No. 89-498 IN THE SUPREME COURT OF THE STATE OF MONTANA 1991

NOEL L. SUNDHEIM, BERTHA SUNDHEIM and LEONAM. JOHNSON, Plaintiffs and Appellants,

REEF OIL CORPORATION, a Montana corporation, WOODS PETROLEUM CORPORATION, a foreign corporation, and ANDY HIESTAND, as Personal Representative of the Estate of FRANK HIESTAND,deceased, d/b/a Saratoga Production Company, Defendants and Respondents.

APPEAL FROM: District Court of the Fifteenth Judicial District, In and for the County of Roosevelt, The Honorable M. James Sorte,Judgepresiding.

COUNSEL OF RECORD: ForAppellant: Charles 

### L. Neff; Bjella Neff Rathert Wahl & Eiken; Williston, North Dakota For Respondent: Loren J. OIToole;OtToole& OtToole;Plentywood, Montana (for Reef Oil Corp. & Andy Hiestand) W. Anderson Forsythe;Moulton, Bellingham, Longo & Mather; Billings, Montana (forWoods Petroleum)
Submitted on Briefs: January 31, 1991
Filed: 9Decided: February 14, 1991 "..

ClerkJustice R. C. McDonough delivered the Opinion of the Court. Plaintiffs,Noel Sundheim, Bertha Sundheim and Leona Johnson (hereinafterreferred to as Sundheims) appeal from an order of the Fifteenth Judicial District, Roosevelt County, granting summary judgment in favor of defendants, Reef Oil Company, the estate of FrankHiestand,andWoods Petroleum Corporation. We affirm inpart and reverse in part. The issues presented for our review are: 1. Whether the District Court correctly granted summary judgment on the Sundheims' allegations of breach of the implied covenants to protect and reasonably develop the leasehold and breach of the prudent operator standard, which were asserted against Reef Oil Company and the estate of Frank Hiestand; 2. Whether the District Court correctly granted summary judgment in favor of Woods Petroleum Corporation on the grounds that Sundheims' claims against it were barred by the statute of limitations; 3. Whether the ~istrict Court correctly assessed Rule 11 sanctions against Sundheims and their attorney. The Sundheims are the owners of mineral interests in land located in Roosevelt County in northeastern Montana. In May of 1967, they entered into oil and gas leases covering these interests. Those leases were entered into with W.C. Kaufman and they had ten year primary terms. OnMarch 10,1969, the leaseswere assigned toWoods Petroleum Corporation. In 1974, Woods Petroleum entered into a Dry Hole 2ContributionAgreement with Anadarko Production Company,which had

a lease on land adjacent to the Sundheim leasehold. Woods agreed to provide financial assistance indrilling awell on a leaseheld by Anadarko. In return,Anadarko promised to share all well data and structural information obtained through drilling the well. Anadarko found oil and the well initiallyproduced 596 barrels of oil a day. Woods Petroleum decided todrill its ownwell on the Sundheim leasehold. This well, Sundheim No. 1,was completed in March of 1975 and had an initial production of 419 barrels per day. In 1976, production on the Sundheim No. 1 well began to decline. In an effort to increase production Woods installed a pumping unit on the well. Production, however, continued to decline and in 1977 the sucker rods broke and production ceased. Following this breakdown, Woods Petroleum considered whether further investment should be made to rework the well and reestablish production. Woods determined that no more than $20,000.00 would be spenton reworking thewell. According to an internalmemorandum, its engineers determined that low production

was caused by reservoir conditions. No mention is made of the possibility that the well was not producing large enough amounts of oil due tomechanical problems. Somework was then done on the well; however due to Woods' belief that the decline in production

was caused by reservoir conditions, the well was cemented in, on July 20, 1977. Followingthisdiscontinuance,Reef Oil Corporation contactedWoods Petroleum. Reef Oil was interested in acquiring the open wellbore, tubing, wellhead,tanksand other equipment still intact and left at thewell inreturn forReef Oil assuming responsibility for operating and eventually plugging the well. Woods agreed to this arrangement and in July of 1978 the SundheimNo. 1well was llsoldn toReefOil. Before this lfsalent tookplace Reef Oil entered intonew oil leases with theplaintiffs. These leases provided for

a term of three years and contained provisions for annual delay rentals of $1.00 per acre per year. According to deposition testimony, Reef Oil did not have the financial ability to redrill the well. Apparently, it was Reef Oil's intent to acquire the well and then attempt to interest otherstodevelop theprospect. Reef Oil retainedE. Earl Norwood,

a certified petroleum geologist to do an in-depth geologic analysis. Norwood reported the decline in production was caused by mechanical problems and was not caused by reservoir conditions. This conclusion is supported by another engineer, Robert M. Watkins. According to Mr. Watkins, the well's low production probably resulted because it was not backflushed with freshwater to clear out salt accumulations which restricted the flow of oil. Reef Oil did not have the financial ability to rework the well. Consequently,nothingwas donewith ituntil the earlypart of 1980, when Reef Oil assigned the Sundheim leasehold to Frank Hiestand. In 1981,Heistandworked out a farmout arrangementwith

a Canadian Oil Company who drilled a new well, the SundheimNo. 2 well,which was 300 feet to the south of the SundheimNo. 1 well.Thisnewwellyielded only saltwater. According to theSundheims,

asmuch as 145,000 barrels of oilweredrained fromtheir leasehold by adjacentoilwellsduring thetimeperiod between 1977and 1981. On January 30, 1986 the Sundheims filed a complaint against Reef Oil Corporation, Woods Petroleum Corporation, Frank Hiestand and American Penn Energy. American Penn Energy was dismissed by stipulation oftheparties. Intheiramended complaint against the remaining three defendants,the Sundheims set forththree separate counts alleging that the defendants breached the implied covenant to protect their leasehold fromdrainage, the implied covenant to reasonably and prudently develop the leasehold, and the implied covenantto reasonablyandprudently operatetheexisting Sundheim No. 1well. Frank Hiestand subseqeuntly died and Andy Hiestand, the personal representative of his estate was substituted as a party-defendant. On February 17, 1987, Reef Oil moved for summary judgment. Reef's motion was granted on May 18, 1987. In its memorandum in support of its order of summary judgment, the District Court held that the Sundheims were barred frombringing an action for breach of the implied covenant to protect from drainage because they had not served written notice upon Reef Oil and demanded it drill an offsetwell. The court furtherheld that Reef Oil did not breach the implied covenant of reasonable development because the Sundheimsaccepted delayrentalsandbecause thiscovenantdoesnot arise until after production has been obtained on the leasehold. The District Court dismissed Sundheims' third cause of action onthe ground that the implied covenant to prudently operate a well is not an independent cause of action. Woods Petroleummoved forsummary judgment inJanuary of 1988. The District Court granted this motion and held that any claims againstWoods Petroleumwere barred by the statute of limitations, 5 27-2-202(l), MCA. On August 4, 1989, the District Court dismissed Hiestand from the action for the same reasons contained in its order granting summary judgment in favor of Reef Oil. Finally, the District Court, believing that the Sundheims' attorneyspurposely misled it, assessed Rule 11 sanctions against the plaintiffs and their attorney in the amount of $13,924.90. This appeal followed. I. Reef Oil Corporation and Frank Hiestand. As stated above, the Sundheims based this lawsuit on three separateallegations. In summary, their amended complaint alleged that the defendantsbreached the implied covenants of protection, to reasonably develop the leasehold and to prudently operate the existing well. As a result, Sundheims allege the defendants are liable for damages. The District Court granted summary judgment in favor of defendants Reef Oil and FrankHiestand on each of these counts. We will discuss each issue separately. A. The Implied Covenant to Protect from Drainage. Each of the Sundheims' allegations are based upon covenants which have been implied by common law, into oil and gas leases. The purpose of the implied covenants is to fully effectuate the intentions of the parties to a lease. Obviously, the primaryintention is to produce oil and gas for a profit and to obtain royalties for the lessor. U.V. Industries Inc. v. Danielson

(1979), 184 Mont. 203, 602 P.2d 571. To insure this result is obtained the courts have implied, through the express terms of oil and gas leases, certain duties which must be performed by the lessee. Theseduties includethecovenanttoprotect from drainage and the covenant to reasonably develop the leasehold, both of which are at issue in the case now before us. The Sundheims maintain that Reef Oil Corporation and Frank Hiestand breached the covenant to protect their leasehold from drainage. In their brief, the Sundheims estimate that asmuch as 145,000 barrels of oil were drained from their leasehold by adjacentoilwells. They further argue thatReefOil andHiestand, in accordance with their duty to protect, should have drilled offset wells in order to capture the oil before it was drained. Because thesedefendants failed to drill suchwells, theybreached the covenant toprotect, and are therefore liable for damages for thevalue of the oil drained from Sundheims' leasehold. The District Courtdid not reach themerits of the Sundheims' argument because it found that they were barred from asserting their claim due to the fact that they failed to give written notice of the drainage or demand that an offset well be drilled. In reaching its conclusion, the court relied upon U.V. Industries Inc. v. Danielson (1979), 184 Mont. 203, 602 P.2d 571, where we stated: The offset drilling rule generally requires the lessor



# . . . to serve written notice'ordemand upon the lesseeor itsassigns to drill an offsetwell as a precondition to the latter's duty to drill. Supra, at 584. Based upon this language,theDistrictCourt interpretedU.V. Industriesvery narrowlytohold that the Sundheimscouldnotbring an action for breach of the implied covenant to protect. All parties to this action agree that no written notice or demand was served. InU.V. Industries the plaintiffs brought a lawsuit alleging thatthedefendants failedtoprotect their leasehold from drainage and were liable for damages. The case involved four defendants. Two of the defendants owned an interest in a well, which was located on adjoining property. Apparently, this well caused the drainage to the plaintiff's leasehold. Faced with these facts,weheld thatwritten notice or demand

was not required tobe given thetwodefendants who held interests in the adjoining well. We based this conclusion upon the fact that these twodefendants,through their ownership of the draining well, obviously knew of the necessity to protect the plaintiff's leasehold. Thus, application of the notice requirement was unnecessary. Two other defendantswho held no such interest,were not deemed to have any knowledge of the drainage. Therefore, it

was held that they must be given notice of their obligation to protect before any duty on their part would arise. The District Court interpreted U.V. Industries to hold that written notice or demand is always aprerequisite to a lawsuit for breach of the covenant to protect, unless the defendant owns the adjoining well which is draining the plaintiffIs property. The 8Sundheims,on the otherhand,maintain thatunderU.V. Industries, written notice or demand is only required when the defendant does not have knowledge of the drainage. According to Sundheims, a notice requirement in a situation when a defendant already has knowledgewould be wholly unnecessary. Because there is evidence which tends to establish that Reef Oil and Hiestand knew of the draining of their leasehold, the Sundheims further argue that the District Court erred in granting summary judgment based upon lack of notice. We agree with the Sundheims' interpretation of U.V. Industries. There is no sound reason to require a lessor to give

a lessee notice of drainage in an action for damages, if the lessee alreadyhas such knowledge. Under the implied covenanttoprotect,

a lessee is charged with the duty to act as a reasonable operator and toprotect the leaseholderlsinterest. Thisduty requires the lessee tomanage the leasehold in such amanner as tobring profit to both himself and the lessor. Obviously, if the lessee failed to drill an offset well, while knowing the leasehold was being drained,hewould fail tomeet this duty. In such a circumstance, he shouldnotbe excused forthe solereasonthat the lessee failed to comply with a requirement that is unnecessary. Our conclusion on this issue is consistentwith the overall holding of U.V. Industries. Both the defendants and the District Courtbased their conclusionupon a single statementwhich occurred in a lengthy and complicated opinion. However, the statement relied upon must be read and understood within the context of theentire opinion. In U.V. Industries, we stated that generally a lessor must "servewritten notice or demand upon a lessee to drill an offset well as a precondition to the latter's duty to drill." U.V. Industries, 602 P.2d at 584. However, as rationale for this general rulewe quoted apassage froman earlier case which stated: 

### " 

# ..

# .A usual impliedcovenant is oneagainstdrainage, which is not here involved. The necessity of drilling offset wells is not brought about by the acts of the lessee,but by those of thirdparties, unless the lessee owns adjoining acreage. Hence, before a breach of an implied covenant could be claimed as substantial, the necessity of protecting the leased premises must be brought home to the lessee in somemanner by reasonable notice or demand on thepart of the lessor." (Emphasis supplied.) Berthelote v. Loy Oil Co. (1933), 95 Mont. 434, 446, 28 P.2d 187, 190. As this passage clearly indicates, it is only reasonable notice which is required as aprecondition to the duty to drill an offset well. The passage does not indicate that written notice is required. Moreover, a closereading of U.V. Industries reveals that the written notice requirement was mentioned only once. Throughout the rest of the opinion, this Court spoke in terms of reasonable notice, or notice. Clearly, the reasonable notice requirement is satisfied when the lessee has knowledge of drainage. Section 1-1-217, MCA, defines notice as follows: 1-1-217. Notice--actual and constructive. (1) Notice is: (a) actual whenever it consists of express information of a fact; (b) constructive whenever it is imputed by law. (2) Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact has constructive noticeof the fact itself in all cases inwhich,by prosecuting such inquiry,he might have learned such facts. As this statute indicates, a person is deemed to have constructive notice whenhe is inpossession of all of the relevant facts and circumstances. Certainly, constructive notice rises to the level of reasonable noticeas requiredby Berthelotev. Loy Oil Co. (1933), 28 P.2d 187, 94Mont. 434. Therefore,we now clarify

our earlier holding in U.V. Industries and hold that before a lessee's duty to drill an offset well arises, he must have reasonable notice of thenecessity toprotect the leasehold. Such notice can either be express, from the lessor, or constructive, gained fromthe surroundingcircumstances. Further supportof this holding is found in the general rule that oil and gas leases are to be construed liberally in favor of the lessor and against the lessee. See Clawson v. Berklund (1980), 188 Mont. 48, 610 P.2d 1168; Thomasv. Standard DevelopmentCo. (1924), 70Mont. 156, 224 P. 870. This rule is only applicableto those cases inwhich a lessor is seeking relief in the form of damages, however. If he is seeking other forms of relief, such as forfeiture of the lease,he must give written notice in order to give the lessor a chance to

cure thebreach. See Summers, Oil and Gas Volume 2 

### 5 412 (1990). The burden of proof is upon the lessor to establish the fact that the lesseeknew of the drainage. Therefore, upon remand, the Sundheims must prove that both Reef Oil Corporation and Frank Hiestand knew or shouldhave known that the Sundheim leasehold was being drained by the adjacentwells. 11B. The Implied Covenant to Reasonably Develop the Leasehold. As their second issue, the Sundheims argue that the District Court erred in granting summary judgment on their claim that Reef Oil and FrankHiestand breached the implied covenant to reasonably develop the leasehold. The District Courtheld that this covenant was not breached because the Sundheims accepted delay rental payments. As further justification for its ruling, the courtheld that the covenantto reasonably develop does not arise until after production has been obtained on the leasehold. Because we uphold the lower courtbased upon theprior reasoning,we will not review the latter. In short, the Sundheims maintain that their acceptance of delay rental payments does not excuse the defendants from fulfillingtheirduty toreasonably develop their leasehold. They argue that because oil was discovered and pumped in paying quantities from the Sundheim No. 1 well, Reef Oil and Frank Hiestand had a continuing duty to further develop the leasehold. According to Sundheims,thepayment of delayrentalshas nobearing

on this duty. We need not dwell upon the legal intricaciesof the Sundheims' argument. The issue can be resolved through resort to the clear wording of the leases. Paragraph 2 of these leases states: It is agreed that this lease shall remain in force for a term of three years from date and as long thereafter as oil or gas of whatsoever nature or kind or either of them is produced from said land or premises pooled therewith or drilling operations are continued as hereinafter provided. If prior to discovery of oil or gas on said land or on acreage pooled therewith, lessee should drill a dry hole or holes thereon, or if afterdiscovery of oil or gas production thereafter should cease for any cause, this lease shall not terminate if lessee commences additional drilling or reworking operations within sixty (60) days thereafter or (if it be within the primary term) commences or resumes the payment or tender of rental on or before the rentalpavinq date next ensuinq after expiration of three (31 months from the date of completion of a dry hole or cessation of production. (Emphasisadded.) Paragraph 4 of the leases states: If operations for thedrilling of a well for oil or gas are not commenced or if there is no oil or gas being produced on said land or on acreagepooled therewith as hereinafterprovided on orbefore oneyear fromthedate hereof, this lease shall terminate as to both parties unless the lessee on or before that date shall pay or tender to the lessor 

# . . . the sum of $320.00 which shall operate as a rental and cover the privilege of deferring the commencement of operations fordrilling of awell for twelvemonths from saiddate. In likemanner and upon like payments or tenders the commencement of operations for drilling of a well may be further deferred for like periods of the same number of months successively. According to these two sections of the Sundheim leases,Reef Oil had a duty to explore for or produce oil and gas from the Sundheim leasehold. If it failed to adequately carry out this duty, the terms allowed the Sundheims to terminate the lease. However, Reef Oil could, instead of engaging in drilling or production operations, make delay rental payments of $320.00 per year. Upon payment of this sum, Reef Oil was excused from the drilling and operating requirements contained in the lease. It is undisputed that the delay rental payments were made by Reef Oil and were accepted by the Sundheims. Therefore, by the terms of the contract, Reef Oil was not impliedly required to engage in further development of the Sundheim leasehold. The rental clausescontained inthe leasewerepresumably bargained forand are supportedby consideration. We will not lookbeyond these express provisions in order to impose a duty upon Reef Oil which is in contravention of their terms. In short, the rental clause contained in the Sundheim leases relieves Reef Oil of all drilling obligations save that of offset drilling. Williams & Meyers, Oil and Gas Law § 835.1 (1990). Seealso Hemingway,Law of Oil and Gas 9 8.10 2d Ed. (1983). The duty to drill an offsetwell is imposed through the covenant to protect, not through the covenant to reasonably develop. Therefore, there was no breach of the development covenant and summary judgment on this issue was properly granted. C. Prudent Operator/Reasonable Man Standards The Sundheims maintain that Reef Oil and Frank Hiestand, in addition to breaching implied covenants to the lease, also violated the prudent operator standard. This standard is best understood through analogy to the reasonable man standard of tort law. Simply stated, the prudent operator is a reasonable man engaged in oil and gas operations. He is a hypothetical oil operatorwho doeswhat he ought to do not what he ought not to do with respect to operations on the leasehold. Williams and Meyers, Oil and Gas Law § 806.3 (1990)

# . Sundheims argue thatReef Oil and FrankHiestandbreached this obligation because they did not develop the leasehold. Instead, they took the lease for speculative purposes, and while they were searching for an individual to commence drilling operations substantial drainage occurred. The District Court granted summaryjudgment in favor of the defendants on this count. It held that the prudent operator standard was not in itself an independent

cause of action and the prudent operator standard is applied in conjunction with and serves to define the other implied covenants. We agree with the District Court. We have previously held that the Sundheims have presented a valid cause of action for breach of the implied covenant to protect. The duty to act as a prudent operator underlies this contractual obligation. In order to prevail on this issue, the Sundheims must prove at trial that, under the circumstances of their case,Reef Oil and FrankHiestand did not act as reasonably prudent operators to prevent drainage. Proof of this issue necessarily entails a showing that actual drainage occurred and that an offsetwell would have produced oil in paying quantities. Williams and Meyers, Oil and Gas Law 5 822 (1990). Proof of the second element of the above test would necessarily establish that the defendants failed to act as reasonably prudent operators and, assuming drainage can be established,that theybreached the covenanttoprotect. Thisrule of law is supported by the rationale that a reasonably prudent operator would drill an offset well if he could gain a profit and if it was necessary to protect the value of the lease. On the otherhand, no breach of this standard, could be established if it cannot be shown that such a well could be drilled at a profit to the lessee. Accordingly, in such circumstances there would be no breach of the covenant to protect.It is clear from the facts of this case, that the Sundheims allegations ofbreach of the covenant toprotect and breach of the prudent man standardare one in the same. Proofof onenecessarily entails proof of the other. Therefore, the District Court correctly granted summary judgment dismissing the allegation alleging breach of the prudent operator standard. 11. Woods Petroleum Corporation. The DistrictCourt granted summary judgment in favor of Woods Petroleum Corporation on the grounds that all claims against it

werebarred by the statute of limitations. Thisactionwasbrought

on the 30th day of January 1986. The applicable statutes of limitations in this case are eight years for breach of the terms of a written contract, 5 27-2-202(1), MCA, three years for allegations of negligence, 9 27-2-204, MCA, and two years for damage to property, 5 27-2-207, MCA. All parties agree that the eight year statute should apply to those counts alleging breaches of covenants arising out of an oil and gas lease. Therefore, it is clear that Sundheims' claims under such counts are barred. The leases executed between the Sundheimsand Woods Petroleum

were executed onMay 11, 1967 andMay 23, 1967. They were subject to a ten-yearprimary term. Therefore,by their express language, the leases expired in May of 1977, unlessproduction of oil and gas continued after thisdate. The applicable provision that supports this conclusion reads: It is agreed that this lease shall remain in force for a term of tenyears fromdate, and as long thereafteras oil or gas or either of them, isproduced from said land by the lessee, its successors or assigns

# . . .It is undisputed that production ceased on the Sundheim No. 1well in July of 1977. The well was abandoned and cemented, and Woods Petroleum performed no further activity on the well after this date. The Sundheims themselves stated, in their complaint, that the well was abandoned in July of 1977. Given these admissions, it is clear that the issue presented is a matter of law, and is properly resolved through summary judgment. Absent a reworking clauseMontana lawdictatesthat cessation of production by the lessee after the primary term automatically terminates the lease. Miami Oil Producers Inc. v. Larson (1983), 203 Mont. 225, 661 P.2d 1260. The primary terms in the Sundheim lease terminated in May of 1977. Production on the Sundheim leasehold ceased in July of 1977. According to Miami Oil, the lease automatically terminated on that date. Once the lease terminated, all obligations on Woods Petroleum's part also ended. The date for the beginning of the statute of limitations was in July of 1977. The Sundheimsbrought their lawsuit on January 30 of 1986. This date is outside of the eight year statute and all claims againstWoods Petroleum are barred. Through a convoluted interpretation of the lease, the Sundheims attempt to extend the termination date to May of 1978. Through reliance upon this erroneous argument, they attempt to save their lawsuit againstWoods from the statute of limitations. We do not find it necessary to fully evaluate this argument. The clear language of the lease speaks for itself. Next, the Sundheims argue that this Court should toll thestatuteof limitations onequitableprinciples. However, theyhave not come forwardwith any evidence or sufficient reason to delay its operation. The Sundheims have offered no proof of fraud or concealment on the part of Woods Petroleum. Carlson v. Ray Geophysical Division (1971), 156 Mont. 450, 481 P.2d 327. On the contrary, the Sundheims were well aware of their injury in 1977 when they stopped receiving royalty checks. Mr. Sundheimknewthat the reason the royalty checks stopped was that production on the SundheimNo. 1well ceased. The District Courtlsorderdismissing Woods Petroleum is affirmed. 111. Rule 11 Sanctions The District Court granted Reef Oil's motion for Rule 11 sanctions and assessed a sum of $13,924.90 against the Sundheims and their attorneys. Apparently, the District Court determined that the Sundheims repeatedly misrepresented the holding of U.V. Industries. During argument andbriefing atthe lower court level, the Sundheimsmaintained thatU.V. Industries1notice requirements

were inapplicable to this case,because the Sundheimswere seeking damages, while the plaintiffs in U.V. Industries were seeking forfeiture. A close reading of U.V. Industrieshowever, reveals that itwas a case for damages. While it istruethattheSundheimserroneously misinterpreted theU.V. Industries decision,wedisagree with theDistrictCourt's decision to assess sanctions. We note that later on in the proceedings, the Sundheimschanged tactics and argued for a change in the law to not require notice in cases seeking damages. Theirargument is amply supported by the authorities. At least 

### two treatises on Oil and Gas Law state that a lessor suing forbreach of the covenant to protect need not give notice or demand protection, if he is only seekingdamages. SeeHemingway, Oil and Gas 5 8.11 2d.Ed. (1983);Merrill, Covenants Implied in Oil and Gas Leases 5 113 (1964)

# . Because the Sundheims argument finds support in the law and because this opinion holds in their favor

on the notice issue,we hold sanctions were not warranted. Conclusion The DistrictCourt's order awarding summary judgment in favor of Reef Oil Corporation and the estate of Frank Hiestand on the issues of breach of the covenant to develop and the prudent operator standard are affirmed. Summary judgment dismissingWoods Petroleum Company is also affirmed. The District Court's orders granting summary judgment to Reef Oil and Frank Hiestand on the issue of breach of the covenant toprotect and its order granting Rule 11 sanctions is reversed. This case is remanded for proceedings consistentwith this opinion.