Performance of Contract and Breach

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Perfect tender rule (UCC Article 2)
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Seller is required to send the buyer exactly what was requested and comply with all terms of the contract If not, then a breach has occurred (unless option to cure exists and is executed)
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Option to cure (UCC)
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If seller does not make perfect tender- he may have the option to cure If time to perform has NOT expired – seller has option to cure to give perfect performance by the deadline for performance IF he gives the buyer reasonable notice he intends to cure If time HAS expired (delivers on the delivery deadline date)- seller has no option to cure EXCEPTION to lack of option to cure -Based on prior dealings, it was reasonable for the seller to believe the buyer would accept the non-conforming goods because buyer was flexible in the past – then seller will have a reasonable time beyond the deadline to cure
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Installment contracts and performance (UCC)
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Contract itself requires OR authorizes the seller to make delivery of the goods in separate installments (matters what the contract calls for, not how the seller decides to send the deliveries) E.g., BARBRI’s contract provides that H&H Bagels will deliver 300 bagels here by 9:00 a.m. each day the bar review course meets. Perfect tender rule does NOT apply to installment contracts Rule – buyer may reject ONLY for substantial impairment and can ONLY reject the one installment, not cancel the whole contract EXCEPTION – when the substantial impairment was to the entire contract then can reject the entire contract
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Implied acceptance (UCC)
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Buyer keeps goods after having a REASONABLE OPPORTUNITY to inspect them (just a reasonable chance, does not actually have to inspect) Implied acceptance does NOT come merely for paying for the goods – must be a reasonable enough time afterwards to have the chance to accept note: if long delay between buyer’s receipt of goods and a complaint about them – look for this
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Consequences of accepting goods (UCC)
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Once a buyer accepts the goods, they can no longer reject them (unless revocation of acceptance exception applies) BUT they can still get damages for breach
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Buyer’s revocation of acceptance of goods (UCC)
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Generally, a buyer can NOT revoke acceptance of goods EXCEPTION – non-conformity SUBSTANTIALLY IMPAIRS the VALUE of the goods AND the defect is difficult to discover (latent defect – could have missed it even with inspection) Monk buys a mobile home on May 7 and moves in the same day. He lives there for two months without incident [implied acceptance]. On July 7, it rains for the first time. Monk then discovers hairline cracks in the roof.
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Consequence of rejection (or revocation of acceptance if exception applies) (UCC)
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Return – buyer can return goods to seller at the seller’s expense Refund – buyer can get back any money paid for the goods Damages- buyer can get damages for breach note: recipient of non-conforming goods owes a duty to the seller to maintain and protect the goods until they are shipped back to the seller
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Buyer’s obligation to pay (UCC)
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A check is ok BUT seller can refuse it If seller refuses the check and requests cash, this is not a breach and the seller has reasonable time to get the cash even though deadline has passed For NONcarrier cases – unless contract says otherwise, sale is for cash and price is due with tender of delivery For carrier caess – unless contract says otherwise, shipment cases price is due when in hands of carrier and destination cases price is due when goods reach named destination
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Common law performance requirements
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If party does not provide substantial performance – there is a breach If party has substantially performed – then no material breach E.g., I hire Martha Stewart to decorate my house. She finishes, except for one bathroom. Finishing late is NOT a material breach UNLESS the contract OR circumstances indicate ‘time is of the essence’ If the contact does contain a time is of the essence clause – then ANY tardiness in performance is a material breach (regardless of how minor a delay it actually is) and thereby excuses the other party from performance (and can sue for remedies)
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Excuses for non-performance
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Other party’s breach Anticipatory repudiation Failure to give adequate assurances Rescission Modification Accord and satisfaction Novation Impossibility Frustration of BUYER’S primary purpose Failure of an express CONDITION
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Other party’s breach (excuse) – for UCC GOODS contract
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If no perfect tender, the buyer has 3 options- Reject all the goods (not just the non-conforming ones) Accept all the goods (and can still sue for damages) OR Buyer an accept some goods and reject the rest Regardless of the choice – buyer can still get damages
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Other party’s breach (excuse) for Common Law Contracts
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Injured party can recover damages for ANY breach of contract, regardless of whether or not it is material BUT ONLY A MATERIAL BREACH EXCUSES PERFORMANCE FROM THE NON-BREACHING PARTY E.g., I hire Martha Stewart to decorate my house. She finishes, except for one bathroom. What are my rights against Martha? Martha breached – so you can get damages BUT must still pay her the contract price because she substantially performed (no material breach) What are my rights against Martha if she quits after decorating only the foyer? Material breach so can BOTH get damages and excused from paying Martha the contract price HOWEVER, Martha can still recover in restitution for the reasonable value of the work she did on the foyer (remedy of last resort) note: Divisible contracts – If payment in a contract is made on a per unit basis – then breaching party can recover contract price for any unit he substantially performed on
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Anticipatory repudiation (excuse)
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Must occur BEFORE performance has been completed by either party AND must be an UNEQUIVOCAL statement that you will not perform under the contract (e.g., I will not pay you) The non-repudiating party can- Stop performance and sue for damages (so long as that party was ready, willing and able to perform) Suspend performance and wait until performance date to sue Treat contract as discharged OR Urge promisor to perform and wait to sue Retract an anticipatory repudiation – can take it back so long as the other party has NOT relied on it
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Failure to give adequate assurances (excuse)
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If a party has a REASONABLE ground to fear the other party will not be able or willing to perform – that party may request IN WRITING adequate, reasonable assurance that the other party will perform E.g., learns the goods shipped to others have been defective, hears they are going into bankruptcy If party fails to provide adequate assurances – then they can treat it as an anticipatory repudiation and can take the same actions note: can NOT use the insecurity to re-write the contract (e.g., request that the buyer pay cash, when original contract allowed for payment on credit)
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Rescission (excuse)
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Agreement between the parties to cancel the contract Only effective if BOTH parties have some performance remaining on the contract The remaining performance is consideration Can be oral (even when contract says it must be written) EXCEPTIONS – subject matter falls into statute of frauds OR contract is for sale of goods (UCC) IF the original contract expressly requires written rescission only If effective rescission then neither party can sue for breach for non-performance
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Modification (excuse)
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Agreement to replace existing contract with a new one, effective IMMEDIATELY If this is effective, can ONLY sue on the new modified agreement (excuses the prior agreement) note – check for consideration (if necessary) and that this satisfies the statute of frauds
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Accord and satisfaction (excuse)
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Accord = agreement to accept performance to satisfy the existing duty ONCE PERFORMANCE IS COMPLETE IN THE FUTURE (shown by saying ‘then will discharge…’ OR ‘if you do this…’) Satisfaction = performance of the accord The accord does not effectively discharge the prior contract until satisfaction is complete BUT suspends the right to enforce the prior contract until the date the NEW performance is due Until the date that the new performance is due – the other party can NOT sue on the original contract because the accord has suspended the right to enforce that contract If other party breaches by suing on the original contract while is is suspended – debtor may seek to have action enjoined by raising the accord as an equitable defense OR can wait until they are damaged and sue the breaching party for damages If party breaches on the accord too (fails to perform again) – can sue on EITHER the original contract OR the accord
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How can you tell if Opie and Helen have a modification or an accord?
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See whether the agreement takes effect right now or whether the agreement is based on getting rid of the existing obligation in the future (then)
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Novation (excuse)
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Agreement to substitute a new party for an existing party and the new party owes the duties ALL PARTIES MUST BE INVOLVED IN THIS AGREEMENT – the two original parties AND the party to be substituted in Proper novation excuses the original-replaced party from performance so the remaining party can not sue him If the remaining-original party does not consent then this is a delegation of duties and the original-replaced party is NOT discharged
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Impossibility (excuse)
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Later unforeseen even makes performance impossible for the SELLER (or person doing active performance) AND neither party expressly or impliedly assumed the risk of the event occurring Under Article 2 for goods – call it impracticability Examples include- Destruction of something necessary for performance (specific rules for this) Death or incapacity of ESSENTIAL person Supervening government regulation/illegality Increase in seller’s cost of performance (VERY RARE) note: performance must be impossible for anyone to do (objective standard)
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Destruction and impossibility
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Common law – destruction provides an excuse for non-performance so no breach by not performing (UNLESS construction of new building) For construction contracts – duty to construct a building is NOT discharged by destruction of work in progress (can rebuild) AND the builder is not entitled to anything other than the contract price BUT the original deadline will be extended (note- if just repairing a building then destruction will make it impossible) Sale of goods (UCC) rule – same as common law with some distinctions (1) If seller no longer has the risk of loss (passed on to buyer already) then there is no need for an excuse of impracticability if the goods are lost or destroyed because the seller has already fully performed (2) Unidentified goods – seller excused ONLY when the goods that are damaged or destroyed are identified to the contract (tagged, roped off, set aside for sale to a certain buyer) – if whole warehouse is destroyed but no set-asides then no excuse The destruction must be of the very thing necessary to fulfill the contract OR if a source of the good destroyed, it must be the one source specified by the parties
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Death or incapacity of an essential person and impossibility
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Essential to performance if the person has unique skills that can not be replaced (e.g., artist hired to paint your portrait) If no special skill then the death of the performer can not be excused – this duty should be delegated to someone else Also why an estate will be liable for a contract price because anyone can pay money
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Supervening government regulation and impossibility
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Must be a supervening statute – contact is made and then the law is passed that forbids the parties to act as they intended to under contract
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Increase in cost of seller’s performance and impossibility
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MBE – an increase in seller’s cost is almost NEVER an excuse for the non-performance of the seller (assumes the risk when entering into fixed price contract) NY DISTINCTION – look at the absolute amount of the increase AND the percentage increase to determine if it makes it virtually impossible to perform
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Impracticability and events sufficient for discharge
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Must be an extraordinary occurrence – extreme shortage of raw materials such that that seller can not convert this to his product due to war, strike, embargo, unforeseen shutdown of major supplier Catastrophic local crop failure (NOT mere shortage) If seller retains a partial ability to perform – must allocate deliveries among his customer
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Frustration of buyer’s primary purpose (excuse)
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This is the BUYER’S remedy if they do not perform (if supposed to pay, will raise frustration because paying money is NEVER impossible/impracticable) Elements Buyer’s PRIMARY purpose was frustrated by later, UNFORESEEN events AND the seller knew of the intended purpose when the contract was made Cam rents Seinfeld’s loft for Thanksgiving because of its great view of the Macy’s parade. The parade is cancelled the day before Thanksgiving. Is Cam excused by frustration of purpose? Yes, Cam is excused from performing IF Seinfeld knew what Cam’s purpose was when they ENTERED the contract
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Failure of an express condition
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Conditions limit obligations in a contract (does NOT create an independent obligation) watch for these words: if, as long as, when, provided that, on the condition that, unless The condition must be COMPLETELY fulfilled before the party is obligated to perform (if the condition is not met, then the party has an excuse for non performance because duty to perform has not yet arisen)
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Lisbeth Salander contracts to buy a house, provided it is appraised for at least $1,000,000. The house appraises for $999,500. Is Lisbeth excused from buying the house?
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She is excused from buying the house because it did not meet the express condition (provided that language) If she chooses to still buy the house, she can – but is not obligated to do so can NOT sue for failure to meet an express condition though (no obligation is created by them)
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Satisfaction clauses
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Only required to pay if the buyer is ‘satisfied’ by the performance If contract deals with a general task (mechanical fitness, utility or marketability)- then satisfaction is measured by if REASONABLE people would be satisfied by the performance If contract is for a subjective matter (art, personal taste, judgment call) then only the buyer’s opinion matters (but it must be done in good faith) When satisfaction of third person is a condition (e.g., owner’s architect is satisfied with construction) then requires the actual PERSONAL satisfaction of the third party (in good fiath)
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Condition precedent
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Event has to happen BEFORE the obligation to perform exists \”You can use my golf clubs IF it rains the weekend before\”
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Condition subsequent
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Even cuts off the party’s obligation to perform – the obligation exists until the event occurs \”You can borrow my golf clubs UNTIL the Mets win the world series\”
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To determine if a condition was excused (no longer has to happen before performance is due)
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FIRST – identify the person who is PROTECTED by the express condition SECOND – see if that protected person did anything to forfeit that protection of the condition- either: Failure to cooperate or Waiver
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Failure to cooperate (excuses a condition)
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Person who is protected by the condition did not even try to accomplish the acts required for the condition to be met result – loses the protection and is now unconditionally bound to perform the act (e.g., buy the house) Lisbeth agrees to buy the house provided she gets a $750,000 mortgage at 5% or less. Lisbeth makes no effort to get a mortgage and refuses to close on the deal. Lisbeth claims the express condition was not satisfied [she did not get a mortgage], so she is excused. She has forfeited by failure to cooperate and now must buy the house
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Waiver of an express condition
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The person who is protected by the condition voluntarily told the other party not to worry about meeting that condition result – party is no longer protected and must perform Can retract a waiver UNLESS the other party has detrimentally relied on it Lisbeth decides to build instead. Her duty to make monthly payments is conditioned on Builder’s giving her an architect’s certificate for that month’s work. Lisbeth tells Builder not to worry–she will pay without a certificate. The next month, Builder does not provide a certificate. Does Lisbeth have to pay Builder? Yes due to her prior waiver If no consideration given for a waiver – the condition must be ancillary or collateral (can not waive entitlement to substantially entire return performance because that would make the contract lack mutuality)
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If issue is whether a term is a condition or a promise
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Becomes an issue because if it is just a condition, it may excuse a party’s promise to pay someone (even when they had already performed) If a provision is that payment is to be performed ‘once’ OR ‘when’ an event occurs, AND the event occurring is NOT in control of the promisee (awaiting payment) it is LESS likely to be a condition If in doubt, courts are more likely to hold a provision is a promise rather than condition because it protects the reasonable expectation of the parties E.g., Contract includes that contractor will be paid $90,000 when construction completed and the remaining $120,000 ONCE the theater started earning a profit – court will imply a promise to pay the balance after a reasonable time if the timing provision of the contract has not been triggered
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UCC – SALE OF GOODS ONLY – if buyer is insolvent, the seller may
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refuse to deliver except for cash, including for the payment of goods that were already delivered under contract
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Acceptance of a check as accord and satisfaction
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Arises when good faith dispute about money owed Tender of a check conspicuously MARKED ‘PAYMENT IN FULL’ = accord Cashing of check by the other party = satisfaction This discharges the prior debt
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If see a breach on an essay of a COMMON LAW contract (non-UCC)
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FIRST – say that a breach occurs when there is an absolute duty to perform and the duty is not performed SECOND – explain that a material breach occurs when the nonbreaching party does not receive the substantial benefit of his bargain. THIRD – apply these to determine if material breach occurred FOURTH – discuss remedies – if material breach then nonbreaching party no longer must perform and may sue for all remedies available for breach of the contract (then discuss all remedies available)
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Material breach by an EMPLOYER for an employment contract
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employee is entitled to FULL contract price (regardless of timing of breach) IF the employee can show he would otherwise be willing and able to perform MINUS amount already paid MINUS any mitigation mitigation – employee has the duty to use reasonable care to find a position of same kind, rank and grade in the same geographic area (employer has burden to show this available position exists) note – the pay level does NOT matter note: make sure there is an actual contract, otherwise employment is at will
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Buyer’s right of inspection
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Buyer has a right to inspect goods before she pays UNLESS contract provides payment COD or otherwise indicates another rule
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Divisibility of contract
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If contract is divisible and a party performs on one or more units of the contract, he is entitled to the agreed-on equivalent for that unit even if does not substantially perform on the contract (non-breaching party can still sue on failure to perform the other units and may refuse to perform on those) Divisible contract must be – Performance of each party is divided into two or more parts number of parts due from each party is the same AND performance of each part by one party is agreed on as the equivalent of corresponding part from the other party
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Effective rescission for unilateral contracts
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If offeree has already performed, then rescission promise must be supported by – an offer of NEW consideration by the non-performing party Elements of promissory estoppel (detrimental reliance) OR intent by original offeree to make a gift out of the performance
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Elements to consider when determining materiality of a breach (for common law purposes)
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Amount of benefit received by nonbreaching party Adequacy of compensation for damages to injured party Extent of part performance by breaching party Hardship to breaching party Negligent or willful behavior of breaching party AND likelihood breaching party will perform the remainder of the contract
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If buyer rejects goods, buyer has
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the obligation to hold them with REASONABLE CARE at seller’s disposition AND to obey any reasonable instructions given as to the rejected goods If no instructions within reasonable time, buyer may reship goods to seller, store them at seller’s expense OR resell them on the seller’s behalf

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