Benedict G. Wenske and Elizabeth Wenske v. Steve Ealy and Deborah Ealy

Opinion

ACCEPTED

13-15-00012-CV

THIRTEENTH COURT OF APPEALS CORPUS CHRISTI, TEXAS

5/4/2015 3:41:45 PM DORIAN RAMIREZ

CLERK

CAUSE NO. 13-15-00012-CV

FILED IN

13th COURT OF APPEALS CORPUS CHRISTI/EDINBURG, TEXAS IN THE THIRTEENTH COURT OF APPEALS 5/4/2015 3:41:45 PM

AT CORPUS CHRISTI, TEXAS DORIAN E. RAMIREZ Clerk

BENEDICT G. WENSKE AND ELIZABETH WENSKE, Appellants

v.

STEVE EALY AND DEBORAH EALY, Appellees

ON APPEAL FROM THE 25TH JUDICIAL DISTRICT COURT OF LAVACA COUNTY, TEXAS

THE HONORABLE WILLIAM D. OLD, III PRESIDING

APPELLEES' BRIEF

ROBERT C. MCKAY

McKAY & COFFEY, LLP

P.O. Box 2469

VICTORIA, TEXAS 77902

(361) 894-8975

(361) 894-8973(FAX)

rmckay@mckaycoffey .com

ATTORNEYS FOR APPELLEES

ORAL ARGUMENT REQUESTED

TABLE OF CONTENTS

TABLE 0 F CONTENTS ........................................................................... ii

INDEX OF AUTHORITIES .................................................................... iv

STATEMENT OF THE CASE ........................................................... vi

STATEMENT REGARDING ORAL ARGUMENT ............................... vii

ISSUES PRESENTED .................................................... 0 •••••••••••••••••••••• viii

STATEMENT 0 F FACTS ......................................................................... 1

SUMMARY 0 F THE ARGUMENT .......................................................... 3

ARGUMENT ............................................................................................. ~

1. Non-Participating Royalty Interests Are Borne Proportionately by the Owners of the Mineral Estate ........................................................ ~

2. Texas Rules of Deed Construction Support the Trial Court's Ruling oo•••o••o··· .... •o•oooo······o ......... o. 15

3. An Exception Is Not a Reservation ........ 0 . 00 . . . . . . . . . . . . . . . . 00 00 . . 00 . . 18

4. Appellants' Contention Leads to Absurd Results .................................................. 0. 0. 0. 0 ••••••••••• 19

5. Appellants' Case· Law Is Distinguishable from the Facts of This Case . 0 0 0 0 0 0 0 0 0 0 0 •• 0 0 0 0 0. 0 0 0 •••• 0 0. 0 0 ••• 0 •••••••••••••••••••••••••••• 21

CONCLUSION AND PRAYER ........ o.oo··················································· 26

CERTIFICATE OF COMPLIANCE ....................................................... 2~

ii

CERTIFICATE OF SERVICE ................................................................. 28

APPENDIX .............................................................................................. 29

iii

INDEX OF AUTHORITIES

Cases: Page(s):

A veryt v. Grande, Inc., 717 S.W.2d 891 (Tex. 1986) .......................................................................... 22

Bagby v. BredthauerJ.

627 S.W.2d 190 (Tex. App.-Austin, 1981, no pet.) .......................................... 12, 13

Bass v. Harper, 441 S.W.2d 825 (Tex. 1969) ......................................................................... 22, 23, 24

Bright v. Johnson, 302 S.W.3d 483 (Tex. App.-Eastland, 2009, no pet.) .. o. o o. o o o o o o o o • • • o o. o o • • • o o. o o o o. o o •• 18

Day & Co. v. Texland Petroleum, Inc., 786 S.W.2d 667 (Tex. 1990) 0 0 0 0 0. 0. 0 0 0 0 •• 0. 0 0 •• o o. o. o o. o o o o o. o o o o o o o. o o o. o o. o o •• o o o o o. o o o o • o o o o. o •• 17

Graham v. Prochaska, 429 S.W.3d 650 (Tex. App.-San Antonio, 2013, pet. filed) ..................................... 8

Harris v. Windsor, 294 S.W.2d 798 (Tex. 1956) ............................................................................... 24, 25

Lucke] v. White, 819 S.W.2d 459 (Tex. 1991) ...................................................................................... 12

iv

Pich v. Lankford, 157 Tex. 335 (1957) ................................................................... 8, 23

Plainsman Trading Co. v. Crews, 898 S.W.2d 786 (Tex. 1995) ....................................................................................... 8

Reagan v. Marathon Oil Co., 50 S.W.3d 70 (Tex. App.-Waco, 2001, no pet.) .................................................. 16

Selman v. Bristow, 402 S.W.2d 520 (Tex. Civ. App-Tyler, 1966, writ refd n.r.e.) .................... 9, 10, 19

Sharp v. Fowler, 151 Tex. 490 (1952) ....................................................................... 15

Walker v. Foss, 930 S.W.2d 701 (Tex. 1996) ..................................................................................... 21

v

STATEMENT OF THE CASE

Nature of the Case: This is a suit regarding the proper construction of a deed in which the grantor conveyed both the surface and a portion of minerals under the disputed property to the grantee while excepting an extant non-participating royalty interest owned by unrelated third parties. Appellees contend that the non-participating royalty must be borne proportionately by both Appellants and Appellees. Appellants contend that the non-participating royalty should be borne entirely by Appellees. The parties filed cross-motions for summary judgment. 1

Trial Court: The Honorable William D. Old, III, 25th Judicial District Court of Lavaca County, Texas; Cause No. 13-15-00012-CV.

Disposition: The trial court granted Appellees' motion and denied Appellants' motion.2 All other issues were disposed of by a trial before the court on the sole issue of attorneys' fees. s

Court ofAppeals: The Appellants timely perfected this appeal.

1 C.R. pg. 4 7; C.R. pg. 80

2 C.R. pg. 199

a C.R. pg. 199 vi

STATEMENT REGARDING ORAL ARGUMENT

Appellees welcome the opportunity to present oral argument to

the Court, should the Court determine oral argument is appropriate.

The issues to be addressed at oral argument would likely focus on the

application of settled rules of deed construction to this case as well as

real-property law as it applies to a conveyance of real property.

vii

ISSUE PRESENTED

1. Did the district court properly determine that the non-

participating royalty should be borne, proportionate to the respective

interests in the mineral estate, by both Appellees and Appellants?

viii

STATEMENT OF FACTS

The issue in this case is the proper construction of a deed (the

"Deed") in which the Appellants-Grantors conveyed approximately 55.0

acres of land to the Appellees-Grantees on October 17, 2003. 4 Although

the surface was conveyed as well as a portion of the minerals under the

property, there is no dispute in this lawsuit related to the surface estate

or the mineral estate reserved and conveyed except as to the amount of

royalty reserved by Appellants. The dispute between the parties hinges

on the following two sections of the Deed that include the mineral

reservation ("Reservation") and the exceptions to conveyance and

warranty ("Exception"):

The Reservation from the 2003 Deed (The "Reservation")

"RESERVATIONS FROM CONVEYANCE:

For Grantor and Grantor's heirs, successors, and assigns forever, a reservation of an undivided 3/Sths of all oil, gas and other minerals in and under and that may be produced from the Property. If the mineral estate is subject to existing production or an existing lease, the production, the lease, and the benefits from it are allocated in proportion to ownership in the mineral estate."

4 C.R. 34; Appendix 1

2

The Exception from the 2003 Deed 5 (The "Exception")

"Exceptions to Conveyance and Warranty:

Undivided one-fourth (1/4) interest in all of the oil, gas and other minerals in and under the herein described property, reserved by Marian Vyvjala, et al for a term of twenty-five (25) years in an instrument recorded in Volume 400, Page 590 of the Deed Records of Lavaca County, Texas, together with all rights, express or implied, in and to the property described herein arising out of or connected with said reserved interest and reservation, reference to which instrument is here now made for all purposes."

The remaining factor relevant to this dispute is the non·

participating royalty referenced in the Deed and immediately above

created by an earlier 1988 deed in which the following reservation was

made:

Non-Participating Royalty Interest from 1988 Deed 6 ("The 1988 Deed")

"Anything in the foregoing conveyance to the contrary notwithstanding, it is expressly agreed and stipulated that out of the sale hereby made there is expressly excepted and reserved to the grantors herein, MARIAN VYVJALA AND MARGIE NOVAK, their heirs and assigns .... an undivided one-fourth (1/4th) interest in and to all of the oil royalty, gas royalty, and royalty in casinghead gas, gasoline and royalty in other minerals in and under and that may be produced from the above described tract ... for a period of twenty-five (25) years ... "

5 C.R. pg. 35; Appendix 1

s C.R. pg. 38; Appendix 2

3

Additionally, there is language in the 1988 Deed which is relevant to this case:

Non-Participating Royalty Requirements 7

"in the event any existing or future oil, gas and/or minerals lease provides for a royalty in excess of one-eighth (1/8) then grantors herein, Marian Vyvjala and Margie Novack, shall share in said royalty provided for in such lease or leases to the extent of an undivided one-fourth (1/4) thereof."

Both Appellants and Appellees executed oil, gas and mineral

leases covering the disputed interest. 8 Both leases were executed in

exchange for a royalty that was in excess of one-eighth. 9

SUMMARYOFTHEARGUMENT

The Deed from Appellants-Grantors to Appellees-Grantees

conveyed everything owned by the Appellants-Grantors except that

which was reserved or excepted. In order to avoid a breach of warranty,

the interests contained in the "exceptions to conveyance and warranty"

section put the Appellees-Grantees on notice of interests outstanding in

7 C.R. pg. 41; Appendix 2

s C.R. pg. 9, 10, ~ C

9 C.R. pg. 9, 10 ~ C

4

third parties. The Reservation in the Deed makes it clear that the

Appellants-Grantors reserved to themselves 3/Sths of the minerals

under the property. By operation of Texas law, everything else not

reserved or properly excepted to passed to the Appellees-Grantees.

Because the Appellants-Grantors reserved 3/Sths of the minerals, 5/8ths

of the minerals were conveyed to Appellees-Grantees. The parties do

not dispute this calculation of the mineral estate; the parties do

however dispute how Appellants' 3/Sths mineral ownership and

Appellees' 5/8ths mineral ownership is affected by the outstanding

2/8ths non-participating royalty interest ("NPRI") owned by third

parties to this lawsuit. (Appellants' Brief Page 3)

The distinction between minerals and royalty has been a difficult

and longstanding source of problems for mineral owners, judges,

justices and attorneys alike. Although it would seem easy enough to

take the Appellants' 3/Sths reserved mineral reservation and add it to

the outstanding 2/8ths NPRI leaving a 3/Sths interest for the Appellees-

Grantees, this is not the way Texas oil, gas and mineral law works. The

mineral estate is not the royalty estate. The Deed reserved to the

Appellants-Grantors 3/Sths of the minerals and the Deed conveyed

5

everything not reserved or properly excepted to the Appellees-Grantees,

this being a 5/Sths mineral interest as well as the surface. Together,

the Appellants and Appellees own the entire mineral estate under the

55.0 acre tract of land conveyed by the Deed. However, it is undisputed

that the 8/Sth mineral estate is burdened by a NPRI of 2/8ths which is

owned by third parties to this lawsuit. There is no contradiction in this

because a NPRI is carved out of the mineral estate; it is derivative of

the mineral estate. Thus, Texas law holds that the Appellants own

3/Sths of the minerals, that the Appellees own 5/Sths of the minerals,

and that out of this complete 8/8ths mineral estate under the property,

there is carved from it a 2/8ths NPRI which Appellants and Appellees

must bear proportionately to their respective estate in the minerals.

Besides the plain language of the Deed and the operation of

settled oil, gas and mineral law, Texas adheres to the greatest estate

possible rule, the rule against implied reservations, and the rule of deed

construction which construes reservations and exceptions in favor of the

grantee. In order for this Court to accept Appellants' novel

interpretation which Appellants contend allows them to shrug off their

share of the NPRI burden, this Court would have to ignore rules of deed

6

construction that must favor the Appellees-Grantees and well settled oil

and gas jurisprudence in this state.

The trial court's decision correctly acknowledges the legal

distinction between a reservation and an exception in a deed. A

reservation is not an exception, despite unclear or ambiguous drafting

in the occasional deed. There is no assertion of ambiguity in the Deed

by any party to this proceeding. A reservation will always favor the

grantor; an exception never favors the grantor because an interest to be

excepted is necessarily owned by an individual who is not the grantor.

The benefit a grantor receives by making exception to an outstanding

interest is that he is protected from breaching his warranty to the

grantee. In this case, the Appellants-Grantors properly made exception

to the outstanding 2/Sths NPRI. 1o This exception put the Appellees·

Grantees on notice that there is an outstanding interest the grantors do

not own, will not be conveyed in the deed, and is not warranted. The

Deed was drafted properly and carefully if one wanted both Appellants'

and Appellees' mineral estates to equally bear the NPRI. Appellants

cannot assert under Texas law that merely making an exception to the

10 Appendix 1

7

2/Sths NPRI somehow increased the size of their mineral reservation or

operated as some kind of a "back-door" reservation.

Lastly, Appellees will explain how and why Appellants' argument

leads to absurd results as well as discussing the case-law cited in

Appellants' brief.

In summary, Appellants' argument confuses the distinction

between royalty and minerals, violates Texas' rules of deed

construction, fails to respect the substantive operation and plain

meaning of the reservation and exception sections in the deed and leads

to absurd and unjust results.

ARGUMENT

I. Standard of Review

Appellees agree with the Appellants' statement on page 8 of

Appellants' Brief regarding the de novo standard of review applicable to

appeals of cross-motions for summary judgment.

II. Non-Participating Royalty Interests. Absent Express Language to the Contrary. Are Borne Proportionately by the Mineral Fee-Estate Owners.

A royalty interest is not a mineral interest; an interest in minerals

in place and an interest in royalty are separate and distinct estates in

8

land. Pich v. Lankford, 157 Tex. 335, 339 (1957). The specific type of

royalty interest outstanding in third parties and present in this case is

a non-participating "floating'' royalty interest which entitles the NPRI

owner to a share of the mineral-fee owner's royalty under a lease. See

Graham v. Prochaska, 429 S.W.3d 650 (Tex. App.-San Antonio, 2013,

pet. filed.) Because of the language creating it, the NPRI in this case

"floats" due to the fact that its value can change based on the royalty

reserved by the mineral owners when oil, gas and mineral leases are

executed. Id. A typical NPRI owner cannot lease the mineral estate

himself, but relies on a mineral owner to lease the property and to

reserve a royalty interest in which the NPRI owner will share.

Plainsman Trading Co. v. Crews, 898 S.W.2d 786 (Tex. 1995). A NPRI

is carved out of the mineral-fee estate. Id. Logically then, because the

mineral-fee estate is owned by both Appellants and Appellees the NPRI

is thus carved from both Parties' interests and accordingly must be

borne proportionately. The Court in Pich clearly states that

"Ordinarilyll the royalty interest ... would be carved proportionately

from the two mineral ownerships ... " Pich v. Lankford, 157 Tex. at 343.

11 The Petitioner in Pich apparently stipulated to the NPRI burden.

9

Further support for Appellees' contention that the NPRI must be

borne proportionately by both Appellees and Appellants is Selman v.

Bristow, 402 S.W.2d 520, 521 (Tex. Civ. App. 1966, writ refd n.r.e.) In

Selman, the court was dealing with almost identical facts to this case. A

NPRI was first carved from the mineral estate by Mrs. Weeden. ld.

Next, the Plaintiffs in Selman divided the mineral fee by reserving a

1/4th mineral interest. Id. The Grantee-Defendants were conveyed the

remaining 3/4ths of the mineral estate. The issue in the case was who

bore the NPRI. However, in Selman the Plaintiff-Grantor did not make

exception to the NPRI in the deed. I d. The Selman Court held that the

NPRI would be borne entirely by the grantor because there was no

exception to the NPRI. In our case, Appellees properly made exception

to the NPRI, in contrast to Selman, and Appellees have never contended

that Appellants must bear the entire NPRI. However, properly making

exception to the NPRI does not result in the pendulum swinging the

entire way back; it results in the equitable and just result of

proportionate sharing of the NPRI burden. This case is the deed in

Selman, but drafted correctly. Because of the Exception notifying

Appellees-Grantees of the outstanding NPRI, the NPRI will not be

10

borne solely by Appellants-Grantors as Selman requires but would be

shared proportionately between the Grantors and Grantees. 12

If Appellees wished to create for themselves the result they now

seek, to have Appellees bear entirely the outstanding NPRI, by a

properly worded reservation, they could have done so. To do so

however, would have taken additional and unequivocal language which

would serve to negate longstanding rules of deed construction that

always operate in favor of the Appellees-Grantees. Such additional

language could have been something to the effect of "Grantor reserves

3/Sths of all minerals, and it is specifically understood that Grantors'

reserved interest will bear no part of any NPRI interest." This type of

language would clearly indicate what was intended by the grantor and

it would properly notice any grantee of the effect of the deed on their

conveyed interests. This would have been permissible under the law

because by the delivery and acceptance of the deed, grantees would

have consented to this allocation. However, this was not done.

Appellants reserved 3/8ths of the minerals, conveyed 5/Sths to

12 For the purpose of clarification and to avoid confusion, the Selman case supra involved a Duhigproblem because an interest was not excepted to. Despite Appellants' citation to Duhig v. Peavey Moore Lumber Co., this case does not involve a Duhigproblem.

11

Appellees and made exception to the outstanding NPRI. The effect of

this was to essentially keep the status quo. The 8/8ths mineral interest

in the aggregate, now merely owned by two instead of one, continues to

share the entire NPRI as it did prior to the Deed.

The 1988 deed creating the NPRI also controls the question of how

the NRPI must be borne. The 1988 Deed specifically states that:

"in the event any existing or future oil, gas and/or minerals lease provides for a royalty in excess of one-eighth (1/8) then grantors herein, Marian Vyvjala and Margie Novack, shall share in said royalty provided for in such lease or leases to the extent of an undivided one-fourth (1/4) thereof." 13 (Bold added)

The language in the 1988 Deed makes it perfectly clear that the

drafters anticipated a severance or multiple owners of the minerals,

such as that which occurred after the Deed to Appellees. It was

understood that multiple leases executed by multiple mineral owners

would have to be accountable to the NPRI owners. Because the

Appellants-Grantors stand in the shoes of the grantee under the 1988

Deed, they are equally bound by this language and must account, just

as Appellees must account, to the current NPRI owners. When

construing deeds, "[t]he primary duty of a court when construing [an

13 Appendix 2

12

unambiguous] deed is to ascertain the intent of the parties from all of

the language of the deed by a fundamental rule of construction known

as the 'four corners' rule." Lucke] v. White, 819 S.W.2d 459, 461 (Tex.

1991). Courts are to attempt to "harmonize all parts of the deed" and

give effect to "every clause." I d. at 462. In this case, Appellants

essentially say to this Court " we intended to reserve 3/Sths of the

minerals and 3/8ths of the royalty free and clear of any burdens" but

that is not what the Deed says.

Lastly, the state of future interests under the facts of this case

also controls the correct result here. The NPRI created by the 1988

Deed is for a term of 25 years and "as long thereafter as oil and gas is

produced ...."14 Despite the fact that the NPRI has been kept alive by

production from the leased property, this interest will at some future

time terminate. What will occur when the NPRI terminates? The

answer is contained in the Deed; both Appellees and Appellants

currently own reversionary interests in the NPRI because they each

own portions of the mineral fee. See Bagby v. Bredthauer, 627 S.W.2d

190, 197 (Tex. App.-Austin, 1981, no pet.) These interests are in

14 Appendix 2

13

proportion to the minerals owned by each respective party. See I d. (i.e.

Appellees own 3/8ths of the reversionary interest in the NPRI and

Appellants own 5/8ths of the reversionary interest) The 1988 Deed says

that:

"this reservation (the NPRI) ... shall terminate ... and all

right, title and interest in and to said oil, gas and other

minerals herein excepted and reserved ... shall pass to and

vest in the grantees herein, their heirs and assigns forever".

(Imbedded parenthetical added for clarity)

When Appellants-Grantors divided the mineral interest in the

Deed, this reversionary interest was also divided. See I d. Everything

not reserved or excepted to in a deed is conveyed to the grantee. I d.

Because the reversionary interest of the NPRI was not expressly

reserved to Appellants-Grantors it was necessarily conveyed to

Appellees-Grantees in proportion to their share of the minerals, 5/8ths.

I d. When the NPRI terminates Appellants will own 3/Sths of the

minerals under the property and 3/8ths of the royalty and Appellees

will own 5/8ths of the minerals and 5/8ths of the royalty, but neither

Appellees nor Appellants will suffer any reduction in royalty due to a

14

burdening NPRI. As the NPRI terminates, 3/8ths of that interest will

revert to the Appellants and 5/Sths will revert to the Appellees.

Because both mineral owners, Appellants and Appellees, will be

benefited by the reversion of the outstanding NPRI, it can only follow

that both mineral owners bear their proportionate share of the NPRI

prior to its termination and nothing in the Deed indicates any intent to

the contrary The district court construed the Deed, correctly applied

the appropriate case law and found as follows:

By applying Texas law, the following displays the correct calculation of

the royalty interest held by each party:

Appellants- .25 (the amount reserved in the1988 Deed)

X 3/8 (the amount of mineral-fee reserved by Appellants) = .09375 (the amount by which Appellants royalty interest is reduced by the NPRI)

Then, 3/8 minus .09375 = .28125; the Appellants receive .28125 of any royalty reserved in a lease by them.

Appellees- .25 (the amount reserved in the1988 Deed)

X 5/8 (the amount of mineral-fee conveyed to Appellees) = .15625 (the amount by which Appellees' interest is reduced by the NPRI)

15

Then, 5/8 minus .15625 = .46875; the Appellees receive .46875 of any royalty reserved in a lease by them.

Thus, Appellants and Appellees' combined interest in the royalty is

.28125 + .46875 = .75

Appellants and Appellees' royalty interest combines to make a 3/4 or .75

interest leaving only the outstanding NPRI of .25 of royalty to complete

the royalty interest and equal1 or 100% of the royalty.

The Trial Court correctly construed the Deed to this effect and

should in all respects be affirmed.

III. Texas Rules of Deed Construction Support the Trial Court's Interpretation and Determination.

Texas law does not favor implying reservations; they must be

made by clear language to be effective. Sharp v. Fowler, 151 Tex. 490

(1952). If Appellants' position were to be approved it would violate this

rule because Appellants never, under any construction of the Deed,

reserved anything more than a 3/8ths mineral interest and that interest

must bear its equal share of the outstanding NPRI. If Appellants

intended to make an additional reservation that would allow them to

discard the burden of the NPRI, they certainly could have. However,

16

Appellants did not and no reservation should now be implied which was

never expressed in the Deed. Appellants reserved for themselves a

3/Sths mineral interest under the property and that is precisely what

they have.15 Appellees were conveyed 5/Sths of the minerals under the

Deed and that is precisely what they have. 16 Neither changes the

correct application of law in this case, that both mineral interests must

bear the outstanding NPRI carved from the 8/8ths mineral-fee estate.

Reservations are strongly construed against the grantor and in

favor of the grantee. Reagan v. Marathon Oil Co., 50 S.W.3d 70 (Tex.

App.-Waco, 2001). Exceptions are also strictly construed against the

grantor. State v. Dunn, 574 S.W.2d. 821, 824 (Tex. Civ. App.-Amarillo

1978, writ refd n.r.e.) The Reservation and Exception in the Deed must

be construed in favor of the Grantee which was the decision of the trial

court to wit: that Appellees own 5/8ths of the minerals, that Appellants

own 3/8ths of the minerals and that the total aggregate 8/8ths mineral

estate bears the 2/Sths NPRI proportionately.

In order for Appellants' position to be correct, that the 3/Sths

mineral reservation included with it the additional benefit of it not

15 Appendix 1 16 Appendix 1

17

being burdened by the NPRI, there must be additional language in the

Deed effectuating that intent. Absent that, the Reservation as it exists

in the Deed must be construed in favor of the Appellees-Grantees and

that construction is for the NPRI created by the 1988 Deed to burden

both Appellants' and Appellees' mineral estate proportionately.

Texas also follows the rule commonly known as the "greatest

estate possible" - meaning that a deed will convey every interest held

by the grantor except that which he clearly reserves or excepts. Day &

Co. v. Texland Petroleum, Inc., 786 S.W.2d 667 (Tex. 1990). Applying

this rule, Appellants reserved to themselves 3/8ths of the minerals

under the property and notified the Appellees-Grantees of the existence

of the NPRI created by the 1988 Deed. Because we can determine

exactly what interest Appellants own then by deduction we can

determine what Appellees own, that being everything else or the

greatest estate possible. Appellees' greatest estate possible is a 5/8ths

mineral interest together with 5/8ths of the reversionary interest

burdened by 5/Sths of the NPRI for as long as the NPRI is in effect.

18

IV. Appellants Cannot Convert an Exception into a Reservation.

An exception is not a reservation. A reservation is always in favor

of the grantor; an exception is not. See Bright v. Johnson, 302 S.W.3d

483 (Tex. App.-Eastland, 2009). An exception is an exclusion from the

grant and is typically used when there is an outstanding interest in a

third party. The exception clause is used when the grantor, here

Appellants, excludes an interest from the granting clause because it is

already owned by another and thus cannot be conveyed without an

instantaneous breach of warranty. Appellants make much ado about

the presence of the NPRI in the exceptions section of the Deed.

However, the mere exception to an NPRI does not and can never result

in an increased reservation to Appellees. Since Appellants reserved

3/8ths of the minerals under the property, rules of deed construction

will give Appellees-Grantees the remainder being their greatest estate

possible. Approving Appellants' argument that the mere exception to

the NPRI in the exception section of the Deed inured to the benefit of

the Appellants-Grantor by way of increasing Appellants' reserved

interest adulterates the operation of an exception within a deed,

contradicts the rule against implied reservations and contradicts the

19

rule that reservations and exceptions be construed in favor of the

grantee.

Appellees do not dispute the fact that the exception put them on

notice to the existence of the NPRI, and as explained earlier in the

discussion of the Selman case, had the exception not been there it would

in fact be Appellants bearing the full burden of the NPRI. Appellees

understood their mineral interest was burdened by this NPRI in

proportion to their ownership of the minerals and that is what the

Exception and the Deed makes clear. However, there is absolutely

nothing in the Deed, nor are there any rules of construction or

presumptions regarding deeds in Texas that would allow us to leap to

an interpretation that the NPRI would only burden Appellees.

V. Absurdities Abound if Appellants' Contention Is Approved.

Appellants state their position clearly that "Appellants expressly

reserved 3/8ths of all of the [minerals] and conveyed the remainder,

subject to the burden of the [NPRI] ....As a result, Appellees' mineral

interest should be burdened by the [NPRI]." Appellants' BriefPg. 14.

While Appellees agree with the foregoing, Appellants' interest must be

20

treated in the same manner. Appellants may not inexplicably remove

the NPRI from burdening their interest. This is akin to conveying half

of your surface in a piece of property and arguing that the grantor no

longer has to pay property tax on any of the property because he has

disclosed the fact that grantee should pay property tax in the

transaction. If you own real property, you pay your tax absent an

agreement to the contrary; the "tax" in this case is the NPRI and

Appellees have never agreed to accept more than their share of it.

Appellees do at least agree they are accountable to the NPRI owners,

unlike Appellants who are before the Court attempting to avoid any

part of their fair share of the NPRI burden.

Appellants' argument adds complexity and confusion in an already

difficult area of the law. Had Appellants conveyed to Appellees all of

the mineral estate, there would be no question as to who would bear the

NPRI; the sole 100% mineral owner would bear it all. If Appellants had

reserved all of the minerals under the property, the result would be the

same- Appellants, being owners of 100% of the minerals in fee, would

bear the entire NPRI. Under Appellants' position and the facts of this

case however, when Appellants conveyed only part of the mineral

21

interest under the property we are presented with the nonsensical

result presented by Appellants that the NPRI will be only borne by the

grantee, who merely owns a portion of the mineral estate. The sensible

result and that which case-law in Texas mandates is Appellees', that

when the mineral estate is severed by a reservation, the burden of the

NPRI - being a separate and distinct estate in land, one that is carved

from the mineral estate - must be borne, absent express and clear

language to the contrary, by the mineral owners in proportion to their

mineral ownership.

VI. Appellants' Case-Law Is Inapposite or Distinguishable To the Facts of this Case.

Appellants first cite Walker for the proposition that an exception

or a "subject to" clause protects the grantor against a breach of

warranty and limits the estate granted to another interest. Walker v.

Foss, 930 S.W.2d 701 (Tex. 1996). This case merely restates the law

regarding exceptions in a deed. As explained earlier, an exception does

serve to protect the grantor from a breach of warranty - Appellees

approve of this statement of the law. What Walker does not say

however, is that an exception to title operates to somehow increase the

22

magnitude of a grantor's reservation. An exception limits the estate

granted but the real substantive point here is that Appellants'

argument does not join the issue regarding whether or not Appellants'

mineral interest is likewise burdened by the NPRI. That is, the fact

that Appellees' interest is burdened by the NPRI, which Appellees do

not contest, determines not whether or not Appellants are also

burdened. The case does not speak to this and it has no relevance to

this lawsuit excluding a restatement of well know principles related to

the workings of an exception in a deed.

Appellants also discuss Bass v. Harper, 441 S.W.2d 825 (Tex.

1969.) but Bass does not support Appellants' contention. The Texas

Supreme Court has made clear their holding in Bass by stating that

"Bass only holds that the "subject to" clause limits the estate granted in

the land .... " Averyt v. Grande, Inc., 717 S.W.2d 891, 894 (Tex. 1986).

What was the conveyance in the Deed subject to? The NPRI. Thus,

under Bass the NPRI, if alive and outstanding, was not included in the

grant to the Appellee-Grantees. Appellees have never contended that it

was. What was granted, however, were the reversionary rights to 5/8th

of the excepted to NPRI. The NPRI is owned by third-parties to this

23

lawsuit and will continue for so long as there is production in

commercial quantities under the leased lands. Appellees 5/Sths mineral

interest is burdened by the NPRI, and so is Appellants' 3/Sths mineral

interest. The "subject to" clause relating to the outstanding NPRI does

not alter this analysis in any fashion.

The grantee in Bass was conveyed 7/14ths of the royalty and the

court subtracted an outstanding 6/14ths royalty from that grant

yielding 1/14ths of the royalty owned by the grantee. This analysis is

inapplicable to the facts of this case because Appellees were granted a

mineral interest and not the derivative and separate estate of royalty.

Pich v. Lankford, 157 Tex. 335, 339 (1957). Because the NPRI is carved

from the mineral estate that both Appellants and Appellees own, it

must be borne by both mineral owners and Bass has no application

here.

Furthermore, Bass is inapposite to the facts of this case because

the deed interpreted therein is nothing like the Deed in this case. First,

the deed referenced in Bass does not contain a reservation. This fact

alone should be sufficient to distinguish the case. The granting

language in Bass conveys "all that ... one-half interest in and to ...." Bass

24

v. Harper, 441 S.W.2d at 826. This is uncommon granting language

and unlike the instant Deed. The Deed in this case grants everything

in and under the property, and then out of the all-encompassing grant

reserves a small portion of the conveyance (3/Sths of the minerals) via

the reservation. The deed in Bass does not do so and it is not analogous

to the facts of this case. Next, the conveyance in Bass references a

specific fractional interest to be conveyed. The Deed in our case does

not do so; the granting clause conveys everything and then operates to

subtract the reserved interest in favor of the Appellants-Grantors.

Additionally, Bass dealt with the relationship of a warranty clause in a

deed with the granting clause; this is not the case under these facts and

Appellees have never urged a claim related to breach of warranty.

Appellants are incorrect in stating that the Appellees should bear the

burden of the NPRI under the Bass analysis because the analysis has

absolutely no bearing to the facts of this case.

Lastly, Harris is cited by Appellants for the proposition that

"when a deed reserves an interest in the grantor and contains a recital

referring "for all purposes" to an earlier deed describing the third

party's mineral interest, the grantor is not estopped to assert his

25

reservation." Harris v. Windsor, 294 S.W.2d 798, 800 (Tex. 1956).

Appellants' Brief Pg. 11. Appellants also cite Harris for the proposition

that the phrase "for all purposes" made the grantee's interest subject to

the reservation contained in an earlier deed. Appellants' Brief Pg. 12.

Appellees agree with these statements of the law and approve of their

application here. The grantor is not estopped to assert his reservation -

the Grantor-Appellants reserved for themselves a 3/Sths mineral

interest always burdened by the NPRI. Further, Appellee-Grantees'

interest certainly is "subject to the reservation" in the 1988 deed, the

NPRI, but so too is Appellants'.

As a whole, all of Appellants' cases simply are inapplicable or are

cited for an erroneous proposition that confuses minerals with royalty.

As much as Appellants may now wish they had reserved 3/Sths of the

royalty, despite the fact that had they done so they would have never

signed a lease nor would they have received any bonus payments, they

did not do so; Appellants reserved exactly what the Deed says, 3/Sths of

the minerals. Because the NPRI is carved from the mineral estate and

because the NPRI is a separate estate in land burdening the mineral

26

estate, both Appellants and Appellees, as mineral owners, must bear

the NPRI proportionately.

CONCLUSION AND PRAYER

For the reasons stated, Appellees request that the trial court's judgment

be in all respects affirmed and that the Appellees be granted such other

and further relief to which they may be justly entitled.

Respectfully,

Robert C. McKay State Bar No. 136908 Bobby M. Maiden State Bar No. 24088893

One O'Connor Plaza, Ste. 305 Victoria, Texas 77902-2469 Telephone: 361.894.8975 Facsimile: 361.894.8973 bmaiden@mckaycoffey .com rmckay@mckaycoffey .com

ATTORNEYS FOR APPELLEES

27

CERFICIATE OF COMPLIANCE WITH TEXAS RULE OF APPELLATE PROCEDURE 9.49(I)

The undersigned certifies that the foregoing document contains 5,088 words excluding the subject matter found in T.R.A.P. 9.4 (i)(l).

28

CERTIFICATE OF SERVICE

I certify that on r1f !/!;, <-(-fi_ ,2015, I electronically filed the foregoing with the Clerk of e Court us1ng the state provided electronic filing system which will send notification of such filing to the following:

Adam T. U szynski MEIER, BRADICICH & MOORE, LLP P.O. Box 550 Victoria, Texas 77902 adamu@victoriatxlawyers.com COUNSEL FOR APPELLANTS

29

APPENDIX

1. The Deed

2. The 1988 Deed (Creating the Non-Participating Royalty Interest/NPRI)

3. Final Judgment

APPENDIX-!

~14-2113 ts:aa Fram: Toa,1361573584B . :1'

..

. J Vbl. 299PAGE 769 warra.- Deed with Vendafa Uen Date: October 17, 2003 Grantor: BENEDICT G. WENSKE and EUZABETH WENSKE. husband and wife Grantor's Mailing Addres8:

BENEDICT G. WENSKE and EUZABETH WENSKE 2378FM532W Shiner, Texas 77884 Lavaca County

Grantee: STEVE EALY and DEBORAH EALV, husband and Wife Grantee's MaiDilg Acldnl&s:

STEVE EALY and DEBORAH EALV 28514 Autumn Glen Road Boerne. Texas 78008

Consideration:

cash and two notes of even date executed byGJantee and referred to as thaflnlt.uen note and the second-lien note. The first-lien note Is D8Yab1e to the order of AMERICAN NATIONAL BANK In the_p_m_ctDal amount of FIVE HUNDRED SEVENTY..SEVEN THOUSAND AND N0/100 DOLLARS ($577.000.00) of which FIVE HUNDRED SIXTY.SEVSN THOUSAND AND N0/100 DOLLARS ($587,000.00) Is advanced aa ~ ~. The first-Den note Ia secured by the ftJst and auiJerlor venclofellen aaatnst. anCiauperfor UUa to. the_PI0)2erty mtalned tn thla deed tn favarofAMERICAN NAnONAL lANK and Is also secured b)! a fbst.llan ileed oftruatofeven date from Grantee to w.v. HYMAN. trustee. Tile second-Usn note Ia payable to the order of Glantor In the P.rfnclpal amauntofFlFlY•EIGHT~ISAND AND N0/100 DOLLARS ($68,000.00~The saconCI-Den note Is secwad by a second ami nferlorvendofs Den agatnst. and autetlortltle the Property retained In this deed and Is also eecured by a 88C011d-llen Cleed Of trust Of even date Gr8nle8 to BENEDICT G. WENSKE, trustee. Property (Including mw Improvements):

AD that certain tractor~l of land sttuated In Lavaca CoUJl!Y, Texas, a part of the ~=~?:,•,;=:t~r~o:~:.'lC:o~::;,w:::r:.,lt~ of the 107-416acre tract of land converad to John Brom bY ste~en ElsDC and wJfe &:ad =!'l:e~~~.~~~~~~t~r:e~attacJ~ hereto and blcotpO herein by reference.

Reservations from Conveyartca:

Par Grantor and Grantor's heirs, successors, and assigns forevel a relJervattan Of an undMdec13/8thsofaU oft, gaa, and othermtnerass In and under and that ~be produced from the PnmertY. Ifthe rntnera1 estate Is subject to exJstl~ production or an exls1lml lease. the production, lhe leaie, and the benefits from It &18 aUocated In proportion to ownellh.lp In the m!naral estate.

NOU-14·2813 15129 From: To: .13615735848

VOL 299PAGE 770 Exceptions to conve,anae and Warrantr-

Rfght of Way Deed from John Bron], ~tux to the state of Texas. dated February 1. 1861, I8CORied rn Vo!um8187, Page 83&, Deed tecords of Lavaca COunty. Texas.

Undivided cme-four.th (1/4) Interest In all of the OU, ~and other minerals In and under the ha!eln desclibed ~. I'8I8IV8d r~ at ill roratenn oftwenfr-fiVe ~~In fnsfrumant reCOftled In Volume 400, e 690 of the Deed Records of Lavaeb CoUntY, Texas, together with aU rigl\ts, express or rmpn t~and to lhe PrOPertY herein described arising out of or connected with 88ld friterast and reservaUon. reference to whfch Instrument Is here made far aU purposes.

Uena described as ~rt of the COnslderaUcn and lnlother liens deacrlbad In thfe deed as bel!lg either assumed or subJect to Which ttUe Is ~i.valfaiY existing easementa, rlthts-okvay, and ptescripttve rfahta, whether of record or not; •• presentlY recoRied and valfdly existing lnsfnimenta, other than canveyancea oftha surface fee~ tnataffeatthe Pro~ and taxeS for 2003, which Grantee assumes and agrees to pfW, and subsequent assessments for that and prior years due to change rn land usage, owneialifp, or both, the payment of which Grantee assumes.

Grantor, for the Consideration and subject to the Reservauona from Co~ce and the =trona to CGft\!8r811ca and Warranty, grants, aeua. and convws to Grantee the ProRtrty.

erwlth au and s~ularthe rtghts and ..,purtenances thereto lri any~ befonatna. tO have ariil to hold It to Grantee and Grantee's heirs. 8UCC8880ra, and a88i~ farever. Giaiitor binds Grantor end Grantor's hells and aucceaaora to warrant and forever ifafend all and singular the Property to Grantee and Grantee's hefra. 8UCC8880rs, and asstgns SB~nat ~ "180R whOmsOeVer lawfullY claiming or to clafm the aame or any part lheraof. ~ as to the Reservations from conveyance and lhe Excepllons to conveyance and Warranty.

11te vendol'a Den aptnst and aupelfor tftfe to the Pm"rty are mtafned until each note described Is fully palcl accafdlng to Its terms, at which time thiS deed WID become ab&o!ute.

Amarlcan National Bank. at Grantee's ~t. has P!lfd In cash to Grantor that portfon of the P-urchase pl'lce Of the PropertY that Is evidenCed by the ftl8t-lfen note. The fflat and superior venCIOJ's Hen against and sUP-eriOr tiUe to the Propg are retatnecl for the benefit of Amirfcan National Bank ilnd are tranSferred to American NatiOnal Bank without recoul8e on Grantor to secure the fbat.Uen note. The seccmd and fnfedor vendofa lien aplnst and ~erior tile tD the PropertyareretatnedforthelfenefttOfGrantortoaecuretheseconcRren note. Grantor.-.that thtS seciond and lnferlorvendofa Ren agafnstand s~ titre to the Pro= are and Will remain ==~7re=-~:n:r:.::;..::,.R~J:;=!m:=-u':rn':::#:a'd:.:.C:::: fl When the context requtrea, singular ftOURa and pronouns Include the plurel.

~G~~

(Acknowledgment an following page)

NOU-14-2113 15129 F..om1 To: t1361573584a Paeel23'24

VOL 299PA&E 771

STATE OF TEXAS )

COUNTY OF GONZALES )

TtUs Instrument was aclcnoWfedGt!~ before ma on Oclobe r I7 2003 b

BENEDICT G. WENSI<E and ELIZABETH WENSKE, hus&arid and Wife. • ' r

UI!!IAMEe."""'DA IR.,PU"U ~ ~~ rruc:s~alifaexas

&TAY&OFTIXAS

• 6t1Col~&;tnsGa.1HOD7

PREPARED IN THE OFFICE OF: Munson & Bums 1608 N. 8arah DaWHl Drive P.O.Box C Gonzales, TX 78629 Tel: (880) 872·9511 Fax: (830) 672-7838

Paeet24'24

To: t1361S"l3584°

·.:.~

.. ··~P.~:

. .• . . .- ..

VOL 299PA&E 772

• • .....

. .

BBGDamtG a~ the lUI aonu: ot- aalcl aolua Jb:ca 107•4/5 am:e =aat. aame he11lg also 'the I I come o! ~· tzactJ •

.. . . .... :'1? ......

. .. ... .

~ \

.. APPENDIX-2

'l'HE S'l'A'r£ OF TEXAS, :

COUNTY OF LAVACA.: KNOW ALL KEN BY 'l'H£S£ PltESENTSs Tba~ wo, GEORGIA RAAB, joined he~ein by h'c husband, EDGAR RAAB, of Lava ell County, 'l'exas, MARIAN VW.7ALA, ~oJ.necl heroin 'b~ ller husbnd, CURBNCE VYV.7ALA, of Gonzales County, 'roxaa, MARGIE NOVAK, joined her,ln by ho~ huabani.:, YIC'l'OR NOVAK, of DeWitt: coun~y, Texas, EMILY MIGL, a widow, of Victoria County, Texas, and MARTHA MlGL, joined herein by her husband, DAVID HlOL, of Vlct:orla county, Taus, for and in consicleration oC the s'Wil of Ten Dollars and ot:ber good and v~luablo consiclerat:ion to uo lr. hand paid by BEIIEDIC1' G. WENEKE and his wifo 1 ELIZAAErB tiENSKB, the re.:eipt o'f which la hereb:t• Acknowlc4god, ancl of the further consideratJc~ of t.le execution ana delivery by the uaicl BENEDICT G • WENSKB .!and BLIZAB£'1'H WENSRB to INDSPBNDBHCE SAVINGS AND LOAN ASSOCIATION of their one certain promissory nota of ovan date h'!lrewith, in tho principal aum of THIHY.. FIVE THOUSAND AND N0/100 DOLLARS ($3!1,000.00,, payable to tho order

o[ lNDEPEHDBNCZ SAVINGS AND LOAN ASSOCIATION, at 427 St. GooCI]O S~roet, P. o. Drawer 1889, Gon:u.lea, Texas '78629, as t:llcrain p~ovidod ar.d bea~lng in'l:orest at tho J:'atos therein speclfle4, and which said note contains the usual default and attorney•s fees clauses, and to secuzoe the pA)'IIle.nt of which said note the venaor•a lien la hereby retalnea again&~ the herainaf~or aoacribe4 property, prer.bes anc! bpro~amonts, a 4!eec1 of trust with the usual provisions fer foreclosure and salo a~a containin~ tho usual tax and insurance clauses having also bao.'l ex9cutad upon •AieL lanc!l by the said BEREDIC'l' G. "-'ENSKB and ELtzAB!1!'IB WE:ISKB to SUZANNE BENES, trustee-, as !urche: ~na additional sacudt:y for the popant of aaid note• have GRA~TED, SOLD AI'D COWBYtD, and by ~hece presents do GRAU'l', SBr.L AND CONVEY u:\':0 the soic! BZNEDIC! G. WENSKE and wife, ELlZA.BETB WENSKE, whose .~at office

Page12

Vlll 400r&GE591

4ddress is Ro1.1te 3, Box 277, Shl.ner, Texas 7790.:, except as hereinafter stated and subject to the easement hereinafter men~1ono4, oll of the following described r:eal estate, lying and being situu~o4 in LG.vac;:o Coanty, Texas, and described as follows, to-wit:

All that certain tract or parcel or land altuatcd in Lavaca County, 'l'oxas 1 a pari: ot the tfm. Chaao League and a pert or the 300 acre tract deede~ by M. Dockery and wire, to Stephen Bla~ on Dec. 12, 1890 1 and aluo being the north portion or the 107-~/5 acre tract or land conveyed to Jolm Broca bJ Stepha~ Eleik and wlte 1 bJ Deed dated the 31st day or October, 1896, recorded in the Record or Deeds or Lavaca County, 'l'ex~a, ln Vol. 2q, Pase 153-15~. and deacr1bed ao tollows, to ~itl

BEOINNIUO at the liE corner or said John Brom 107-11/5 acre tract • suo being also the NS comer or•.th1a tr&ct 5 'l'benoe S w1th the eaat boundary line or ua1d 107-4/S acre tract. ~26.9 vra. to a stake ror tbe SE corner hereor, same belns also the HE corner ot a 51.3 acre tract this day conve1ecl t:o Jim &rom; · · 'l''hcnce West with the north bd.Y. line or aa1d .Tim Brom tract 609.8 vrs. to a atake·in ~he V4at bdy! line or aeld 107-ll/5 acre tract tor tbe SW comer hereor, DI:Zile belng alao the trY col"nctl" or &Did Jlm Drom tract; •rtacnca N with the voat bdy line or eald 107-415 acre tract, 527.~ vrs. to a poat ror·tho oxtl"eme mf corner or eald "101-'IIS acre tract; · ; · · 'l'benco 8 with tho H bdy. line or said 107-11/5 aero tro.ct 112.3 vrs. to a pollt tor an 1na1clo corner; ~._. ·. . Thence !I wJ.th the \1 bdy. line or· aa1d '107-11/5 acre tract, 62.6 vrs. to a poet in the south margin ~t the Moultonaonzalca public road; , Thence with the s wu•sln or ea1d road. 5115.11 vra. to tho place ot beglnnins, oonta1n1ns 55 acres• o·r larlCI• ~~tore or leas; and being tbe aame land deeorlbed ln that certain Deed trom Mary Broro ct al to .John Broml~datecl Jan. 22, 19116, appearing ot recorcl1n Vol. lqB, P. 35q, or the Deed necor4e • or Lavaca County, Texas,:t~ wh1~h rer~renca 1l·herebf madf.

m &.WE AHD 'lO IIOLD the above described prelllises, together with all and sia9ular tho ri9hta and appurtenances thocoto ia anywise belonging unto the said BENEDICT G. \iENSKE and ELIZA&E'l'H WSNSK&, their heirs and assigns. forever, and we do heroby bind ourse1ves, our heirs, executors end cd=t.nistrators, to warrant and forevo= defend all cmcl singulAr the add preaises unto the said BBNEDJ:C'l' G, KENSK& Gnd ELIZABETH WBNSKB, their heirs and assigns, again1t every person whomsoever lawfully claiming,

Paao13

.· ·. ..

vl\l 400r1G!592

or to claim the same, o~ Any part tho~eofa ~RDVJDBD AND BXCBPr. howe·. or, this conveyance ia 11111ae expressly o•abjoct: to lln eaaGont conc:Oi:\oc! in Right of Kay De"td fz:oe~ John Brom, at ux., to the Stato of 'l'Gxas, Clatcul Fobz:umry 1, 1951, ra:orc!ecll in Volullle 167, ra,a 635, of the Deed Record~ of ~vaca County, Texoa.

Anything in tt.a forogoin;r convoyanco to tho contrary notwithseAndin9, it is expredsly agroed and stipulBtocl that out of tho sale hereby ude there is expressly except.cc! ancl roservec! to the grantors ho~ein, MARIAN ~YVJALA ancl HARGit NOVAK, their heirs and assigns, in tho propordons of an undivided one-eighth (1/BthJ to ~AR!AN ~JALA and an undi~lced one-aightb f1/8th) to HARGIB HOVAK, an undi~ided one-fourth (1/4thJ intez:est in and to all of tbe olt royelt.y, c;rao z:oyalty, end royalty iD casin9hclld gas, g'aooline and royalt)' in other minerAls in and c.1der and c:bat may be pr~cluced frc111 tha above &tescdbo:l tract or parcel of land, or ony part thereof, for a period of twenty-five (25) years from on4 attar the elate of this convayance and as lcn9 thereafter as ail or gae or other =ineral ia p~oduced

frc= said lane! in p~ying o~ commercial quantities, said exceptec! and rcaervea interest in and to said oil, gas and other minerals to be a royalty interest and to be delivered to the graators herein, MARIAN VYVJALA and MARGIE NOVAK, their heirs ana aasigns, ar to thoir respective credits, in tho proportions of an unclivicled one-o1ghth Cl/8tb) to MARIAN VYVJALA and an uftdivided one-oighth C1/8th1 to ~~IE NOVAK, free ana clear of all costs and expenses of p~ocll~ctionr development and/or o,erat1~n, but subject to ita proportionato jlart al! any taxos levie4 against or on such interest in said prod~:tion. Thio roaervat!on and exc~ption

shall bo aabjec~ to tta tor=~ of any oil, gas and mineral lease new ln forco coverinCJ said tra~ or parc:ol of land above 4oscribo4, oz: any pa:t thc::eof, 1u1 ~CJll aa an::.· oil, vas ua/or mineral lease or leases hereinafter provided for, PROVIDBD, however, thAt tho gran~ors heroin, I'.ARlAH VYVJAI.A cnuS MARGIE

Page14

:

.. ·.

·. : :

'lilt 4fl0P!G£593

NOVAK, shall receive one-fourth (1/4th) of the royalties providca for in cny such lease or lo~sea and the same shall be delivered or po.Lcl to tho crecUt of grantors luu:cl.n, MAKIAU VYVJALA Gnd MARGIE NOVAK, ~hair hci~a or assigns, out of the royalty provided for uncler the torcas of any loase or lea.su. It is uoaorstooa and agreea that grantors heroin, MARIAN VYVJALA and HARGIB NOVAK, 40 DOt by these presents, l'OSOI:'VO any right to panicJ.pate in the making or execution ot any future oil, gas Mta/or aineral lease or lease covering the abovo described tract or parcel of lond, or any portion thereof, or any interest therein, and tho grontors herein, !tARIAN VYVJALA snd MARGIB NOVAK, authorize and empower &Aid grantees, their heirs or assiqns, to execute any such oil, gas and mlnea:-al lease or leuas which they may desire in their own naae without 'oinder ol the grantors herein, MARIAN VYVJALA and HARGIB NOVAK, their heirs ana assigns, provided thAt any such oU, 9as and/or mineral leose or 1easea shall pr-ovic!o for a royalty on oil, gas ancl/or other Dlincu:als of not less than one-el~hth (1/8tb) of all oil, gas an6/or othe~ minerals produced and saved under any auch la~se or leases. Nevertheless, in tho event that any existing or future oil, gas and/or mineral lease proviaes for a royalty in excess of on~-eightb ll/8th) of tho oll, gos and/or minerals, grantors herein, MARIAN VYV~ALA

and MARGIE NOVAK, shall shcara in said royalty provide&! for in such lease or leases to the 'IUCtent of an unclivldod one-fo\lrth (1/4tia) thereof. It b further undru:stood v.na cagroed that the grontors herein, MARIAN YYV.lALA and MARGIB NOVAK, do not, by virtue of this reservation and e-coption, acquire any right to participate in any bonus or bonuses wbicb the grantees herein, their hairs or aosl9ns, shall receive troQ any future lease or leases, nor to partlclpate in any rental to be pald for the pdvUege of cloferrint the co~~Wcncci:UJnt of any vell under the terms of any such leaao or leases heretofore or ho=oaftor executed covering said trcact or parcel of land above describe6, or any

Page16

.·

·.

..

'IIU. 400nG£594 portion thereof, or any interest therein. In the event that the 9r~ntees heroin, their heirs, executors, a~lstrators

or lls&l9fl&r in the status of fee owner or fee owners of any portion thereof, or any interest therein, shall develop and/or operate sold tract or po:rcel of lana, ot' ::ny portion thereof, f.n tt~ prcdu.:tion of oil. gas or other minerals therefnm, then t~o 9rantors horoln. MARIAH VXV.JALA and HARGIS HOVAK, 3hall own ana ~ entitled to receive as a free royalty, free and clear of oll coots and exper.ue:., one-fouth C./4th) of the oil, gas 3nd/or other ~inerols produced and saved under any such operation. I! (1} at the oxpirat~~n of tventyhfive (25) years fro~ dste of this conveyance, oil, vas or other minerals, or either of the:~, is not then belft9 proc!uced or lllined f:o= sll1c5 tr2-=t of laftd cabove do scribed, or ony pardon the roof, !.n paying or commercial quontitios, or if C2J at the o~iration of twenty-five (25) year.a fr:om date her:eof, oil, IIJAS or othoa: 111berDls, or either of tbe=r is bcin9 produ~ed or mined from the above c!eacribe4 land, or Gny rortior. the:r:eof, in paying or ccm=orcial quantitieG and a~ch production ahall thereafter cease, then upon ~ho occurrenc<a cf either of such events, this reservation and exception shall terminate and be of r.o fut:thor force ond effect, and all l'19ht, title and interest in on4 to said oU, 9as &nd ocher DlnerAla herein excepted and reserved to the 9rantor:s heroin, MARIAN VYV.JALA and MARGIE NOVAK, shall pass to ond vest in the grantees heroin, thcir heirs ond assigns, foa:over.

But it le axpreasly agreed and stipulated that tho voftdor•s· lien ls hea:aby rat.Ainecl ogainat tho above deacdbe'! property, pr:o~ises and improv~enta cntll the above described note and all inter:oot thereon iB fully paid a~cording to ita face and tenor:, effect and a:eading, whe3 this ~eed shall bcco=e obsolute.

And in cons14er4t!~n of the aforesaid sum of $35,000.00 cash to us in band pella by XNDEPEHDENCE SAVINGS AND t.OAH

Page16

••

VOL 400r:u595

ASSOCIA~IOH, and evidoncod and roprcscnted by the above described note, the receipt of which is hereby acknowledged, we do hereby transfer, assign and convey unto the said tHDE!IENDENCB SAVINGS AND LOAN ASSOCIATION, a corporation duly incorporated under and by virtue of tho laws of the State of Texas, and baving its principal office at Gonzales, in Gonza.les County, Texas, the contract lien, vendor's lion and all other lions aacuring tha payment of tho hereinabove described note.

N12HBSS ODR BAHDS on this the 27th day of January, A. D. 1988.

'l'H2 S'rATE Ol' TSXAS, I COUNTY OF LAVACA. a ~his inst~ument was acknowledged bofozo ae on ~anuazy ~.

A. D. 19BD, by EDGAR RAAB and his w1fo 1 GEORGIA ~B.

KY COKMISSION BXPIRES1 5/.Jrltt

Prlntii MGma of Rotary

.'

Page17

.·

VOL 400r.s£596

THE STATE OF 'l£XAS, I

COUN'1'Y OF C!CllZAI.ES.I This iDat~t was acknowlodse4 baforo me on ~:::=~~~· A. D. 1988, by CLME:ICE YYVJALA and his wifa, H.".RIAN VYYJALA.

MY COKH:tfiiON BXP.IRES: tiJ a~ Roton

~'lffi'f:z~ ic n or

- tli~~h

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'l"···· .. ,..,~ ~e Istate of Texas.

"··'"- :··~ · ::~, d 1au )~?:" l ~~=~.*~£x~rsQI.Uo9li -...~....._.. • Printed Ncme ot Hatary

Y32 STATE OF TBXAS,: COUNTY OF IIEWlft • I This instru=ent was acknowledged before me on Jan~ary J?t!, A. D. 1968, by VICTOR NOVAK and his wi!o, H.\RGI£ NOVAK.

HY COMMISSIO~I DPIRBS:

~u,ttf

tho State of Toxaa.

Printed Name of Nota~y

COUNTY OP Y!C'l'ORIA. 1 This instrUment was aoknowlcdged before me on January ~.

A. D. USB, by EMILY HIGL, a widow.

the State of exas.

Printed NAco of Notary

Page18

'lHE STATE OP 'fZXAS, I

CODN'IY OP VIC'lORlA.'

fb15 instrument woa acknowledged before =e on January ~'

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.

A. D. 1988, by DAVID MlGL and his wif~, MARTHA HIGL.

KY COKH~SSlON

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EXPIRES1 ~'*)~~for Nocar~lrc ~

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tbo Stato of TOxaa.

tL"i:F~ Za114

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Paga19

APPENDIX-3

Caase Np. 13-Jf;Hf"'C"

BBNIDIC'I G. WBNSKBAND I IN TBI DISTJUcr COURT IIIZABBTJI WINSKI § RalatU&, I §

v. I 2PJIJDICW, DISTRICJ'OP

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STEVE 'BALY, DIBORAB EA.LY1 § AND I PINN VIRGINIA OIL A GAS, L.P. § Derazdats. I LA.VACA COUN'IY1 TEXAS

BEING IT REMEMB!RBD that Oil April17. 2014 amo on to be ccmsklellcl Steve IIIII Dc1xna11 Ealy's ("Caunr..J~Jafnlifli" t.efn) Dcf'eadats" Moticm for Tnulldonal Summaly Jucl&mcat as well as Beudlct 8Dd Ellmbeth Weasb's ("Caunter-JWeudants" !serela) Pctitlcmar's Modem ror sau,_, Judamcnt far Dcc1aradon cfRoyalty Jutaats ccmcendrJa ai~ ps mulalher mfaerals muler Use foJioWJDs tract of'lad:

AD d&al ccrt~ln 1aa:1 orpualol'r..t llfCDalat ln LavaaCaualy, Teas. 1partof'1he Wm. a.. IMauc. Alacl No. tad a pad oflk3GO-=zeiiiCC~ 1J7 M. DocJay rat w~tc.co SCcpllcn Elslkaa Dcccdcr 12, IUD, IIIII also 1lclaa de IIOitfa poctfGca aflllo 107-4/S •ctrut of lad~ lalo!aalftlmby StcPcal!lsilc IIIII .uge.y dccd4atatlllcJI• *'loFOcrcter, •a.•=nk•Uza d=llc=dsofDeall att.wcae:.y, Tau. In VoL24. Ptpi&Jst,lhil WllafaamcnlpCCiilcel1ycbcrlbalua 5Socn: trlcl,a~maor rca. ave)'ld In adeal fium 8eacdlct a. Wcnsi:D n Ellldela Wcalb • srcvc Edt ad Ddlorllt Ea17 cbd Ocrabcr 17, .,..,., 20DJ ad ncaatcd f11 lb Oll1etal Rccan!l at Llvll:l Coanl,r It Vo1. 29J, Plge '18. (lbc

Tile Court CODSIIcrcd all tho pleadJaas. SWJ~~~WYiUd&meat proof ldxe it, aad lho upm=ts of ccnmsel made mopea ~ tlla Court Jlllllld Ddladants' Modoo tor Tndftloaal Summaly .Judameat ad dte Ccnut deltled Petilloafl Molfoa Cor SUmmar.v Judpeat ror DeclardOD of'ltayalt)' IDiacsts. 11lenafter Gil tho 13• day of August. 2014, came OD to be ccmskfered Ccnllter-Piainlifli' c1alms fbt attomeys fa. acl tbD Camt theo C0118&1era4 all p!eadiqt. evfdeace 8Dd upmea111 of CGUDSel aepdias tile Counter-PJaladSi' claims fbr Btlameyl rea.

ASAMATrii.OFLAWITJS,11JI!REFOU. ORDBRED,ADJUDOED AND DECREED: 1. Thaltbe W&II'IIDl7 Deed with Vendor's Um tium Counla'·Dofendanls 10 Counlar·

Pillallmfamectt. Causa No.13-I0.22530CY- Pap J ~. . . .a..WJi!. . .ca5fal4a A1VII*t4

Plaintill"s, found ofrccard in VoL 299. Pasc 769 of the OlrcclnJ Records of Lavaca COWll)', Texas ("'Deed") and C:O\'Oring d1c Property conveyed to lite Counter•PIDintJITs, Steve and Deborah Ealy, conveyed a 5/Bihs nainerallntcrcsl in fcc as well as alf of lhc surfac:c In the Propcny. 2. That the l/Sths mineral interest rcscrYed by the Cauaucr·Dcfcndnnts and the 5/Blhs minerul interest con\'cycd to lhc Cauntcr-Pioinliff's in the: Dc:cd will proportionately bear in accordance wJlb the racl'\'l!d and conveyed mineral interests In dtc Deed, lhc royalty rcsen'illion crcalcd in thul cenaha deed rrorn Georsla Rnab. Edgar Raab, J\iarian V)'\1alo. Clarcnc:c Vyvjala. Margie No\·nk. Viccor No\'ak, Ensily Mfgl, Martita Mfgl. ond David Migl to Counter-Defendants dntcd Janwuy 271l. 1988 and rceardcd Jn the Official Records of La\'8ca Counay at Vol. 400. Pap 590. 3. That each party sball be r.:sponsiblc far their respective oUomcy•s faa. 4. Tit:tl costs ar courl incurred in Ibis case will be home hy lhc Party lballnc:uncd dlCIU. S. That any amouniS deposited lnlo lhc rcslsay ofthe Court by Interpleader Penn Virsinfa Oil &: Oas LP. related to dds action stall be paid GUllo Counler-PiaindR's.

6. Counacr·Piaintirrs may 111\'C execution, writs or possession or such alhcr \\'Ji&s or process as lmlY be neccssauy for die caron:c:mcnt and collection oftmsjuclamcnt ancllhe ~ ofcourt.

The Coun has previously cnlcmllhc parties• Agreed CRier Disclmrsins lnlaplelder and dcfcmflmt Penn Viruinia Oil & Gas, LP. This judgment finally disposes of all claims prcscnlcd in lhls asc and all panhs All otbcr JC~licfnot expressly granted Is dcaicd.

SIGNEDihis1. dayo;u,h ~.2014.

tJ:cL~f)f&

Final Judgmcnc, Cause No. ll·IG-22530CV -Pap 3 \weava~Wcatlf.a.AIIIIia\F~·mliDdon A1VII•l'olol

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AGBBED AS TO roR.MONLY:

&~~ Shamaa T.Moore Aaomo,yfor PJafa11&lr1Couatermeliudlllls BeucllctaaclBUaabath Was!SD

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