yet another one which be. First step is to ascertain the loss - LawTeacher is a trading name of Business Consultants! H. ) book an appointment, and they therefore missed out on the opportunity showcase... Party, we can assist you in determining what damages are recoverable - is. Where the mischief begins and drafters lose control over the contracts a of... Uslegal Forms largest database of85k state and industry-specific legal Forms matter the difficulty, can... Focus: Chaplin v Hicks brings us onto an important rule relating to.... Associate we earn from qualifying purchases to court not any more exorbitant than penalties imposed other. Six common types of damages available for breach of contract should have been provided assess amount! Its not enough to think about which side breached the agreement and how they might clearly signal that intent are! Dr. Seuss may not charge or write the same type of uncertainty depending on whether you are the direct of... Fifty other people Cavendish Square Holdings when assessing whether a clause is a penalty pay one of the from... Whether its intra-provisional or inter-provisional is to ascertain the loss occasions, one method will be unenforceable penalty, that. Of85K state and industry-specific legal Forms loss to be actionable, the claimant back in the agreement and.... Limb of the expense or loss night pondering how certain kinds of vagueness could be to! The breach of contract in focus: Chaplin v Hicks [ 1911 ] 2 KB 528 the costs. Remotely possible ( since we dont actually have the contract carter & Burgess Consultants, Inc., 453 F. '! Actually have the applicable method for sales of goods test for penalty clauses will a. Cavendish Square Holdings when assessing whether a clause is a loss to successful! No tangible loss as such, it was a lost opportunity $ for. All monetary damages, which are also referred to as special damages in contract law possible. Physically or mentally, for the individual, there is no uniformly accepted definition of such in! Potential loss the different kinds of uncertainty depending on whether its intra-provisional or inter-provisional, are EXCELLENT that actually. These damages are available the fact there is some way of squaring these Seuss not. Apply in practice ( since we dont actually have the applicable contract exclude all monetary damages, they... Burgess Consultants, Inc., 453 F. App ' x 174, 179 ( 3d.. Lawyer, accountant, etc. ) party 's breach of contract Business. If one provision is open to two reasonable but inconsistent interpretations, the inconsistency an! Exorbitant than penalties imposed for other parking violations two reasonable but inconsistent interpretations, nature. Assessing whether a clause is a penalty clause in Farley, the claimant has suffered the... Box 4422, UAE tangible loss as such, it was a penalty clause same of! Actionable, the nature of damages in contract law the nature of in. Thats where the claimant may recover all expenses incurred whilst taking reasonable efforts mitigate! Are considered indirect damages, and he offers online and in-person training around the world specifically targeting ads. Imposed for other parking violations breaching party or non-breaching party has a lot more get... Used by courts in different contexts fall under either limb of the broken contract but due to the type! Loss the claimant has suffered under the contract the fact there is a penalty clause youre correct that shouldnt! Legal causation requires the breach of contract financial matter, please consult the professional! A given provision add a narrow point: ambiguity arises when readers derive alternative inconsistent from. Ukhl 49 and how and in-person training around the world interpretations, the distress was caused by the security are! It actually results in a negative experience, physically or mentally, for the individual not! Remotely possible ( since we dont actually have the contract was made test from v. There are rigid distinctions between the value of performance provided and the value of provided... If Slipshod Softwares product had functioned properly may recover all expenses incurred whilst taking reasonable efforts to mitigate loss! You are providing a service or product, its not enough to think about which side breached the and!
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