Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-02146/USCOURTS-ca10-90-02146-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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TENTH CIRCUIT 

In re: CHARLES B. ANTHONY, 

also know as· Chuck Anthony; 

ANNITA LYNN ANTHONY ROBBINS, 

Debtors. 

WALTER L. REARDON, Trustee, 

Plaintiff-Appellee, 

v. 

JAMES J. ALSUP; LINDA W. ALSUP; 

DANIEL A. ALSUP, 

Defendants-Appellants. 

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JUL2 l 199Z 

~OBERT L. HOECKER 

Clerk 

No. 90-2146 

(D.C. No. 90-196-JC) 

(D. New Mexico) 

ORDER AND JUDGMENT* 

Before ANDERSON, BALDOCK, and EBEL, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The cause is therefore ordered submitted without oral argument. 

James J. Alsup, Linda w. Alsup and Daniel A. Alsup, appeal a 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, except for purposes of establishing the doctrines of the law of the 

case, res judicata, or collateral estoppal. 10th Cir. R. 36.3. 

Appellate Case: 90-2146 Document: 010110270452 Date Filed: 07/21/1992 Page: 1
decision of the district court, affirming a judgment of the bankruptcy court, which voided a collateral assignment of owners' interest in a real estate contract held by the Alsups as collateral 

for a promissory note. The issue on appeal to the district court, 

and to this court, is whether the Alsups were required to perfect 

the security interest in the collateral assignment by filing a 

financing statement with the New Mexico Secretary of State. 

To resolve this appeal we certified the following question to 

the New Mexico Supreme Court: 

Does a security assignment of a real estate contract 

fall within the provisions of Article 9 of the New 

Mexico Uniform Commercial Code, NMSA 1978, Sections 55-

9-101 to -507 (Repl. Pamp. 1987 & Cum. Supp. 1991), 

thereby requiring the filing of a financing statement in 

the Office of the Secretary of State in order to perfect 

the secured interest against the claims of third parties; or, if such a security assignment falls within the 

Code, is it then excluded by Section 55-9-104(j) as a 

"transfer of an interest in or lien on real estate?" 

The New Mexico Supreme Court held that the security assignment of a real estate contract does not fall within the provisions 

of Article 9 of the New Mexico Uniform Commercial Code, NMSA 1978, 

Sections 55-9-101 to -507 (Repl. Pamp. 1987 & Cum. Supp. 1991). 

The opinion of the New Mexico Supreme Court, a copy of which is 

attached to this order and judgment, answers the issue on appeal 

in favor of the Alsups. 1 Thus, the bankruptcy court erred in its 

determination that the Alsups' interest in the asset in question 

was subordinate to that of the trustee of the bankrupts' estate, 

1 The judgment entered on that opinion was made final by order 

of the New Mexico Supreme Court filed July 1, 1992. 

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Appellate Case: 90-2146 Document: 010110270452 Date Filed: 07/21/1992 Page: 2
and determining that certain pre- and post-petition payments received by the Alsups were recoverable by the trustee. The Alsups, 

in short, should have been treated as secured, rather than unsecured creditors. 

Accordingly, we REVERSE the judgment of the district court, 

and REMAND with instructions to the district court to VACATE the 

order of the bankruptcy court and REMAND the case to the bankruptcy court for further proceedings consistent with this opinion. 

The appellants are awarded their costs on appeal, and the district 

court shall give consideration to the award of such other fees and 

costs as may be allowable. 2 

The mandate shall issue forthwith. ENTERED FOR THE COURT 

Stephen H. Anderson 

Circuit Judge 

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moot. 

The Alsups' motion for an entry of an order is denied as 

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I D: 8 -5 88 - 5776 JU L 20'92 14 : 4U No. UUj ~-U~ 

( 

IN THE SUPRBMR COURT OF THE STATB OP NBW MBXJCO 

IN 'RE: CHARLBS B. ANTHONY, 

also known as Chuck Anthony, and 

ANNITA LYNN ANTHONY ROBBINS. 

DebtOl'IIS 

WALTER L. REARDON, ~r., Truatae, 

PlainUff-Appellee. 

..... 

JAMES J. AI.SUP• LINDA W. ALSUP, 

and DANIEL A. ALSUP• 

Def en don ts• Appellants. 

SUPRiME QOURT OF NEW MEXlt-o FILED 

JUN f 5 1992 

~Q~ 

CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

.lamaa J. Alsup 

Linda W. Alsup 

Daniel A. Alaup 

Albuquerque, New Mexico 

Walter L. Reardon, Jr. 

Watroua I Raudon 

Albuquerque, New Mexico 

_ _ J)J.L~.u 

li111ted States Co~f Appeq Tenth Circuit 

JUN !9 1992 

"OBERT ,.~~:OECK!R 

Pro Sc 

for Appellee 

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ID: 8 - 588 - 577 6 J UL 20'92 14:41 No . 003 P . 06 

OPINION 

------- BACA, Juatioe. 

This matter is bofore the court upon certification from the United States 

Court of Appeals for the Tenth Circuit puHuant to NMSA 1978, Section 34-2-8 

(Repl. Pamp. 1990), and SCRA 1986, 12-807. The primary question of New 

Mexico law is as follows: -~ 

Does a security assignment of a real estate contract fall \ 

within the provisions of Article 9 of the New Mexico 

Uniform Commercial Code, NMSA 1978, Sections 55 .. 9-

101 to -507 (Repl. Pamp. 1987 & Cum. Supp. 1991), ) 

thereby requiring the filing of a financing statement in ' 

the Office of the Secretary of State in order to pcrf ect 

the secured interest against the claim& of third parties; 

or, if suc:h a security assignment falls within the Code, 

is it then excluded by Section 55-9-104(j) as a "transfer 

of an interest in or lien on real estate?" 

1. FACTS 

The facts are not in dispute. On October 24, 1985, Charles Anthony and 

Annita Anthony-Robbins (Anthonys), the debtors, sold real property jn 

Bernalillo County to Amelia and Jane Sanchez under the standard real estate 

contract, with legal title retained until full payment of the purchase price. 

Thereafter, the Anthonys borrowod $10,300 from appellants, James and 

Linda Alsup. To secure the "Note," the Anthonys assigned their vendor's 

interest in the real estate contract to the Alsups in a document entitled 11 Collateral 

Assignment of Owner's Interest in Real Estate Contract," which assigned all 

"right, title, equity and interest11 in the roal estate contract, including the right 

to receive all monthly payments. The note, the assignment, and the cross deeds 

from and to the parties were placed in escrow. The Alsups recorded the 

AssignDlent in Bernalillo County in accordanco with the real estate recording 

laws, but they did not file a financing statement under the provisions of Article 

9 of the Uniform Co111mercial Codo as adopted in New Mexico. 

On January 26, 1989, the Anthonys filed for voluntary bankruptcy, and 

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'Walter Reardon, Jr. was appointed trustee. The trustee filed this action claiming 

priority over appellants as a hypothetical lien creditor under 11 U.S. C. H 542 

and 54'1, to the assigned contract and the contract payments. The bankruptcy 

court voided the Alsups' interest in the collateral asBignment, and the district 

court affirmed that judgment, holding that as a result of the Alsups' failure to 

perfect their aecurity interest by filing a financing statement ln accordance with 

the requirements of tho Uniform Commercial Code, their interest was subordinate 

to the trustee's interest. 

ll. ANALYSIS 

The question bef ol"e us is whether Article 9 of the Unif onn Commercial 

Code (the "Code") applies to an as~igmnent of the vendor's interest in a real 

estate contract, which was given as collateral for a separate transaction. An 

examination of the various jurisdictions that have spoken on this matter reveals 

that no clear consensus has been reached . See genel"8.lly John F. Wagner, Jr., 

Annotation, Applicability of Article 9 of Uniform Commercial Code to Assignment 

of Rights Under Real-Estate Sales Contract, Lease Agreement, or Mortgage as 

Collateral for Separate Transaction, 76 A.L.R. 4th '165 (1990). 'While some courts 

rely on the nature of the property--whether the property is characterized as 

realty or personalty, other courts have focused on the purpose of the law and the 

existing industry practice. !sh; see also David A. Redle, Article 9: Identifying 

Collateral as Real or Personal Property, 23 UCC L.J. 185 (1990) (providing a 

general discussion of the reasons offered in support of the various positions) . 

We conclude that the security assignment of a real estate contNct is not subject 

to the perfection requirements of Article 9. 

Both parties agree that, under New Mexico law, a vendor's interest in a 

real estate contract is personalty. and not real property. Marks 'V'. City of 

Tucumcari, 93 N.M. 4,595 P.2d 1199 (1979) (holding that the city's judgment lien 

could not attach to vendor's legal title because the interest retained by a vendor 

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1.,.;.aJ~r r1rt &xecutory contract of sale was pei-sonalty). Therefore, the issue Is 

whethe .. the 3sslgnment <>f the Anthony's interest in the subject real estate 

~ontract, which is deemed a personalty in New Mexico. is within the scope of 

Article 9 of the Code and thus subject to its perfection requirements. 

While the Alsups do not dispute the characterization of their interest as 

personalty, they argue the transaction if> nevertheless excluded from Ai-ticle 9 

under Section 55-9-l04(j) which states: 

Transactions u:cluded from artJcle. 

This article does not apply . . . to the creation 

or transfer of an inteNst in or lien on real estate. 

including a lease or rents thereunder:-. 

Essentially, the Alsups maintain that while the interest is personalty, it also 

represents an interest in real estah? and $hould be considered a "transfer" within 

the meaning of Section 55-9-104{j) . According to the Alsups' argument, this 

Section should be interpreted ::>roadly to exclude any transfer of an intere&t in 

realty, no matter what the pur·pose. Under this interpretation, it becomes · 

irrelevant whether the land cor,tract is characterized as personalty or realty for 

other purposes under state la w. The Alsups submit a narrow interpretation of 

Section 55-9-104(j) cxcludint; only transactions that Article 9 does not purport 

to cover under any d:rcurustances ( transfers not intended to create a security 

interest and real prope:·ty tr-ansactions) would nullify the effect of Section 55-9-

104 (j) . ~ ln re Bristol Assocs .• Inc., 505 F.2d 1056, 1060 (3d Cb-. 1974); 

Robert H. Bowmart Real Estate Interests as Security Under the UCC.: The Scope 

of Article Nine, 12 l1C8 L.J. 99, 107 (1979) (hereinafter Bo'WJP!:l'), 

In supp0rt of theit- position, the Alsup& al&o cite to cases from other 

jurisdictions that have 1;oncluded that transactions involving security interests 

in real estate contrac t, , deeds of trust• mortgages, and leases are not subject to 

Article 9. §-oo, e. g .. Shuster v. Doane (In re Shuster). 784 F. 2d 883 (8th Cir. 

1986) (applying Mi•niesota law held Article 9 did not apply to an assignment of a 

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vendor's interest in the real estate contract); First Nat'l Bank of Boston v. 

I.anon (In re Kennedy Mortgage Co.), l'l B.R. 957 (Bankr. D. N.J. 1982) 

(holding Article 9 inapplicable to an assignment of a mortgage on real estat.e); In 

re Bristol, 505 F. 2d at 1061-62 (holding a real estate lease when used as collateral 

did not fall within the scope of Article 9) ; Swanson v. Union State Bank ( In re 

Hoeppner), 49 B.R. 124, 127 .. 29 (Bank.r. E.D. Wis. 1985) (applying Wisconsin 

law, held assignment of vendor's interest in real estate contract was not subject 

to Article 9); Rucker v. State Exch. Bank, 355 So.2d 171 (Fla. Dist. Ct. App. 

1978) (boldin~ assigmnent of a mortgage was not subject to Article 9). But seeJ 

~, Frearson v. Wingold ( ln re Eguitabl~ Dev. Cor;P,J, 617 F. 2d 1152 ( 5th Cir. 

1980) (applying Florida law, held Article 9 applied to a security inte~&t in 

contract rights and contract proceeds regardless of the fact that ?"8al property 

was also assigned); Southwest Nat 11 Bank v. Southworth ( ln ro Southworth), 22 

B.R. 376 (Bankr. D. Kan. 1982) (holding vendor's right to receive payment 

under a land sale contract was personal property and a security interest 

representing that personal property right constituted realty paper and was 

subject to Article 9); Erikson v. Seattle Trust l Sav, Bank (In re FreP-born). 617 

P. 2d 424 (Wash. 1980) (En Banc) (holding when both real property and contract 

rights are assigned, assignee must both record under the real estate laws and file 

pursuant to Article 9) • 

The essence of the tMu:tee's position is that Article 9 covers all transaction& 

intended to create a security interest in personal property. Section 55-9-102(1) 

provides: 

Except as otherwiae provided in Section 9-104 •.. on 

excluded tmnsactlons, this article applies: 

(a) to any transaction (regardless of its form) which 

is intended to create a security interest in personal 

property •.•. 

Therefore, argues the trustee, the assignment of the vendor's interest, as 

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ID:8 -588 - 5775 JUL 20 ' 92 14 : 45 No. 003 P . 10 

personalty, is subject to the application of Article 9. Under the trustee's 

analysi&, Section 55 .. 9-104(j) would be construed na'l'l'Owly, excludingonlythose 

tnmsactions touching on tho real estate itself, such as the creation of a mortgage 

or real estate contract, but not the subsequent uses ·of the mortgage or real estate 

contract. 

Contrary to the trustee's eontention, we do not find that the legal 

characterization of the interest as personalty is determinative of the applicability 

of Article 9 of the Code. Section 55 .. 9-102( 1) 11.mits the scope of Article 9 wherein 

it expressly states: "le)xcept as otherwise provided in Section 55-9-104 ... on 

excluded transactions , this article applies to . • . . " In the case of !!L!:!. 

Hoeppner, tho coui-t considered the same issue, and aptly noted: "Too much 

eropha&is has been placed upon the fact that a land contract vendor's inte~fit is 

personal property. This does not alter the fact that this interest is also 'an 

interest in or lien on real estate' .... " 49 B.R. at 127. Accordingly, that court 

held that the legislature intended both a land contract and the assignment thereof 

were similarly excluded by 9-l04(j). ld. at 129; In re Shuster, 784 F.2d at 884. 

We agree. 

A '\l'endor undor an executory contmct for the sale of realty holds bare legal 

title to the real estate until full payment of the purchase price. Marks. 93 N.M. 

at 5, 595 P. 2d at 1200. Thus, the Anthonys held legal title when they assigned 

all their interest in the real estate contract, and if the vendce fails to perform the 

contract obligations, that vendee's equitable interest is subject to diveBtment. 

I!!.:. Accordingly, we hold that this transaction involved the "transfer of an 

interest in or lien on real estate" within the meaning of 55-9-104(j). Accord ln 

re Shuster, 784 F.2d at 884; In re Hoeppner, 49 B.R. at 127; Jn re Kennedy 

Mortgage Co.• 17 B.R. at 964. 

The trustee1s argument also relies on Section 55-9-102(3) and Officia1 

comment 4. Section 55-9-102(3) provides: 

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ID: 8 -5 88 -5 776 JUL 20 ' 92 14:4 6 No. 003 P . 1 1 

The application of this article too. security interest in 

a securerl obligation is not affected by the fact that the 

obligation is itself secured by a transaction or interest 

to which this article doos not apply. 

The trustee argue5 that we should interpret this statutory provision to mean that 

while the real estate contract itself is not subject to Article 9 the subsequent 

assignment of the vendor1s interest in the contract as secutity should fall within 

Section 55·9-102(3). By way of explanation, Official Comment 4 to Section 55-9-

102 ( 3) provides, in pertinent part : 

An illustration of Subsection (3) is as follows: 

The owner of Blackacre borrows $10,000 fN>m his 

neighbor, and secures his note by a mortgage on 

Blackacre. This articl~ is not applicable to the creation 

of the real estate mortgage . Nor ls it applicable to a 

sale of the note by the mortgagee, even though the 

mortgage continues to secure the note. However, when 

the mortgagee pledges the note to secure his own 

obligaUon to X. this article applies to the security 

interest thus created, which is a security interest in an 

instrument even though the instl"'Ument is secured by a 

real estate mortgage. 

(Emphasis added.) The trustee appears to be drawing an analogy between the 

"instrument11 described in Comment 4 and the assigned real estate contract at 

issue. ~ First State Bnnk v. Clark, 91 N.M. 117, 119, 570 P.2d 1144, 1146 

( 1977) (holding official comments to the Code are persuasive , but not controlling, 

authority). We are not persuaded by this argument. 

Jn the first instance, a comparison of the current version of Commt!Jnt 4. as 

amended in 1966, and the version as originally adopted indicates that Article 9 

was not intended to extend to mortgages, or similar real estate transactions { real 

estate contracts)., As orjginally adopted, the above emphasized portion of 

Comment 4 read: 

"We recognize that the comments represent the oJ)inions of the National 

Conference of Commissioners on Uniform Statute Laws and the American Law 

Institute. Burchett v. Allied Concord Fin. Corp. (Del.), '14 N.M. 575,578,396 

P. 2d 186 • 188 ( 1964). The purpose of the comments is to explain the Code; thus 

promotini uniformity of interpretation. !!L,_ 

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ID : 8 ·-5 88 -5 776 JUL 20'92 14:47 No.0 03 P . 12 

However, when the mortgagee in turn pledges this note 

and mortgage to secure his own obllption to X, this 

Article is applicable to the security interest thus 

created in the note and the mol'tgage. 

Uniform Commercial Code, American Law Institute I 9-102 (1958 Official Text) 

( emphasis added) . 

The amended version of Comment 4 deleted the words "and mortgage, 11 and 

&ubstituted the word "instrument" for the woNis "note and mortgage." The 

omi8Sion of the word ''mortgage,, suggests that while the security interest in the 

note is subject to the Code, the question of whether the security interest is 

perfected in mortguge and sbnllar security interests (includinJ real estate 

<..-ontract.) i. left to local real estate law. Jan Z. Krunowiecki et al., The 

Kennedy Mortgage Co. Bankruptcy Case: New Light Shed on the Position of 

Mortgage'WarehousingBanks, 56Am. Bankr. L.J. 325, 331-32 (1982) (hereinafter 

Krasnowiecld). This same argument has been adV'a.nced by a number of courts 

rejecting the application of the Article 9 to an assignment of a mortgage, Rucker 

v. State Exch. Bank, 355 So.2d at 174, the assignment of a lease, In re Bristol, 

505 F. 2d at 1061, and to the assignment of a real estat e contract in In re 

Hoeppner, 49 B.R. at 128. 

Secondly, we find no basis for the trustee's analogy in the case of a 

vendor's note s<:tcurcd by an assignment of the real estate contract. The sjtuation 

described in Comment 4 is what scholars have referred to as a ,,second tier" 

transaction, unlike our case which is a "first tier11 transaction. ~ Bowmar, 12 

'UCC L,J. 99, 100. According to BoWlll&r, a "first tier" tran5action arises when 

the vendor under an executory contract for the &ale of real estate assigns that 

contract to a lender as security for the payment of the vendor's note. _!!h A 

"second tier11 transaction involves the subsequent assignment by the lender of 

that same note and its contract assignment as a 11&ecurlty paokage" to secure its 

own note to a second l8nder. Id. Accordingly, as provided in Section 5::t-9-

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102(3), the second lender would hove a security interest in a secured obligation--

the vendor•s note~-that is "itself secured by a transaction or interest I the real 

estate contract assignment] to which this Article does not apply." See~ at 109 

& n. 39. 

Finally, our interpretation excluding this assignment from Article 9 is 

further supported by the language of Comment 4 that states pertient part: "This 

article leaves to other law the question of the effect on rights under the mortgage 

of delivery or nondelivery of the mortgage or of recording or nonrecording of an 

assignment of the moi-tagagee's interest. See Section 9-104(j)." (Emphasis 

added. ) This language indicates a clear intent to give def ere nee to the real estate 

law as to delivery and recording of assignments. §!! 1 C Peter F. Coogan, et al. , 

Secured Transactions Under the Uniform Commercial Code, (MB) I 16C.0S[3)lc) 

( discussing Offjc(,.al Comment 4 to Section 9-102 ( 3)); Krasnowieck.1, 56 Am. Bankr. 

L.J. 325, 329-32, Rew estate transactions were excluded from the Code because 

these transactions were already subject to a well-established body of law, which 

w~ not intended to be replaced by Article 9. See. e.g., Peter F. Coogan & 

Albert L. Clovis, The Uniform Commercial Code and Real Estate Law: Problems 

for Both the Real Estate Lawyer and the Chattel Security Lawyer, 38 Ind. L.J. 

635 (1963); Krasnowieclti, 56 Am. Bankr. L.J. 325, 329-32 . Moreover, from a 

purely practical standpoint, parties tracing the history of a title to real property 

would customarily search the Mcords in the office of the county recorder in the 

county where the land is located, and not the Office of the Secretary of State. 

Accord In re Shuster, 784 F.2d at 884-85; In re Hoeppner, 49 B.R. at 127. 

Our analysis proceeds from the statute, and we give effect, insofar as 

possible, to the language and intent of the legislature, considering the language 

of the act as a whole. State e,c i-el. Stratton v. Roswell lndep. Schools, 111 N. M. 

495, 500, 806 P.2d 1085. 1090 (Ct. App . 1991). We agree with the Alsups' 

position, and, therefore, we decline to construe Section 55-9-104(j) so narrowly 

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ID :8- 58 8- 5776 JUL 20' ~2 

a& to exclude only the land contract, but not its subsequent assignment. Nothing 

in Article 9 or the language of this exclusionary provision would indicate that the 

le~latu:r-e intended to distinguish the two or accord each a different tl"eatment. 

To require a lender to file a financing statement of an assignment involving a real 

estate contract in the Office of the Secretary of State without specific statutory 

language mandating the same would create harsh results never contemplated by 

the legislature. Accord ln re HoepJ!nei-. 49 B. R. at 127. In the absence of clear 

and expN!ss legisJative intent to the contrary, the words used in the statute must 

be given their ordinary meaning. and the language of the statute is conclusive. 

State ex rel. ReynoldG v. Aamodt, 111 N.M. 4, 5, 800 P.2d 1061, 1062 (1990). 

Moreover• excluding both the real estate contract and its assignment from the 

Code is not only commercially reasonable, but also conforms with the purposes of 

the Code and its rules of construction. NMSA 1978, § 55-1-102 (Repl. Pamp. 

198'1). \ 

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In accordance with the fore going discussion, we hold that the security \ 

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assignment of a real ei.tate contract does not fall within the provisions of Article ; 

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9 of the New Mexico Uniform Commercial Code, NMSA 1978, Sections 55-9-101 to/ 

507. ,.,/ 

IT IS SO ORDERED. 

~ 

() 

.. - 'WBCONCUR: 

~E-~~ / 

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