Clark Bros. v. Watson

180 Iowa 721 | Iowa | 1916

Lead Opinion

Evans, J.

There are many parties defendant and a large number of different claims and conflicting interests, so that the record is somewhat complicated- However, most of the parties seem satisfied with the finding of the trial court, and, as before indicated, but two appealed.

X' suretfésVsecret titled to subrogation. 1. The points in the case most seriously argued, and perhaps the more important ones, are tlie points raised by the appellant Mary E. Watson in her controversy with plaintiffs and some of the other parties to the action. . As to her contention, the pleadings are voluminous. Plaintiffs, filed their petition for foreclosure, and later a substituted petition was filed, and by it and amendments thereto, A. C. Watson, People’s Savings Bank, George L. Robb, who holds a mortgage on the property, some mechanics’ lienholders and judgment creditors of A. C. Watson, including Robb Bros., who hold a judgment against A. G. Watson and appellant Mary E. Watson, were made defendants. Plaintiffs prayed, as against Mary E. Watson, that the money due on the Robb mortgage later referred to should be paid from her undivided two thirds of the 133% acres, which is referred to in the record as the “irregular tract,” and sometimes as the “home farm,” and the same relief was prayed by the People’s Savings Bank as against her by cross-petition. Answering these cross-petitions, Mary E. Watson set out the facts in relation to the Robb mortgage, which will be more fully stated later; and, by way of cross-petition against Clark Bros., the People’s Savings Bank, and George L. Robb, she prayed that her cotenants’ undivided one third of the irregular tract be first sold in satisfaction of the Robb mortgage, and that her undivided two thirds thereof be sold only to satisfy any deficiency remaining on said mortgage after the application thereon of the proceeds of the sale of her cotenants’ undivided one-third interest, and she also prayed for general, equitable *724relief. It will be noted here that Mary E. Watson by her pleadings asked that the one-third interest be first exhausted, and did not specifically ask for contribution or subrogation. The questions in regard to contribution and subrogation are argued by her, and it is claimed that she has stated the facts in regard to the matter of her executing the Bobb mortgage as an accommodation for her brother, defendant A. O. Watson, and that she is entitled to raise such questions under her plea for general equitable relief. Plaintiff and the People's Savings Bank filed replies to the answer and cross-pleadings of Mary E. Watson, denying the facts she had alleged, and claiming that they were incumbrancers for a valuable consideration without notice. About the year 1882, this appellant and her ■sister, Bebecca Watson, both t maiden ladies, became, by inheritance from their deceased parents, the owners of the irregular tract of land before referred to, and at once entered into the possession and occupancy thereof. Each owned one half. In 1885, the two sisters, who were free from debt and not engaged in any business, negotiated a loan on said real estate. When this loan matured, in 1890, a new loan was obtained for an increased amount, and the first paid off. When the second loan matured,, in 1895, they obtained the money to discharge it by executing to the Equitable Life Insurance Company a mortgage for $2,000. The mortgage was extended from time to time, and, on May 11, 1911, it was assigned to George L. Bobb, and is the mortgage involved in this action, and is referred to as the Bobb mortgage. Bobb was also interested in a judgment against A. C. Watson and appellant Mary E. Watson. This wall be referred to later. After the execution of the Bobb mortgage before referred to, it is alleged, and defendants A. C. Watson and Mary E. Watson so testified, and the trial court so found, that the money procured from these loans was solely as an accommodation to the *725brother, A. C. Watson, upon his promise and agreement to pay the same and have the mortgage canceled and hold his sisters harmless; and that the money was turned over to him and used by him for his own benefit — no part of it was used by the sisters or for their benefit. About a year after the execution of this Bobb mortgage, one of the sisters, Rebecca, died, leaving to inherit her property, her sister Mary E. (the appellant), another sister, and her brother, A. C.; so that, on Rebecca’s death, Mary E. became the owner of an undivided two thirds of the irregular tract. Soon afterwards, A. C. obtained the other sister’s one-sixth interest, and thereby became vested with the undivided one third. The title has so remained ever since, Mary E. owning an undivided two thirds, and her brother, A. 0., being the owner of an undivided one third. Robb was also interested in a judgment against Mary E. and A. C. Watson, which was a lien on lands owned by them. The date of this judgment is March 6, 1906.

In , addition to the two mortgages before referred to, given by A. C. Watson to plaintiffs, he also executed to them another mortgage covering the irregular tract, which was dated February 13, 1906. Plaintiff also became the owner by assignment of another mortgage executed by A. C. Watson, dated January 8, 1908, covering the irregular tract, and another mortgage covering the same tract, dated February 13, 1906. These mortgages were all foreclosed by the decree in this case.

The real question in the case is whether the Robb mortgage should be satisfied out of the undivided one third of the irregular tract owned by A. C. Watson, or whether it should be satisfied in whole or in part out of the undivided two-thirds interest owned by Mary E. Watson. The theory of appellant Mary E. Watson was, and, as she pleads it, is, that the one-third interest should be first exhausted, because she was only a surety for her brother in the trans*726action in regard to the Robb mortgage; and that her two-thirds interest is liable only for any deficiency; and she claims that the decree should have provided that she be subrogated to the mortgagee’s rights for any money she had paid or might be required to pay as such surety; and claims also, in argument, that because, as cotenant, she has now paid off two thirds of the amount decreed herein to be due on the Robb mortgage, she is entitled to contribution. It should have been stated before, in regard to this matter, that it appears that, since the decree was rendered, an execution was issued and her two-thirds interest levied upon, and that thereafter she paid to the sheriff, under protest, the sum of $1,629.16. The trial court stated, in deciding the case, that appellant Mary F. Watson, because the Robb mortgage was a mere accommodation by appellant Mary E. and her sister for the brother, A. O. Watson, would be entitled to the relief she asks for in some form, but for the fact that other mortgages had been given by A. C. Watson on the undivided one-third interest to plaintiffs and others; but found as a fact that the parties holding such mortgages on the one-third interest had no notice of the secret arrangement between A. C. Watson and the sisters that the Robb mortgage was an accommodation; and that, therefore, appellant Mary E. Watson having a lien of which mortgagees had no notice, and the mortgagees having a lien by reason of their mortgages, it became a question of priority as between these two lienholders. As we understand it, from the arguments of plaintiffs and the appellant bank, they make no serious objection to appellant Mary E. Watson’s being subrogated, provided it may be done without prejudice to their claims. Their contention is that, because they had no notice of the private agreement between A. C. Watson and his sisters, their claims are still prior; while appellant Mary E. contends that her claim should be prior, regardless of the question of notice. *727Under the record, we hold that Mary E. Watson may he subrogated to the rights of Robb under his mortgage for the amount of money paid by her, but not to the prejudice of plaintiffs or the People’s Savings Bank. These matters will be taken up in their order..

The trial court by its decree found and decreed that the Robb mortgage was the prior and paramount lien on the irregular tract; that two of the Clark mortgages, the one dated March 1, 1901, and the other, March 31, 1903, were liens on A. C. Watson’s undivided one third of said irregular tract, prior and superior to the liens of any of the defendants except that of the said Robb mortgage; but that two thirds of the amount due on the Robb mortgage, with a like proportion of costs, should be made by a separate sale of Mary E. Watson’s undivided two thirds of tne said tract, and that whatever should remain of the proceeds of said sale, after the payment therefrom of said two thirds, should be applied to the payment of the balance of the Robb judgment; that the remaining one third due on the Robb mortgage, with a proportionate share of costs, should be paid by a separate sale of A. C. Watson’s undivided one third of said tract, and that whatever should remain of the proceeds of such sale, after the payment therefrom of the one third due on the Robb mortgage, should be applied to the payment of the amounts due on the two Clark mortgages before referred to, and the mortgage held by the bank. Other provisions of the decree in regard to other lien holders will not be referred to, because, as we understand it, the finding of the trial court and decree as to other lien holders are not material to the determination of the points now before the court.

Appellant argues the question as to marshaling of assets, and objects to having that done; but the trial court, in an opinion filed, said:

“I am of the opinion that the doctrine of marshaling *728securities cannot be invoked ■ against the defendant Mary Watson in this case by the creditors of A. C. Watson, because her property, sought to be appropriated to the payment of this Robb mortgage, does not belong to the common debtor of these different creditors. * * * Mary Watson is not a debtor of any of the creditors of A. C. Watson who are asking that her property be charged with the payment of all of the Robb mortgage; therefore her undivided two-thirds interest in the home farm should not be charged with more than its share of the Robb mortgage. * * It is the rule in this state that, when mortgaged lands are sold in several tracts, each must contribute ratably to the satisfaction of the mortgage debt. Marshaling securities will not be permitted to the prejudice of third persons.”

From this it appears that there was no marshaling of assets, and, this being so, we deem it unnecessary to discuss that question. It has been stated before that the date of the Robb mortgage was in 1895, and the ooiirt found that it was a first lien upon all the irregular tract.

3. It is next contended by this appellant that, as between themselves, an accommodated party and the party rendering the accommodation stand in the relation of principal and surety, the former the principal, and the latter the surety; and they cite in support of the proposition, 7 Cyc. 725, 726; Aetna National Bank v. Hollister, 55 Conn. 188 (10 Atl. 550); American National Bank v. Junk Bros., 94 Tenn. 624 (30 R. W. 753, 28 L. R. A. 492). Appellees do not dispute this proposition, and their only point is that, even if this be true, the claim of this appellant would not be prior to their regularly executed and recorded mortgage liens, they .having no notice of the private arrangement between appellant and her brother. This appellant further contends that, under Sections 3779, 3966 and 3967 of the Code, the surety may demand that his 'principal’s property shall be first sold, and the surety’s sold only to make up any remaining deficiency; and such was the theory upon which her counsel seem to have tried their case in the district court, under the pleading filed by them. Their claim was that they were entitled, under these provisions of the statute, to have the judgment rendered show that she was surety for A. C. Watson. They also claim that, having stated the facts and asked for general equitable relief, she is entitled to subrogation for any money that she, as surety, may have paid, or might thereafter be required *731to pay. We tliink there would be force in this appellant’s contention at this point, were it not for intervening rights of the plaintiffs under their mortgages. The question is whether the mortgage lien holders, not having any notice of the arrangement between the brother and sisters as to the Robb mortgage, should be prejudiced by allowing Mary E. Watson to be subrogated to Robb’s rights.

3. Tenancy in common : mortlagec' not cotenarit. Counsel for this appellant cite no cases doctrine of subrogation, on this question of notice as applied to the They do claim, however, under the doctrine of contribution, that a tenant in common is seized of each and every part; that he holds a contingent title to all the parts, and cannot be divested of such title until all equities relating to the tenancy have been adjusted; and that a purchaser from a tenant in common, though he purchases for a valuable consideration without notice, can only take subject to the equities of the other tenant or tenants. They cite a number of oases from other jurisdictions, and McNamara v. McNamara, 167 Iowa 479. But these cases, with possibly one exception, were where one had purchased the interest of one of the cotenants, and thereby became himself a co-tenant. Such was the situation in the McNamara case. That case, and perhaps some of the others cited, are cases' where the interest of one tenant so purchased was at judicial sale; and under such circumstances, the doctrine of caveat omptor applies. And in that case, the contest was between cotenants themselves. The purchaser at judicial sale is held to be a cotenant in place of the one whose interest he had purchased. There was no question in that case such as is presented here. Even though the purchase of the interest of a cotenant is not at judicial sale, the purchaser takes the place, as cotenant, of the one whose interest he buys, and, as held in the McNamara case, supra, the lien of one ootenant paying off an incumbrance, on *732the common property, is not one entitled to be recorded. In such a case, the one purchasing such interest purchases subject to equities between the cotenants. In the instant case, the mortgagees (plaintiffs and the bank) became simply lien holders on the one-third interest of A. C. Watson, and were not purchasers, and did not become, as such mortgagees, tenants in common with the others. They were simply lien holders. The mortgages were properly recorded. It seems to us, as contended by appellee, that it is simply a question of priority of liens. The mortgages (plaintiffs’ and People’s Savings Bank’s) 'being properly recorded, this appellant must be held to have notice of them, while plaintiffs and the bank had no notice of her claim or lien. While this appellant has a lien or claim against her brother, A. C. Watson, we think she is not entitled to have it decreed to be prior to the liens of the mortgages of plaintiffs and the bank. But for such intervening rights, her right as surety to be subrogated, even in advance of payment by her, could be protected by the decree. City of Keokuk v. Love, 31 Iowa 119; Bankers Surety Co. v. Linder, 156 Iowa 486. This, of course, is true as between this appellant, her brother and Robb, as to his mortgage, which this appellant signed and upon which she concedes she is liable. As between the parties, she would doubtless be entitled to subrogation. But the question in this case is whether, under this record, she is entitled to such relief as against third persons, who, without notice, have rights intervening. No cases are cited by this appellant upon this proposition. It is contended by counsel for plaintiffs, who are the only ones besides this appellant who argue the question of subrogation, that the plaintiffs were not in privity to the accommodation contract between this appellant and her' brother, and that the surety statutes before cited have to do only with the parties who are so in privity to the contract; that such arrangement cannot affect third persons *733who have intervening rights without notice. It is not claimed, and could not be from the record, that plaintiffs and the bank had any notice that there was any undisclosed agreement between this appellant and her brother which would create the relation of principal and surety. They seem to have relied upon the record, showing simply a mortgage by the two sisters to the insurance company, and took their mortgages relying thereon.

As before stated, they concede 'that, as between Robb, this appellant and A. C. Watson, this appellant would have the right to ask that the Robb mortgage be satisfied from the undivided one third, of the irregular tract owned by A. C. Watson, but claim that, as between intervening rights of plaintiffs and the bank, who have mortgage liens, without knowledge or notice of the arrangement, this appellant may not set up her suretyship claim as a prior claim to that of the plaintiffs, and they say that the real question involved is one of priority of liens or the priority of rights. The appellee cites no authority to sustain this contention. The very authority cited by appellant (7 Cyc. 725) is to the effect that, as between himself and the party accommodated, the accommodation party is, in effect, a surety, and his right to recourse against the party accommodated is that of a surety against his principal debtor. Plaintiff concedes this to be the rule. Plaintiff does not cite any authority on the question as to the rights of intervening third persons without notice. Upon an independent investigation, in which we are somewhat limited as to time, we find this doctrine, in 37 Cyc. 383:

“Subrogation, being an equity springing from the relation between the parties, and created and enforced for the benefit and protection of the one in whose favor it is originated, may be asserted or waived at pleasure, either expressly or by. implication, but not to the detriment of the subrogee’s creditors, who, in turn, are entitled to subro*734gation to his right of subrogation, and may be assigned and enforced by the assignee. The ordinary doctrine of estoppel also applies. Thus the equitable right to substitution is waived by the conduct of a would-be subrogee in urging another person to buy land Avithout disclosing to him an intention to assert, in any event; any sort of claim to it, resulting from .facts or rights then existing, and without notifying him of the existence of any such facts or contingent claim. A creditor is not eirtitled to subrogation to a lien which, but for his own laches, he might have, had.”

And at page 387, same volume, we find this:

“The right of subrogation is one of equity merely, and due diligence must be exercised in ascertaining it. Laches in taking advantage of the right will forfeit it; and subrogation is not allowed in favor of one who has permitted the equity he asserts to sleep in secrecy until the rights of others would be injuriously affected by its assertion and enforcement. Thus a surety who for an unreasonably long time has permitted himself to appear in the light of the principal debtor cannot be subrogated, to the prejudice of intervening equities, although the rule is otherwise where there are no supervenient equities; and, where the. rights of third persons have not intervened, it has been held that, a delay, short of the statutory period of limitations, will not bar a party of his right to be subrogated to the rights of another.”

So that while, as between the parties to the accommodation agreement, this appellant Avould be entitled to be subrogated to the .rights of Eobb, because of the surety-ship relation, it is quite clear that, as to the plaintiffs and the bank, because without notice, and because this appellant permitted herself to appear in the light of principal debtor, in that the record shoAved that this appellant, with her sister, had signed the Eobb mortgage, and there was *735nothing to indicate to plaintiffs or bank that there was any suretyship arrangement, she ought not to. be permitted to assert, as against them, her claim of suretyship and ask subrogation to their prejudice. We think the same rule would not apply to the Robb judgment as to the Robb mortgage.

It is our conclusion, then, that, for the reasons given, this appellant has lost or waived her right of subrogation as to the plaintiffs and the bank.

4' prioNtyTuñregagos: notice: evidence. 4. The foregoing is a re-adoption of the opinion of Mr. Justice Preston upon the original submission of the case. There remains to be considered the question of priority as between the plaintiffs’ mortgages and the mortgage of the defendant People’s Savings Bank. The petition for rehearing was granted on this point.

The first of plaintiffs’ mortgages was for $6,100, and was executed on March 1, 1901. The second was for $8,900, and was executed on March 3, 1903. These mortgages were both withheld from the records until December, 1906. In the meantime, a part of the real estate included in the plaintiffs’ mortgages was mortgaged by Watson to the People’s Savings Bank, on July 11, 1905. This mortgage was duly recorded two days later. The amount thereof was $1,850. The plaintiffs did not place their mortgages on record until shortly after the discovery of the mortgage of the defendant bank. Right of priority over the mortgage of the defendant bank is predicated upon the claim that, prior to July, 1905, the plaintiffs had notified Gastner, the cashier of the defendant bank, of the existence of their mortgages. This part of the plaintiffs’ case is stated succinctly in the written opinion of the trial court as follows :

“In the case, the plaintiff undertook to prove notice to the bank of the existence of their mortgages, before the *736date of the execution of the bank mortgage. Both plaintiffs testify to conversations with Castner, the cashier of the bank, had before the date of the bank mortgage, in which said cashier was told that plaintiffs had mortgages covering all the real estate owned by Alexander C. Watson. The cashier denies having the talk with Grant Clark; admits the conversation with John B. Clark, in substance, but fixes the time as after the bank mortgage had been executed and recorded. All three of these witnesses appear to be credible, with equal opportunity of knowing and remembering the matters testified to, and the testimony of the plaintiffs appears as reasonable as that of the cashier. I am of the opinion that the contention of the plaintiffs at this point is sustained by the weight and preponderance of the evidence, taking into consideration all the facts and circumstances of the case, as shown by the evidence.”

It will be seen from the above that the plaintiffs had the advantage of two witnesses in their behalf against one in behalf of the defendant. Ordinarily, this count would furnish ground for claiming a preponderance for the plaintiffs. It should not be overlooked, however, that the plaintiffs are witnesses in their own behalf. The fact testified to by them is one of controlling importance, and rests upon their indefinite recollection of a casual conversation which is alleged to have occurred ten years prior to the time of the giving of their testimony. There are circumstances appearing in evidence of considerable significance, and these should be considered with great care in weighing the credibility of this conflicting testimony. The statute provides a very simple method whereby a mortgagee may protect his priority of lien against all subsequent purchasers, by simply filing the same for record. The operation of the statute, when complied with, works equitably to the protection both of the mortgagee and of the public. For some reason, the plaintiffs did not avail themselves of *737the recording statute. Though pressed for a reason upon the witness stand, they gave no explanation of why their mortgages were not recorded. The only fair inference that can be drawn from the evidence is that they preferred not to record them, and that they intentionally withheld them. Watson, the mortgagor, was insolvent. He had, however, several hundred acres of land, all of which was encumbered, and all of which was included in the plaintiffs’ mortgages. His so-called “home place’’ consisted of 133 acres, of which Watson was the owner of only an undivided one third. The remaining two thirds were owned by his sister. Brother and sister occupied the tract together as a home. Watson understood that his interest in the “home place” was not included in the Clark mortgages. He testified that such was his understanding with the plaintiffs; that the plaintiffs drew the mortgages and advised Watson that they did not include the “home place;'” and that he signed the same without reading. This testimony was not denied. Watson in good faith informed Gastner that his interest in the “home place” was clear, except a $2,000 mortgage to Robb. Castner examined the public records, and found the title to be in the condition thus represented. In reliance thereon, he parted with full consideration for the mortgage taken by him. It is undisputed that, after the mortgages of both parties had been recorded, there was more or less conversation and negotiation between them concerning a proposed sale of one to the other of their securities. The substantial difference of the testimony between the parties is that the plaintiffs claim that these negotiations began before July, 1905; whereas the defendant claims that they began after the recording of the mortgages, when the conflict of interest between them was apparent. Although the plaintiffs testify that conversations were had prior to July, 1905, they are unable to fix the event within a less space of time than 18 months; nor are they able to *738show any satisfactory reason why such negotiation should occur, in the absence of apparent conflict of interest between them. No explanation is given why'the plaintiffs should prefer to hold their mortgages from public record, and yet be willing to publish their existence orally. No business relations appear ever to have been had between the plaintiffs and Castner. They do not appear ever to have done any business previously with the defendant bank. The evidence in the record fails to disclose a satisfactory reason why the conversation claimed by plaintiffs should have been had prior to July, 1905. We think their direct testimony to the fact should be held to the test of reasonableness in the circumstances shown, and that its credibility should be doubted, if it fails to meet such test. There is much in the attitude of the parties, as disclosed by their pleadings prior to the trial, which tends to weaken the testimony of plaintiffs on this point. This action was begun by the plaintiffs in July, 1913. The defendant answered December 18, 1913. The case was reached for trial on February 2, 1915. On that date, plaintiffs filed a pleading wherein for the first time they charged actual notice to the defendant bank. Castner was not at that time connected with the defendant bank, nor was he then a resident of the state, but was a resident of the state of Washington. Time had to be obtained for the taking of his testimony. On April 9, 1911, the plaintiffs filed a pleading in the case as against Mary E. Watson, as follows:

“That plaintiffs hold a mortgage upon all of the real estate described in its substituted petition, including that part of the premises upon" which George L. Robb has a mortgage which is prior to plaintiffs’ mortgage, including the mortgage of the Peoples Savings Bank, which is claimed by said bank to be prior and superior to the mortgage claimed by plaintiff upon the same tract of ground. Plaintiff makes the answer of George L. Robb, and also the an*739swer of the Peoples Savings Bank, Exhibits 1 and 2, respectively, of this amendment by way of reference to have the same force and effect as if rewritten, and which answers are filed in this proceeding in the office of the clerk of the district court of Monroe County, Iowa. Plaintiff further states that the George L. Robb mortgage is a lien upon the interest owned by Mary E. Watson in and to the premises described in the answer of George L. Robb, Alexander C. Watson heretofore being the owner of an undivided one-third interest, and Mary E. Watson the owner of an undivided two-thirds interest therein. That the remaining portion of the tracts of ground described in plaintiffs’ petition is insufficient to satisfy plaintiffs’ claim; and, if the entire amount of the mortgage of George L. Robb is satisfied out of the interest of Alexander G. Watson in the premises referred to in the answer of George L. Robb, and the mortgage of the Peoples Savings Bank is established as a prior lien to that of plaintiffs in and upon the interest of Alexander C. Watson, the properties will be insufficient to satisfy plaintiffs’ claim.”

It cannot be said that the foregoing pleading was an admission of the priority of the mortgage of the defendant bank; but, in view of the fact that the plaintiffs had not, in any pleading prior to February 2, 1915, alleged any notice of any kind to the defendant bank, the fair implication of the pleadings as a whole, as they appeared for a period of 18 months prior to the trial, was that the defendant bank’s mortgage was, for want of notice, superior to those of the plaintiffs. The testimony discloses no conduct on the part of Gastner which was inconsistent with his testimony on this subject, whereas the conduct of the plaintiffs was inconsistent with their testimony. Taking the case in all its circumstances, therefore, we think the testimony in behalf of defendants the more reasonable, and therefore the more credible. We reach the conclusion that the proof *740of actual notice to the defendant bank prior to July 11, 1905, is not of that satisfactory character which should obtain in such cases. It follows that priority should have been awarded to the defendant bank, and the decree below will-be modified to that extent. In all other respects, the decree below will be affirmed, except that, because of the holding at this point, the plaintiffs and defendant bank will change places as to priorities as to tlxe bank’s mortgage, and to that extent. — Modified and affirmed.

Gaynor, O. J., Weaver, Salinger and Stevens, J J., concur. Ladd and Preston, JJ., dissent.



Dissenting Opinion

Preston, J.

I dissent from Paragraph 4 of the opinion.

Briefly, there were two witnesses for plaintiffs, to one for the bank, on the question of notice. This, of course, is not always the criterion. But the trial court saw them, and stated and found that they were of equal credibility. They were equally interested. I see nothing particularly improbable in the story of the two. Furthermore, I think the record shows that jflaintiffs had been carrying Watson for years in his cattle business, and that this was, and had been for years, known generally in the community, and that Watson had mortgaged everything to plaintiffs. We have a rule that we give some consideration to the findings of the trial court. I see no reason, in this case, to bend or break the rule. I would affirm on all points.

Ladd, J., joins in this dissent.
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