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utes to do so, has no power to guarantee the | whose line of railway extends across the state bonds of another corporation; and such a in either direction, may, upon the petition of guaranty, or any contract to give one, if not the holders of a majority of the stock of such authorized by statute, is beyond the scope of railway company, direct the execution by the powers of the corporation, and strictly such railway company of an indorsement ultra vires, unlawful, and void, and incapa- guaranteeing the payment of the principal ble of being made good by ratification or es- and interest of the bonds of any railway comtoppel. Central Transportation Co. v. Pull-pany organized under or pursuant to the man's Palace Car Co. 139 U. S. 24 [35: 55], laws of any adjoining state, the construction and 171 U. S. 138 [ante, 108]; Jackson- of whose line or lines of railway would be ville, M. P. Railway & Nav. Co. v. Hooper, beneficial to the business or traffic of the rail-[569] 160 U. S. 514, 524 [40: 515, 523]; Union Pa- way so indorsing or guaranteeing such cific Railway Co. v. Chicago, Rock Island, & bonds." Section 2 provides that such petiPacific Railway Co. 163 U. S. 564, 581 [41: tion of the stockholders shall state the facts 265, 271];California Nat. Bank v. Kennedy, relied on to show the benefits accruing to "the 167 U. S. 362, 367, 368 [42: 198, 200]: Davis company indorsing or guaranteeing the v. Old Colony Railroad Co. 131 Mass. 258 [41 bonds." And section 3 provides that "no Am. Rep. 221]; Humboldt Min. Co. v. Varie- railway company shall, under the provisions ty Iron Works Co. 22 U. S. App. 334. of this act," indorse or guarantee such bonds to an amount exceeding half the par value of the stock of "the railway company so indors

The real question in the case is whether
this guaranty was valid under the laws of
Indiana, the state by which the guarantoring or guaranteeing."
was originally created a corporation, and as The Louisville, New Albany, & Chicago
a corporation of which it brought this suit. Railway Company was a railway company
Some reliance was placed upon the statute organized under and pursuant to the laws of
of Indiana of 1865, authorizing any railroad Indiana, and its line of railway extended
company incorporated under its provisions across the state from south to north. On
(as the New Albany Company was) to con- October 8, 1889, the board of directors, at a
solidate with any railroad corporation hav-regular meeting, passed a resolution, entered
ing a connecting line, either within or with-
out the state, or to acquire, by purchase or
[568]*contract, its property, rights, and franchises,
or the use and enjoyment thereof, in whole or
in part, and to "assume such of the debts and
liabilities of such corporations as may be
deemed proper." It was argued that the
powers thus given embraced the contract by
which the New Albany Company agreed with
the construction company, in consideration
of receiving from it a controlling interest in
the stock of the Beattyville Company, to
guarantee the bonds of that company.

upon its records, authorizing the president
and secretary to execute under seal of the
company a contract by which the company
agreed with a corporation which was con-
structing the railroad of the Beattyville
Company, a railroad corporation of Ken-
tucky, to guarantee the payment by the
Beattyville Company of the principal and in-
terest of bonds of that company, by indors-
ing on each bond a guaranty, executed in like
manner, by which "for value received, the
Louisville, New Albany, & Chicago Railway
Company hereby guarantees to the holder of
But the New Albany Company never con- the within bond the payment, by the obligor
solidated itself with the Beattyville Com-thereon, of the principal and interest thereof
pany, or acquired by purchase or contract its
property, rights, and franchises, or the use
or enjoyment thereof, in whole or in part. It
is doubtful, to say the least, whether a mere
purchase of three fourths of its stock could
authorize an assumption of its debts, under
the statute of 1865, if that statute had re-
mained in full force. In Hill v. Nisbet, 100
Ind. 341, cited at the bar, a purchase of the
stock of one railroad company by another
was upheld, not as equivalent to a purchase
of the property and franchises, but as a rea-
sonable means to the accomplishment of the
consolidation of the two companies.

But we cannot doubt that, as was held by
both courts below, the statute of Indiana of
1883 superseded and repealed, as to matters
within its scope and terms, the provisions
of all former statutes of the state on the sub-
ject.

The statute of Indiana of 1883 is entitled
"An Act to Authorize Railroad Corporations
Organized under the Laws of the State of
Indiana to Indorse and Guarantee the Bonds
of Any Railroad Company Organized under
the Laws of Any Adjoining State"; and en-
acts, in 1, that "the board of directors of
any railway company organized under and
pursuant to the laws of the state of Indiana,
174 U. S.
U. S.. Book 43.

69

in accordance with the tenor thereof." The contract, as well as the guaranty on many of the bonds, was accordingly executed by the president and secretary and under the seal of the company, and the contract was spread upon the records of the board of directors. No petition of a majority of the stockholders for the execution of the guaranty was ever presented, as required by the statute: there was no evidence that the stockholders ever authorized or ratified the contract or the guaranty; and, at the next annual meeting of the stockholders, in March, 1890, it was voted to reject and disapprove both the contract and the guaranty, as having been made without legal authority or the approval of the stockholders.

Before that meeting was held, one hundred and twenty-five* of the bonds thus guaranteed[570] had been sold by the construction company to the Louisville Trust Company, and ten bonds to the Louisville Banking Company, each of which companies took those bonds in good faith and without notice that no petition had been presented by a majority of the stockholders for the execution of the guaranty.

Forty-five more of the bonds were purchased by the Louisville Banking Company 1089

from the construction company after that meeting, and with notice that a majority of the stockholders had never petitioned for, but had disapproved, the execution of the guaranty. The Louisville Banking Compary, thus having notice, when it took these forty-five bonds, that the prerequisite to the execution of the guaranty, under the statute of Indiana of 1883, had not been complied with, was not a bona fide holder of these bonds, and should not be allowed to enforce the guaranty thereon against the plaintiff.

The controverted question is whether the bonds which the Louisville Trust Company and the Louisville Banking Company, respectively, purchased in good faith, and without notice of the want of the assent of the majority of the stockholders, are valid in the hands of these companies.

The guaranty by the Louisville, New Albany, & Chicago Railway Company of the bonds of the Beattyville Company was not ultra vires, in the sense of being outside the corporate powers of the former company; for the statute of 1883 expressly authorized such a company to execute such a guaranty, and its board of directors to direct its execution by the company. The statute, indeed, made it a prerequisite to the action of the board of directors that it should be upon the petition of a majority of the stockholders; but this was only a regulation of the mode and the agencies by which the corporation should exercise the power granted to it.

The distinction between the doing by a corporation of an act beyond the scope of the powers granted to it by law, on the one side, and an irregularity in the exercise of the granted powers, on the other, is well established, and has been constantly recognized by this court.

vided that no such aid should be furnished
until two thirds of the stockholders repre-
sented and voting at a meeting called by the
directors should have assented thereto. The
directors of three railroad corporations made
a contract with another railroad corporation
to guarantee its bonds, as part of an arrange
ment for connecting the four roads; and the
bonds were accordingly guaranteed, and were
issued to bona fide holders, without any meet-
ing of the stockholders having been called.
But, upon evidence that the stockholders had
subsequently assented to the transaction, the
bonds were held to be valid; and the court
expressly declared that the doctrine that a
corporation cannot vary from the object of
its creation, and that persons dealing with
a company must take notice of whatever is
contained in the law of its organization, does
not apply to "those cases in which a corpo-
ration acts within the range of its general
authority, but fails to comply with some
formality or regulation which it should not[572)
have neglected, but which it has chosen to
disregard." 23 How. 398 [16: 497].

Again, in Central Transportation Co. v. Pullman's Palace Car Co. 139 U. S. 24 [35: 55], this court, in summing up the result of previous decisions, stated the same distinetion as follows: "A contract of a corpora tion, which is ultra vires in the proper sense, that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond the powers conferred upon it by the legislature, is not voidable only, but wholly void and of no legal effect; the objection to the contract is not merely that the corporation ought not to have made it, but that it could not mak it; the contract cannot be ratified by either party, because it could not have been authorearli-ized by either; no performance on either side can give the unlawful contract any validity, or be the foundation of any right of action upon it. When a corporation is acting within the general scope of the powers conferred upon it by the legislature, the corporation, as well as persons contracting with it, may be estopped to deny that it has complied with the legal formalities which are prerequisites to its existence or to its action, because such requisites might in fact have been complied with. But when the contract is beyond the powers conferred upon it by existing laws, neither the corporation, nor the other party to the contract, can be estopped, by assenting to it or by acting upon it, to show that it was prohibited by those laws." 139 U. S. 59 [35: 68].

It was clearly indicated in two of its [571]est judgments on the subject of ultra vires, both of which were delivered by Mr. Justice Campbell.

In Pearce v. Madison & Indianapolis Railroad Co. 21 How. 441 [16: 184], two railroad corporations of Indiana were held not to have the power to purchase a steamboat to be employed on the Ohio river, to run in connection with their railroads, because this "diverted their capital from the objects contemplated by their charters, and exposed it to perils for which they afforded no sanction;""persons dealing with the managers of a corporation must take notice of the limitations imposed upon their authority by the act of incorporation;" "the public have an interest that neither the managers nor stockholders of the corporation shall transcend In St. Louis, Vandalia, & Terre Haute Railtheir authority;". and the contract in ques-road Co. v. Terre Haute & Indianapolis Railtion "was a departure from the business" of road Co. 145 U. S. 393 [36: 738], one of the the railroad corporations, and "their officers parties relied on a provision of a statute of exceeded their authority." 21 How. 443, Illinois that it should not be lawful for any 445 [16 L. ed. 185]. railroad company of Illinois, or its directors, In Zabriskie v. Cleveland, Columbus, & to consolidate its road with any railroad out Cincinnati Railroad Co. 23 How. 381 [16: of the state, to lease its road to any railroad 488], the statutes of Ohio empowered rail- company out of the state, or to lease any road corporations, "by means of their sub- railroad out of the state, "without having scription to the capital stock of any other first obtained the written consent of all of company, or otherwise," to aid it in the con- the stockholders of said roads residing in the struction of its road, for the purpose of form- state of Illinois, and any contract for such ing a connection between the two lines, pro-consolidation or lease which may be made

without having first obtained said written cided upon its facts. Knox County Comrs. consent, signed by the resident stockholders v. Aspinwall, 21 How. 539, 545 [16: 208, [573]in Illinois, shall be null and void." *Of that 210]: Moran v. Miami County Comrs. 2 statute, this court said: "It did not limit Black, 722, 724 [17: 342, 344]; Gelpcke v. the scope of the powers conferred upon the Dubuque, 1 Wall. 175, 203 [17: 520, 525]; corporation by law, an excess of which could St. Joseph Twp. v. Rogers, 16 Wall. 644, 666 not be ratified or be made good by estoppel; [21: 328, 339]; Humboldt Twp. v. Long, 92 but only prescribed regulations as to the U. S. 642, 650 [23: 752, 756]. And see Zamanner of exercising corporate powers, com- briskie v. Cleveland, Columbus, & Cincinpliance with which the stockholders might nati Railroad Co. 23 How. 381 [16: 488], waive, or the corporation might be estopped, above cited. by lapse of time, or otherwise, to deny." 145 U. S. 403 [36: 752].

Royal British Bank v. Turquand was an action upon a bond signed by two directors, A corporation, though legally considered a and under the seal of the company, and given person, must perform its corporate duties for money borrowed by a joint-stock comthrough natural persons, and is impersonated pany formed under an act of Parliament limin and represented by its principal officers, iting its powers to the acts authorized by its the president and directors, who are not deed of settlement, and whose deed of settlemerely its agents, but are, generally speak-ment provided that the directors might so ing, the representatives of the corporation in its dealings with others. Shaw, Ch. J., in Burrill v. Nahant Bank, 2 Met. 163, 166, 167 [35 Am. Dec. 395]; Comstock, J., in Hoyt v. Thompson, 19 N. Y. 207, 216. And the appropriate form of verifying any written obligation to be the act of the corporation is by affixing the signatures of the president and secretary and the corporate seal.

The bonds of the Beattyville Company were instruments negotiable by delivery; and the guaranty indorsed upon each of them by the Louisville, New Albany, & Chicago Railway Company was signed by the president and secretary and under its corporate seal, and was in terms payable to the holder thereof and itself negotiable.

borrow such sums as should, by a resolution passed at a general meeting of the company, be authorized to be borrowed. The defense was that no such resolution had been passed, and that the bond had been given without the authority of the shareholders. The court of exchequer chamber, affirming the judgment of the Queen's bench, without passing upon the sufficiency of the resolution in that case, held the company liable on the bond; and, speaking by Chief Justice Jervis, said: "We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, in reading the deed of settlement, would find, not a prohibition from borrowing, but

Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done." 6 El. & Pl. 332.

One who takes from a railroad or business corporation, in good faith, and without actual notice of any inherent defect, a negotia-a *permission to do so on certain conditions.[575) ble obligation issued by order of the board of directors, signed by the president and secretary in the name and under the seal of the corporation, and disclosing upon its face no want of authority, has the right to assume its validity, if the corporation could, by any action of its officers or stockholders, or of both, have authorized the execution and issue of the obligation.

In Merchonts' Nat. Bank v. State Nat. Bank, 10 Wall. 604 [19: 1008], this court stated, as an axiomatic principle in the law of corporations, this proposition: "Where a party deals with a corporation in good faith -the transaction is not ultra vires-and he is unaware of any defect of authority or oth[574]er irregularity on the part of those acting for the corporation, and there is nothing to excite suspicion of such defect or irregularity, the corporation is bound by the contract, although such defect or irregularity in fact exists. If the contract can be valid under any circumstances, an innocent party in such a case has a right to presume their existence, and the corporation is estopped to deny them." 10 Wall. 644, 645 [19: 1018]. The proposition was supported by citations of many English and American cases, and among them Royal British Bank v. Tur quand (1856) 6 El. & Bl. 327. And the justices of this court, while differing among themselves in the application of the principle to municipal bonds, have always treated Royal British Bank v. Turquand as well de

The decision in Royal British Bank v. Turquand has been followed, and Lord Wensleydale's dicta to the contrary, a year later, in Ernest v. Nicholls (1857) 6 H. L. Cas. 401, 418, 419, have been disapproved or qualified, in a long line of decisions in England. Agar v. Athenæum Life Assurance Society (1858) 3 C. B. N. S. 725, 753, 755; Prince of Wales Life & Educational Assurance Co. v. Harding (1858) El. Bl. & El. 183, 221, 222; Re Athenum Life Assur. Society (1858) 4 Kay & I. 549, 560, 561; Fountaine v. Carmarthen R. Co. (1868) L. R. 5 Eq. 316, 321; Colonial Bank of Australasia v. Willan (1874) L. R. 5 F. C. 417, 448: Mahony v. East Holyford Min. Co. (1875) L. R. 7 H. L. 869, 883, 893, 894, 902; County of Gloucester Bank v. Rudry Merthyr Steam & H. C. Colliery Co. [1895] 1 Ch. 629, 633. The only English decision cited at the bar, which appears to support the opposite conclusion, is Commercial Bank v. Great Western Railway Co. (1865) 3 Moore, P. C. C. N. S. 295, which, unless it can be distinguished on its peculiar circumstances, is against the general current of authority. See also a very able judgment of the court of errors and appeals of New Jersey, delivered by Mr. Justice Depue, in Hacken

sack Water Co. v. De Kay, 36 N. J. Eq. 548,
559-567.

It necessarily follows that the rights and liabilities, if any, that it may have as a corporation of Kentucky, or as a corporation of Illinois, cannot be adjudicated in this case; and that the decrees both of the circuit court and of the circuit court of appeals, so far as regards the Louisville Banking Com

In the present case, all natural persons or corporations by whom bonds of the Beatty ville Company bearing the guaranty of the Louisville, New Albany, and Chicago Railway Company, signed by the proper officers of the company and under its seal, were pur-pany, must be reversed, and the case remandchased in good faith, and without notice that there had been no petition of a majority of the stockholders for their execution, had the right to assume that such a petition had been presented, as required by the statute of 1883. The records of the railroad corporation and of its board of directors, which would naturally show whether such a petition had or had not been filed, were private records, [570]which a purchaser of the bonds was not obliged to inspect, as he would have been if the fact had been required by law to be entered upon a public record. Brewer, J., in Blair v. St. Louis, Hannibal, & Keokuk Rail road Co. 25 Fed. Rep. 684; Hackensack Water Co. v. De Kay, 36 N. J. Eq. 548, 568; McCormick v. Market Nat. Bank, 165 U. S. 538, 551 [41: 817, 8221; Irvine v. Union Bank of Australia, L. R. 2 App. Cas. 366,

379.

ed to the circuit court with directions to dismiss the bill as to the guaranty on the ten bonds of which the Louisville Banking Company was a bona fide purchaser, and to enter a decree, as to the guaranty on the forty-five bonds of which it was not a bona fide purchaser, that an injunction be issued against bringing suit upon the guaranty on these bonds against the Louisville, New Albany, & Chicago Railway Company, a corporation of Indiana, and that there be stamped on these bonds the following words: "This guaranty is not binding on the Louisville, New Albany, & Chicago Railway Company, a corporation of Indiana, and is to that extent canceled, without prejudice to the rights or liabilities, if any, that it may have as a corporation of Kentucky, or as a corporation of Illinois."

Accordingly, in the first case, the decree of the Circuit Court of Appeals is affirmed, and It follows that the decree of the circuit the case remanded to the Circuit Court of court of appeals, so far as it ordered the bill the United States with directions to dismiss to be dismissed with regard to the guaranty the bill as against the Louisville Trust Comon the bonds which the Louisville Trust Company; and, in the second case, the decrees of pany and the Louisville Banking Company took in good faith, and without notice of any want of authority to execute the guaranty, was correct.

But, in regard to the guaranty on the bonds which the Louisville Banking Company took with notice that the guaranty had not been authorized by a majority of the stockholders, the decree of the circuit court of appeals needs to be modified.

That court, in its opinion and decree, undertook to determine whether the Louisville, New Albany, & Chicago Railway Company was liable upon the guaranty as a corporation of Kentucky, and as a corporation of 11linois.

Apart from the question whether it was a corporation of Kentucky, and from the difficulty of treating the negotiable guaranty upon each bond as itself divisible, binding the guarantor as a corporation of one state, and not binding it as a corporation of another state, there is an insurmountable objection to the decree in its present form.

The Louisville, New Albany, & Chicago Railway Company is a party to this suit as a corporation of Indiana only, and not as a corporation of Kentucky. It could not, either as a corporation of both states, or as a corporation of Kentucky only, have brought this suit against corporations and citizens of Ken

tucky, in the circuit court of the United States for the district of Kentucky, without ousting the jurisdiction of the court. Baltimore & Ohio Railroad Co. v. Wheeler, 1 Black, 286 [17: 130]; St. Louis & San Francisco Railway Co. v. James, 161 U. S. 545 [40: 802]. And citizens of Illinois also be[577]ing defendants in the bill, it is equally impossible to take jurisdiction of the plaintiff as a corporation of Illinois.

|

both those courts are reversed, and the case remanded to the Circuit Court of the United States with directions to enter a decree in conformity with the opinion of this court.

UNITED STATES, Appt.,

V.

EARL B. COE.

(See 8. C. Reporter's ed. 578, 579.)

Void Mexican grant.

A Mexican grant of lands made in 1838 by the state of Sonora, without approval by the general government, was vold.

[No. 8 of October Term, 1897.]

Leave granted to submit petition for rehearing, May 31, 1898. Petition for rehearing ordered to be filed and leave granted to counsel to file additional briefs, October 81, 1898. Resubmitted on briefs heretcfore filed, December 5,1898. Decided May 22, 1899.

APPEAL from a decree of the Court of Private Land Claims. Petition for rehearing of the decision reported in 170 U. S. 681, 42 L. ed. 1195. Rehearing denied.

See same case, 170 U. S. 681, 42 L. ed. 1195.

The facts are stated in the opinion.
Messrs. Amos Steck and Carpenter &
McBird for petitioner.

Messrs. A. M. Stevenson and John F.
Shafroth for appellee.

[578]

*Mr. Chief Justice Fuller delivered the opinion of the court:

After a careful re-examination of this record we adhere to the judgment heretofore rendered, and the petition for rehearing must be denied.

In the opinion heretofore delivered, and reported 170 U. S. 681 [42: 1195], it was stated that a grant from the state of Sonora was relied on, and not a grant from the Mexican government. This was in accordance with the petition originally filed, but it appears that it had been stipulated and agreed below between counsel for the government and the claimant that the petition should be considered as amended so as to claim title from both the nation and the state. That stipulation, however, did not appear in the record, but this was not material, as we did not regard the grant, whichever its alleged source, as a valid one, for the reasons given.

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We remain of opinion that, from and after | 1. the adoption of the Constitution of 1836, no power existed in the separate *states to make such a grant as this. Camou v. United 2. States, 171 U. S. 277 [43: 163], related to a grant made prior to 1836, and ruled nothing to the contrary of the decision in this case.

Construing the various applicable statutes and decrees in relation to the sale of public lands, which were in force April 12, 1838, the date of the alleged grant, together, we think it clear that the Board of Sales which assumed to act in this matter had no power to sell and convey these lands so as to vest the purchaser with title, unless the sale was approved by the general government, and that it was not so approved. Furthermore, this Board of Sales did not assume to comply with the requirements of the law in making this sale. The members of the board really professed to be officers of

This court accepts the interpretation of a statute of a state affixed to it by the court of last resort thereof.

The Missouri statute of 1889 making a railroad company issuing bills of lading for the transportation of property liable for damages to the property caused by the negligence of another railroad company over whose lines the property passes does not curtail the power of the company to restrict its liability by contract, to its own line, by a restriction in unambiguous terms put into the portion of its agreement reciting the contract to carry, and such statute is not, as affecting interstate transportation, repugnant to the Federal Con stitution.

[No. 11.]

Argued January 7, 10, 1898. Reargument
ordered January 24, 1898. Reargued Oc-
tober 11, 1898. Decided May 22, 1899.

the state, and to act for the state, although State of Missouri to review a judgment of

We un

N ERROR to the Supreme Court of the
that court affirming the judgment of the
trial court in favor of plaintiffs McCann &
Smizer against the Missouri, Kansas, &
Texas Railway Company for damages to cat-
tle transported upon its contract of ship-
ment. Affirmed.

See same case below, 133 Mo. 59, 35 L. R.
A. 110.

The facts are stated in the opinion.
Mr. George P. B. Jackson, for plaintiff
in error:

the grant was declared to be made in the
"name of the free, independent, and sovereign
state of Sonora as well as of the august Mexi-
can government." But it seems to us that
they referred to the nation as it existed un-
der the Federal system of 1824, as contra-
distinguished from the supreme central sys-
Item that was in existence in 1838.
derstand that when this grant purports to
have been made, the officers and people of
Sonora were undertaking to carry on their
government as a sovereign and independent
state under the national Constitution of 1824
and the laws passed thereunder, as well as
the state Constitution of 1825, and subse-
quent laws, in violation of the National Con-
stitution of 1836 and the laws promulgated
under that instrument. This refusal to rec-
ognize their constitutional obligations put
them in antagonism to the general govern
ment, and, although appellee's counsel deny
that Sonora was in rebellion, and say that at
the time of the sale she "was a conservative
protestant against the dictatorial proceed- Michigan C. R. Co. v. Mineral Springs
ings which gave rise to the central system," Mfg. Co. 16 Wall. 318-324, 21 L. ed. 297-
we cannot agree that this sale was conducted 301; Ogdensburg & L. C. R. Co. v. Pratt, 22
in accordance with the paramount law, and Wall. 123, 22 L. ed. 827; St. Louis Ins. Co.
it does not appear that the national govern- v. St. Louis, V. T. H. & I. R. Co. 104 U. S.
ment ever ratified or approved the grant. 146, 26 L. ed. 679: Myrick v. Michigan C.
The various Constitutions and laws bearing R. Co. 107 U. S. 102, 27 L. ed. 325; Coates

In the absence of the statute under consideration, Mo. Rev. Stat. 1889, § 944, what has been designated as the "American rule" was in force in the state of Missouri; and under that the carrier, plaintiff in error here, was not to be regarded as a "forwarder" beyond its own line, and not liable for delays which occurred on a subsequent connecting line, in the absence of a special contract assuming the duties and liabilities of a common carrier beyond its own line.

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