Court Opinion

ID: 4062923
Source: CourtListenerOpinion
Date Created: 2016-09-29 20:40:55.7883+00
Date Added: 2024-06-11T14:05:42.687470
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ACCEPTED
                                                                                04-14-00711-CV
                                                                    FOURTH COURT OF APPEALS
                                                                         SAN ANTONIO, TEXAS
                                                                           6/18/2015 5:16:29 PM
                                                                                 KEITH HOTTLE
                                                                                         CLERK

                        NO. 04-14-00711-CV

                                                               FILED IN
                                                        4th COURT OF APPEALS
                  IN THE COURT OF APPEALS                SAN ANTONIO, TEXAS
                 FOURTH DISTRICT OF TEXAS               06/18/2015 5:16:29 PM
                    SAN ANTONIO DIVISION                    KEITH E. HOTTLE
                                                                 Clerk
    ___________________________________________________
                         PETER J. DRAGON,
                                                   Appellant,
                                 V.

         CHARLES E. HARRELL AND HOLLIS R. HARRELL,
                                           Appellees.
    __________________________________________________
                    Cause No. 13-1100232-CVK
On Appeal from the 218th Judicial District Court, Karnes County, Texas
             Honorable Donna S. Rayes, Judge Presiding
   ___________________________________________________
                    BRIEF OF APPELLEES
   ____________________________________________________

                                      Jesse R. Castillo
                                      State Bar No. 03986600
                                      jcastillo@casnlaw.com
                                      CASTILLO SNYDER, P.C.
                                      Bank of America Plaza, Suite 1020
                                      300 Convent Street
                                      San Antonio, Texas 78205
                                      Telephone: (210) 630-4200
                                      Facsimile: (210) 630-4210

                                      Attorneys for Appellees Charles E.
                                      Harrell and Hollis R. Harrell

                ORAL ARGUMENT REQUESTED
                        IDENTITY OF PARTIES AND COUNSEL

Plaintiffs/Appellees:               Charles E. Harrell
                                    Hollis R. Harrell

Trial and Appellate Counsel:        Jesse R. Castillo
                                    jcastillo@casnlaw.com
                                    Edward C. Snyder
                                    esnyder@casnlaw.com
                                    Melanie A. Castillo
                                    mcastillo@casnlaw.com
                                    CASTILLO SNYDER, P.C.
                                    300 Convent Street, Suite 1020
                                    San Antonio, Texas 78205
                                    (210) 630-4200
                                    (210) 630-4210 (Facsimile)

Defendant/Appellant:                Peter J. Dragon

Trial and Appellate Counsel:        Clinton M. Butler
                                    cbutler@langleybanack.com
                                    Elizabeth R. Kopecki
                                    ekopecki@langleybanack.com
                                    LANGLEY, BANACK & BUTLER
                                    114 N. Panna Maria Avenue
                                    Karnes City, Texas 78118
                                    (830) 780-2700
                                    (830) 780-2701 (Facsimile)

                                                                     ii
                                              TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ......................................................................... ii
TABLE OF AUTHORITIES ........................................................................................... iv

REFERENCE CITATION GUIDE ................................................................................... vii
STATEMENT OF THE CASE ....................................................................................... viii

STATEMENT REGARDING ORAL ARGUMENT ........................................................... viii

STATEMENT OF FACTS.................................................................................................1

SUMMARY OF ARGUMENT ...........................................................................................3
ARGUMENT .................................................................................................................5

I.       After considering the competing motions for summary judgment and
         responses thereto, the trial court properly granted the Harrells’ traditional
         motion for summary judgment. .......................................................................5

         A.       Standard of Review ...............................................................................5

         B.       The trial court properly adopted the Harrell’s construction of the
                  Reservation in the Harrell Deed ............................................................7
II.      After considering the competing motions for summary judgment and
         responses thereto, the trial court properly denied Dragon’s traditional motion
         for summary judgment...................................................................................13

         A.       Impairment Of Future Leasing Not A Factor ......................................18

         B.       Appellant Did Not Plead Ambiguity ...................................................20

PRAYER FOR RELIEF ..................................................................................................22

CERTIFICATE OF COMPLIANCE ..................................................................................23
CERTIFICATE OF SERVICE ..........................................................................................24

                                                                                                                        iii
                                      TABLE OF AUTHORITIES

Cases
Altman v. Blake,
     712 S.W.2d 117 (Tex. 1986) .......................................................................5, 9
Arnold v. Ashbel Smith Land Co.,
      307 S.W.2d 818 (Tex. Civ. App.—Houston 1957, writ ref’d n.r.e.) .......4, 18
Ayert v. Grande, Inc.,
      717 S.W.2d 891 (Tex. 1986) .........................................................................21
Benge v. Scharbauer,
     152 Tex. 447, 259 S.W.2d 166 (1953) ..........................................................22
BP America Production Co. v. Zaffirini,
     419 S.W.3d 485 (Tex. App.—San Antonio 2013, pet. denied) ......................6
Brown v. Howard,
     593 S.W.2d 939 (Tex. 1980) .............................................................. 4, 10, 12
Brown v. Smith,
     141 Tex. 425, 174 S.W.2d 43 (1943) ........................................................4, 10
City of Galveston v. Tex. Gen. Land Office,
       196 S.W.3d 218 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) ............6
City of Keller v. Wilson,
       168 S.W.3d 802 (Tex. 2005) ...........................................................................6
Clifton v. Koontz,
       325 S.W.2d 684 (Tex. 1959) .................................................................. 19, 20
Cockrell v. Gulf Sulphur Co.,
     157 Tex. 10, 15, 299 S.W.2d 672 (1957) ......................................................21
Coghill vs. Griffith,
     358 S.W.3d 834 (Tex. App. —Tyler 2012, pet. denied) ............ 11, 12, 13, 15
Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd.,
     940 S.W.2d 587 (Tex. 1996) .........................................................................20
Dawkins v. Hysaw,
     450 S.W.3d 147 (Tex. App.—San Antonio 2014, pet. filed) ........... 13, 17, 18
FM Props. Operating Co. v. City of Austin,
     22 S.W.3d 868 (Tex. 2000) .............................................................................6

                                                                                                           iv
Frost Nat'l Bank v. L & F Distribs., Ltd.,
      165 S.W.3d 310 (Tex.2005) ............................................................................8
Gavenda v. Strata Energy, Inc.,
     705 S.W.2d 690 (Tex. 1986) .....................................................................4, 18
Harris v. Ritter,
      279 S.W.2d 845 (Tex. 1955) .................................................................. 11, 12
HECI Exploration Co. v. Neel,
     982 S.W.2d 881 (Tex. 1998) ...........................................................................8
Helms v. Guthrie,
     573 S.W.2d 855 (Tex. App. —Fort Worth 1978, writ ref'd n.r.e.)................11
Hicks v. Castille,
      313 S.W.3d 874 (Tex. App. 2010) ..................................................................6
J.M. Davidson, Inc. v. Webster,
      128 S.W.3d 223 (Tex.2003) ............................................................................8
Luckel v. White,
      819 S.W.2d 459 (Tex. 1991) .......................................................................5, 9
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding,
     289 S.W.3d 844 (Tex. 2009) ...........................................................................6
Markert v. Williams,
     874 S.W.2d 353 (Tex.App.-Houston [1st Dist.] 1994, writ denied) ...............9
Matagorda Hosp. Dist. v. Burwell,
     189 S.W.3d 738 (Tex. 2006) ...........................................................................8
Moore v. Noble Energy, Inc.,
     374 S.W.3d 644 (Tex. App.—Amarillo 2012, no pet.) .................................19
Range Resources Corporation v. Bradshaw,
     266 S.W.3d 490 (Tex. App.—Fort Worth 2008, pet. denied) ...................3, 13
Reeves v. Towery,
     621 S.W.2 209 (Tex. App.—Corpus Christi 1981, writ ref’d n.r.e. (citations
     omitted) ..........................................................................................................21
Schlitter v. Smith,
       128 Tex. 628, 101 S.W.2d 543 ............................................................... 11, 13
Stag Sales Co. v. Flores,
      697 S.W.2d 493 (Tex. App.—San Antonio 1985, writ ref’d n.r.e.) ....... 14, 16

                                                                                                                        v
State Nat. Bank of Corpus Christi v. Morgan,
      143 S.W.2d 757 (Tex. 1940) .................................................................. 14, 17
Tenneco, Inc. v. Enterprise Products Co.,
     925 S.W.2d 640 (Tex. 1996) ...........................................................................8
Tex. Mun. Power Agency v. Pub. Util. Comm'n of Tex.,
      253 S.W.3d 184 (Tex.2007) ............................................................................7
Tyler v. Bauguss,
      148 S.W.2d 912 (Tex. Civ. App.—Dallas 1941, writ dism’d judgm’t cor.) 14,
      16
Valence Operating Co. v. Dorsett,
      164 S.W.3d 656 (Tex. 2005) ...........................................................................8
White v. White,
      830 S.W.2d 767 (Tex. App.—Houston [1st Dist.] 1992, writ denied) .....4, 10
Wynne/Jackson Development, L.P. vs. PAC Capital Holdings, Ltd.
     No. 13-12-00449-CV, (Tex.App. —Corpus Christi 2013, pet. denied)........11

Rules
TEX. R. CIV. P. 166a(c) ...............................................................................................6

Other Authorities
2 Patrick H. Martin & Bruce M. Kramer, Williams & Meyers Oil and Gas Law, §
       327.2 (LexisNexis Matthew Bender 2009) .....................................................4

                                                                                                                     vi
                           REFERENCE CITATION GUIDE

The Parties

     This Brief may refer to the parties as follows:

              Appellant Peter J. Dragon                “Appellant” or “Dragon”

              Appellees Charles E. Harrell             “Appellees” or “Harrells”

The Record on Appeal

     This Brief will refer to the record as follows:

              Appellant’s Brief                        “A’ants Br. At __”

              Clerk’s Record                           “CR __”

              Reporter’s Record                        “RR __”

                                                                             vii
                             STATEMENT OF THE CASE

Nature of the    This is a declaratory judgment action on the construction and
case             interpretation of a reservation clause in a Warranty Deed with
                 Vendor’s Lien (the “Harrell Deed”) dated February 8, 1991,
                 executed by Hollis R. Harrell and wife, Mary Harrell, conveying
                 a 9.954 acre tract in Karnes County, Texas, to Peter J. Dragon
                 and Sharon Dragon. 1 CR 8.

Course of        Appellees Charles E. Harrell and Hollis R. Harrell (the
proceedings      “Harrells”) and Appellant Peter J. Dragon (“Dragon”) filed
                 competing motions for summary judgment. After considering
                 the motions and responses thereto, the Court granted Appellees’
                 Motion for Summary Judgment and denied Appellant’s Motion
                 for Summary Judgment. 1 CR 141-43.

Trial court’s    The trial court found that the reservation clause in the Warranty
disposition      Deed granted Appellees a fractional royalty interest. The trial
                 court entered final judgment whereby it ordered and decreed that
                 the Harrells own a one half (1/2) royalty interest in the 9.954
                 acre tract of land situated within the Ramon Musquiz Four
                 League Grant, A-7 Karnes County, Texas, and being that certain
                 Tract No. One (4.85 acres) and Tract No. Two (3.51 acres) (by
                 re-survey found to contain 9.954 acres) as described in the
                 Warranty Deed. 1 CR 141-42. The trial court awarded
                 attorneys’ fees and post judgment interest to the Harrells
                 pursuant to Chapter 37 of the Texas Civil Practice and Remedies
                 Code. 1 CR 142. Appellant is not appealing the attorney’s fees
                 award.

                   STATEMENT REGARDING ORAL ARGUMENT

      Appellees Charles E. Harrell and Hollis R. Harrell request oral argument in

this proceeding. While the issue presented may be summarily dismissed based on

this court’s review of the record below, oral argument will assist the court in

analyzing the legal issues herein presented.

                                                                                viii
                              STATEMENT OF FACTS

      On or about March 17, 1978, General Portland, Inc., as Grantor, executed a

Special Warranty Deed conveying three parcels of land in Karnes County, Texas to

Hollis R. Harrell and his wife, Mary Harrell, as Grantees (the “Special Warranty

Deed”). CR 5. On or about February 8, 1991, by Warranty Deed with Vendor’s

Lien, Hollis R. Harrell and wife, Mary Harrell, conveyed 9.954 acres of land to

Peter J. Dragon and wife, Sharon M. Dragon (the “Warranty Deed”). CR 6. The

Warranty Deed conveyed a 9.954 acre tract of land situated within the Ramon

Musquiz Four League Grant, A-7 Karnes County, Texas, and being that certain

Tract No. One (4.85 acres) and Tract No. Two (3.51 acres) (by this survey found to

contain 9.954 acres) as described in the Special Warranty Deed (“Subject Land”).

Id. The Warranty Deed contained the following non-participating royalty interest

reservation:

      “SAVE AND EXCEPT HOWEVER, and there is hereby reserved
      unto the Grantors, their heirs and assigns, a free non-participating
      interest in and to the royalty on oil, gas and other mineral in and under
      the hereinabove described property, consisting of ONE-HALF (1/2) of
      the interest now owned by Grantors together with ONE-HALF (1/2)
      of the reversionary rights in and to the presently outstanding royalty in
      on and under said property, perpetually from date hereof”

(the “Reservation”). Id.

      On or about February 17, 1993, as a result of the divorce between Sharon M.

Dragon and Peter J. Dragon, Sharon M. Dragon executed a Special Warranty Deed

                                                                                  1
conveying 6.44 acres (called 4.85 acres) of land, more or less out of the Roman

Musquiz Four League Grant, to Peter J. Dragon, a/k/a Peter Joseph Dragon, as

Grantee, LESS AND EXCEPT, 3.51 acres of land, more or less, being described as

Tract Two in that certain Special Warranty Deed effective March 17, 1978, from

General Portland, Inc., as Grantor, to Hollis R. Harrell and wife, Mary Harrell, as

Grantees, recorded in Volume 474, Page 514 of the Deed Records of Karnes

County, Texas. CR 6-7. As a result of the Sharon M. Dragon Special Warranty

Deed, Defendant Peter J. Dragon owns the mineral interest conveyed in the

Warranty Deed subject to the Reservation. CR 7.

      As of March 17, 1978, the Hollis R. Harrell and Mary Harrell ownership

interest was subject to a 1/32 nonparticipating royalty interest in Dorice Winerich

for her life. Id. Dorice Winerich died on October 6, 1994, and her 1/32 non-

participating royalty interest terminated. Id.

      By Special Warranty Deed dated July 10, 2006, Charles E. Harrell and

Hollis R. Harrell, Jr., Trustees of the Mary Swain Harrell Living Trust, conveyed a

fifty percent (50%) interest in the undivided mineral interest in the Subject Land to

Charles E. Harrell and a fifty percent (50%) interest in the undivided mineral

interest in the Subject Land to Hollis R. Harrell. Id.

      The Harrells filed their Original Petition for Declaratory Judgment asking

the court to interpret the Reservation as reserving a one half (1/2) royalty interest

                                                                                   2
in the Subject Land, entitling the Harrells to a stated fraction of total production of

the oil and gas produced from the land. CR 4-15. Dragon filed his Original

Answer and Original Counterclaim asking the court to interpret the Reservation as

reserving a one-half fraction of royalty interest, conveying a fractional share of the

royalty. CR 17-31.

                             SUMMARY OF ARGUMENT

      This case hinges on the construction and interpretation of the reservation

clause in the Warranty Deed. The critical question is whether the Reservation

constitutes a “fractional royalty interest” or a “fraction of royalty.” The law makes

a major distinction between a “fractional royalty interest” and a “fraction of

royalty.” A “fraction of royalty” conveys a fractional share of the royalty that is

contained in an oil and gas lease and is not fixed, but rather “floats” in accordance

with the size of the landowner’s royalty in the lease.             Range Resources

Corporation v. Bradshaw, 266 S.W.3d 490, 493 (Tex. App.—Fort Worth 2008,

pet. denied).   The amount to be paid to the owner is determinable upon the

execution of some future lease and is calculated by multiplying the fraction in the

royalty reservation by the royalty provided by the lease.

      There is no language in the Reservation that is typical of—or indicates that

the parties intended to—create a “fraction of royalty” interest. Instead, the Harrell

Deed, when read as a whole, shows an unambiguous intent by the Grantors to

                                                                                     3
reserve a one-half (1/2) fractional royalty interest. The owner of a fractional

royalty is entitled to the stated fraction of gross production, unaffected by the

royalty reserved in the lease. See Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43

(1943). “Thus the owner of a 1/16 royalty takes 1/16 of gross production whether

the lease provides for a lessor’s royalty of 1/16, 1/8 or ¼.” 2 Patrick H. Martin &

Bruce M. Kramer, Williams & Meyers Oil and Gas Law, § 327.2 (LexisNexis

Matthew Bender 2009). Texas case law is clear that a reservation of an undivided

fractional royalty interest is just that—an undivided interest in production, not an

interest reduced by a base royalty. See Brown v. Howard, 593 S.W.2d 939 (Tex.

1980); White v. White, 830 S.W.2d 767 (Tex. App.—Houston [1st Dist.] 1992, writ

denied).

      The size of the fractional interest reserved, or the possibility that the

reservation would impair the future ability to lease, are not factors to be considered

in the construction of fractional royalty interest reservations. See Arnold v. Ashbel

Smith Land Co., 307 S.W.2d 818 (Tex. Civ. App.—Houston 1957, writ ref’d

n.r.e.); Gavenda v. Strata Energy, Inc., 705 S.W.2d 690 (Tex. 1986). The court

does not determine the parties’ intent based on the quantum of production to which

the holder of a particular interest may be entitled. The primary duty of a court in

determining the construction of an unambiguous deed is to ascertain the intent of

the parties by a fundamental rule of construction known as the “four corners” rule.

                                                                                    4
Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991). The interpretation of the

contract is controlled by the parties’ intentions as expressed within the four corners

of the instrument. Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). In seeking

to ascertain the intention of the parties, the court must attempt to harmonize all

parts of the deed.    Id.   Qualifiers and parentheticals are critical in the final

construction and interpretation. Brown, 593 S.W.2d at 942. No case has found

that “in and to” means “of” without additional qualifiers in the instrument.

      In considering the competing motions for summary judgment and responses

thereto and the arguments of counsel, the trial court properly rendered final

judgment in favor of appellees.      The trial court properly determined that the

Harrells are entitled to judgment as a matter of law construing the Reservation as

reserving a one-half (1/2) royalty interest in the Subject Land.

                                    ARGUMENT

I.    After considering the competing motions for summary judgment and
      responses thereto, the trial court properly granted the Harrells’
      traditional motion for summary judgment.

      A.     Standard of Review

      To prevail on a traditional motion for summary judgment, the movant must

show “there is no genuine issue as to any material fact and the movant is entitled to

judgment as a matter of law.” BP America Production Co. v. Zaffirini, 419 S.W.3d
5
485, 495 (Tex. App.—San Antonio 2013, pet. denied); TEX. R. CIV. P. 166a(c). In

reviewing the trial court’s judgment, the appellate court typically examines “the

evidence presented in the motion and response in the light most favorable to the

party against whom the party the summary judgment was rendered, crediting

evidence favorable to that party if reasonable jurors could, and disregarding

contrary evidence unless reasonable jurors could not. Mann Frankfort Stein &

Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009); see City of

Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). However, “[w]hen both sides

move for summary judgment and the trial court grants one motion and denies the

other, the reviewing court should review both sides’ summary judgment evidence

[,]…determine all questions presented[,]…[and] render the judgment that the trial

court should have rendered.” BP America Production Co, 419 S.W.3d. at 495

(citing FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000)

(citations omitted)).

      When a trial court resolves a declaratory judgment action on competing

motions for summary judgment, the appellate court reviews the propriety of the

declaratory judgment under the same standards applied in reviewing a summary

judgment.    Hicks v. Castille, 313 S.W.3d 874, 879-80 (Tex. App. 2010) (citing

City of Galveston v. Tex. Gen. Land Office, 196 S.W.3d 218, 221 (Tex. App.—

Houston [1st Dist.] 2006, pet. denied)). The appellate court reviews a trial court's

                                                                                  6
decision to grant or to deny a motion for summary judgment de novo. See Tex.

Mun. Power Agency v. Pub. Util. Comm'n of Tex., 253 S.W.3d 184, 192

(Tex.2007). Although the denial of summary judgment is ordinarily not appealable,

an appellate court may review such a denial when both parties moved for summary

judgment and the trial court granted one and denied the other. Id.

      Here, both parties moved for summary judgment on their respective claims

involving the interpretation of the Reservation clause.       The trial court, after

reviewing the motions and responses thereto and hearing arguments of counsel,

found that as a matter of law the Harrells’ interpretation of the Reservation clause

entitled them to a fractional royalty interest and properly granted summary

judgment in their favor. This court should affirm the trial court’s decision.

      B.     The trial court properly adopted the Harrell’s construction of the
             Reservation in the Harrell Deed

      The trial court's judgment adopted the Harrells construction of the

unambiguous warranty deed Reservation. The Harrells read the Warranty Deed

Reservation as reserving a one-half (1/2) royalty interest in the Subject Land. CR

7. In other words, the Reservation reserved a fixed fractional royalty interest

entitling the Harrells to the one-half (1/2) of total production of the oil and gas

produced from the Subject Land. Dragon, on the other hand, reads the Reservation

as unambiguously reserving a one-half fraction of royalty interest that was owned

by the Harrells at the time the Harrell Deed was executed. CR 19.

                                                                                  7
             1.     Legal Standard for Deed Construction

      In construing a written contract, the court’s primary concerns are to ascertain

and to give effect to the parties' intentions as expressed in the document. Frost

Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 311–12 (Tex.2005).

Ordinarily, the writing alone is sufficient to express the parties' intentions for it is

the objective, not subjective, intent that controls.      Matagorda Hosp. Dist. v.

Burwell, 189 S.W.3d 738, 740 (Tex. 2006) (per curiam). To give effect to the

parties’ intentions, the court should consider the entire writing and attempt to

harmonize and give effect to all of the provisions of the agreement by analyzing

the provisions with reference to the whole agreement. Id. at 312. The court should

not give any single provision controlling effect. J.M. Davidson, Inc. v. Webster,

128 S.W.3d 223, 229 (Tex.2003).

      Contract terms are given their plain, ordinary, and generally accepted

meanings unless the contract itself shows them to be used in a technical or

different sense. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.

2005). Courts are not authorized to rewrite agreements to insert provisions parties

could have included or to imply terms for which they have not bargained.

Tenneco, Inc. v. Enterprise Products Co., 925 S.W.2d 640, 646 (Tex. 1996). In

other words, courts cannot make contracts for the parties. HECI Exploration Co. v.

Neel, 982 S.W.2d 881, 888 (Tex. 1998).

                                                                                      8
      A contract is not ambiguous simply because the parties disagree over its

interpretation. Markert v. Williams, 874 S.W.2d 353, 355 (Tex.App.-Houston [1st

Dist.] 1994, writ denied). Nor does uncertainty or a lack of clarity in the language

chosen by the parties suffice to render a contract ambiguous. Id. If, after applying

the relevant rules of construction, the court can give the agreement a definite or

certain legal meaning, the agreement is unambiguous, and is construed as a matter

of law Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986).

      In interpreting a deed, the primary duty of a court is to ascertain the intent of

the parties by a fundamental rule of construction known as the "four corners" rule.

Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991). The interpretation of the

contract is controlled by the parties' intentions as expressed within the four corners

of the instrument. Altman, 712 S.W.2d at 118. In seeking to ascertain the intention

of the parties, the court must attempt to harmonize all parts of a deed. Id. Even if

different parts of the deed appear contradictory or inconsistent, the court must

strive to construe the instrument to give effect to all of its provisions. Luckel, 819
S.W.2d at 462.

             2.    The Language of the Reservation Reserved a Fractional Royalty

      The dispute hinges on the construction and interpretation of the reservation

clause in the Warranty Deed. The Harrells’ interpretation of the Reservation is that

the Grantors reserved a one-half (½) royalty interest in the Subject Land as a result

                                                                                     9
of the Reservation. Appellant’s interpretation of the Reservation is that Grantors

reserved a one-half (½) of royalty in the Subject Land as a result of the

Reservation.   The Harrells met their burden to establish they are entitled to

judgment as matter of law, that the Reservation reserved a one-half (½) royalty

interest, in the Subject Land.

      The language in question is a reservation of “a free non-participating interest

in and to the royalty on oil gas and other mineral in and under the above described

property consisting of one-half (1/2) of the interest now owned by Grantors

together with one-half (1/2) of the reversionary rights in and to the presently

outstanding royalty in, on and under said property, perpetually from date hereof”

(the “Reservation”).

      Where a conveyance or reservation is phrased as a fractional royalty interest,

the owner is entitled to the stated fraction of total production of the oil and gas

produced from the land. Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43 (1943).

This interest in production is fixed and does not vary with the fractional royalty

that may be payable under a particular lease. Texas case law is clear that a

reservation of an undivided fractional royalty interest is just that--- an undivided

interest in production, not an interest reduced by a base royalty. See Brown v.

Howard, 593 S.W.2d 939 (Tex. 1980) and White v. White, 830 S.W.2d 767

(Tex.App.-Houston [1st Dist.] 1992, writ denied).

                                                                                  10
      The Warranty Deed, when read as a whole, shows an unambiguous intent by

the Grantors to reserve a one-half (1/2) fractional royalty interest. The first part of

the Reservation, “a free non-participating interest in and to the royalty on oil gas

and other mineral in and under the above described property,” does not quantify

the interest reserved, and necessarily relies on the language following to define and

clarify the interest reserved. In fact, without the additional language, the phrase

would necessarily reserve a one hundred percent (100%) royalty interest then

owned by the Harrells. There is no reference in the phrase to existing leases or

existing or future production. All cases that have held similar language to be either

a “fractional royalty interest” or a “fraction of royalty” have looked at the

instrument as a whole, particularly with respect to qualifiers, parentheticals, or

other clarifications included in the instrument. Eg. Schlitter v. Smith, 128 Tex. 628,

101 S.W.2d 543, 544 (Tex. Comm’n App. 1937); Coghill vs. Griffith, 358 S.W.3d
834, 838 (Tex. App. —Tyler 2012, pet. denied); Harris v. Ritter, 279 S.W.2d 845

(Tex. 1955); Helms v. Guthrie, 573 S.W.2d 855, 857 (Tex. App. —Fort Worth

1978, writ ref'd n.r.e.); Wynne/Jackson Development, L.P. vs. PAC Capital

Holdings, Ltd. No. 13-12-00449-CV, (Tex.App. —Corpus Christi 2013, pet.

denied).

      As an example, Coghill involved a reservation of “an undivided one-eighth

(1/8th) interest in and to all of the oil and gas royalty”. Although the Court found

                                                                                    11
this to be a “fraction of royalty”, the Court relied on “qualifiers” in making its

ruling. The deed in Coghill included additional language that it was subject to an

existing lease and reserved a 1/8th royalty under that lease and the usual 1/8th of

1/8th royalties in any future leases. So Coghill is distinguishable based on the

additional qualifying language.

      In Harris v. Ritter, the Texas Supreme Court held that the phrase “grantors

herein reserve to themselves from this conveyance one-half (1/2) of one eighth

(1/8) of the oil, gas and other minerals royalty [emphasis added] that may be

produced from said land …” reserved a fractional royalty interest, despite the use

of the word “of” in the phrase based on the context of the deed. Harris v. Ritter,
279 S.W.2d at 847-8.

      Qualifiers, and parentheticals and other clarifications are critical in the final

construction and interpretation. Brown v. Howard, 593 S.W.2d at 942. No case has

found that “in and to” means “of” without additional qualifiers, parantheticals and

other clarifications in the instrument.

      The critical qualifier or clarification for the interest in the Reservation is

“consisting of one-half of the royalty interest now owned by” the Harrells at the

time of the Warranty Deed. At the time of the Warranty Deed, the Harrells owned

one hundred percent (100%) of the minerals, and thus, a one hundred percent

(100%) royalty interest. There were no outstanding leases covering the property at

                                                                                    12
the time the Warranty Deed was executed. The reservation was expressly for

“royalty on oil, gas and other minerals in and under” the property, without any

reference to future production. One-half (1/2) of a one hundred percent (100%)

royalty interest is logically and unambiguously a fifty percent (50%) fractional

royalty interest.

II.   After considering the competing motions for summary judgment and
      responses thereto, the trial court properly denied Dragon’s traditional
      motion for summary judgment.

      A “fraction of royalty” conveys a fractional share of the royalty that is

contained in an oil and gas lease is not fixed, but rather “floats” in accordance with

the size of the landowner’s royalty contained in the lease. Range Resources

Corporation v. Bradshaw, 266 S.W.3d 490, 493 (Tex. App. —Fort Worth 2008,

pet. denied).   The amount to be paid to the owner is determinable upon the

execution of some future lease and is calculated by multiplying the fraction in the

royalty reservation by the royalty provided in a lease.

      Appellant argues that the language in the Reservation is consistent with what

Texas cases have found to be a fraction of royalty. Appellant cites six cases to

support his contention that the Reservation is a fraction of royalty reservation and

not a fractional royalty: Dawkins v. Hysaw, 450 S.W.3d 147 (Tex. App.—San

Antonio 2014, pet. filed); Coghill v. Griffitti, 358 S.W.3d 834 (Tex. App. – Tyler

2012, pet. denied); Schlitter v. Smith, 101 S.W.2d 543 (Tex. 1937); Stag Sales Co.

                                                                                   13
v. Flores, 697 S.W.2d 493 (Tex. App.—San Antonio 1985, writ ref’d n.r.e.); Tyler

v. Bauguss, 148 S.W.2d 912 (Tex. Civ. App.—Dallas 1941, writ dism’d judgm’t

cor.); State Nat. Bank of Corpus Christi v. Morgan, 143 S.W.2d 757 (Tex. 1940).

The language in the deeds in each of the six cases cited by Appellant is not the

language in the Reservation. The language in the Warranty Deed shows that under

the context of the Reservation, the grantors reserved a one-half royalty in the

Subject Lands.

      The Court should compare the language in the Reservation with the

language in Coghill and the other cases cited by Defendant. The Reservation reads

as follows:

              RESERVATION: SAVE AND EXCEPT HOWEVER, and
              there is hereby reserved unto the Grantors, their heirs and
              assigns, a free non-participating interest in and to the royalty on
              oil, gas and other mineral in and under the hereinabove
              described property consisting of ONE-HALF (½) of the
              interest now owned by Grantors together with ONE-HALF (½)
              of the reversionary rights in and to the presently outstanding
              royalty in on and under said property, perpetually from date
              hereof.

CR 11.

      The reservation in the Coghill deed provided as follows:

              [T]his Grantor excepts from this conveyance and reserves unto
              himself, his heirs and assigns an undivided one-eighth (1/8)
              interest in and to all of the oil royalty [and] gas royalty.... It
              is understood and agreed that this sale is made subject to the
              terms of said lease, but the Grantor reserves and excepts unto
              himself, his heirs and assigns an undivided one-eighth (1/8) of

                                                                                    14
            all royalties payable under the terms of said lease, as well as an
            undivided one-eighth (1/8) of the usual one-eighth (1/8)
            royalties provided for in any future oil, gas and/or mineral lease
            covering said lands or any part thereof.... Nevertheless, neither
            the Grantee herein, nor his heirs, executors, administrators, and
            assigns of the Grantee shall make or enter into any lease or
            contract for the development of said land or any other portion
            of the same for oil, gas or other minerals, unless each and every
            such lease, contract, leases or contracts, shall provide for at
            least a royalty on oil of the usual one-eighth (1/8) to be
            delivered free of cost.... [A]nd in the event Grantee, nor [sic]
            the heirs, executors, administrators and assigns of the Grantee,
            or as in the status of the fee owners of the land and minerals, or
            as a fee owner of any portion of the same, shall operate or
            develop the minerals therein, Grantor shall own and be entitled
            to receive as a free royalty hereunder, (1) an undivided one-
            sixty fourth (1/64) .... (emphasis added).

Coghill, 358 S.W.3d at 835-36.

      The reservation in Schlitter provides as follows:

            Grantor H. F. Smith hereby reserves unto himself, his heirs and
            assigns for a period of ten years and as much longer thereafter
            as oil and gas or other minerals are being produced an
            undivided one-half interest in and to the royalty rights on all of
            oil and gas and other minerals in, on and under or that may be
            produced from the land herein conveyed and described above.
            In the event oil or gas or other minerals are not being produced
            in paying quantities from said land at the expiration of said ten
            year period then this reservation shall become null and void and
            of no further force and effect.

Schlitter, 101 S.W.2d at 544.

      The reservation in Stag Sales Company provides:

            [Grantors convey to grantee] an undivided one-half (1/2)
            interest in and to all of the oil royalty, gas royalty, royalty in
            casinghead gas and gasoline, and royalty in all other minerals in

                                                                                 15
            and under, and that may be produced and mined from [the
            2291.2 acre tract].

            Said land being now under an oil and gas lease…this sale is
            made subject to the terms of said lease, but covers and includes
            one-half of all the oil royalty, gas royalty, casinghead gas and
            gasoline royalty, and royalty from other minerals or products to
            be paid under the terms of said lease…

            In the event a future lease or leases are executed…then the
            Grantee shall receive under such future lease or leases an
            undivided one-sixteen [sic] part of all the oil, gas and other
            minerals taken and saved under such lease or leases, and shall
            receive the same out of the royalty therein provided for.

Stag Sales Company v. Flores, 697 S.W.2d at 494.

      The reservation in Tyler provided as follows:

            For and in consideration of the sum of Ten Dollars cash in hand
            paid by Tyler & Smith, hereinafter called Grantee, the receipt of
            which is hereby acknowledged, have granted, sold, conveyed,
            assigned and delivered, and by these presents do grant, sell
            convey, assign and deliver, unto the said Grantee, an
            undivided one-tenth interest in and to all of the oil royalty,
            gas royalty, and royalty in casing head gas, gasoline, and
            royalty in other minerals in and under, and that may be
            produced and mined from the following described lands
            situated in the County of Henderson and State of Texas.

Tyler, 148 S.W.2d at 916.

      The deed in State Natl. Bank of Corpus Christi provided the following

reservation language:

            It is expressly agreed and understood that there is reserved
            to granter, its successors and assigns forever, and excepted
            from this conveyance an undivided 1/2 interest in and to all
            of the royalty in oil, gas, casinghead gas, gasoline, and in

                                                                                16
             all other minerals in and under and that may be produced and
             mined from the above described land; however, granter does
             not by this reservation and exception retain any right of
             participating in the making of future oil and gas lease nor of
             participating in the bonus or bonuses which shall be
             received from any future lease nor of participating in any
             rental to be paid for the privilege of deferring the
             commencement of a well under any lease, now or hereafter;
             it being intended and agreed that in no event will any lease
             or contract be made for the development of said land or any
             portion of same for oil, gas, or other minerals, providing for
             a royalty of less than one-eighth on oil and gas.

State Natl. Bank of Corpus Christi, 143 S.W.2d at 758.

      The language in the deeds in each of the five cases above, cited by

Appellant, is not the language in the Reservation. The language in the Warranty

Deed shows that under the context of the Reservation, the grantors reserved a one-

half royalty in the Subject Lands. As noted by Appellant, this Court recently

provided five examples of language used to create a fraction of royalty. A’ants Br.

at 6. Appellant argues that the language in the Reservation is “almost identical” to

the language cited in Dawkins as reserving a fraction of royalty: “(4) [a]n

undivided one-half interest in and to all of the royalty.” 450 S.W.3d at 153.

However, just because the Reservation has some of the same words does not make

the language identical. It is the additional language in the Reservation that makes

it clear that a fractional royalty was reserved, and that language cannot simply be

ignored so as to fit into Appellant’s argument.

                                                                                 17
      What Appellant failed to mention, is this Court also provided six examples

of language used to convey a fractional royalty: “(1) [a] one-fourth royalty in all

oil, gas and other minerals in and under and hereafter produced; (2) [a] fee

royalty of 1/32 of the oil and gas; (3) [a]n undivided one-sixteenth royalty interest

of any oil, gas or minerals that may hereafter be produced; (4) [o]ne-half of the

one-eighth royalty interest; (5) [a]n undivided 1/24 of all the oil and other minerals

produced, saved, and made available for market; (6) 1% royalty of all the oil and

gas produced and saved.” Dawkins, 450 S.W.3d at 153. The language cited by

this Court as conveying a fractional royalty is consistent with the language found

in the Reservation.

      A.     Impairment Of Future Leasing Not A Factor

      The size of the fractional interest reserved, or the possibility that the

reservation would impair the future ability to lease, are not factors to be

considered in the construction of fractional royalty interest reservations. White v.

White involved a 3/8ths fractional royalty interest.      A 1/4 th fractional royalty

interest was reserved in Arnold v. Ashbel Smith Land Co., 307 S.W.2d 818 (Tex.

Civ. App.—Houston 1957, writ ref'd n.r.e.). The reservation of an undivided ½

nonparticipating royalty entitling the grantor to ½ of all production was not even

questioned by the Texas Supreme Court in Gavenda v. Strata Energy, Inc., 705
S.W.2d 690 (Tex. 1986).

                                                                                   18
      Appellant suggests that “Texas courts are charged with interpreting deed

reservations in a manner that will not frustrate the ability of the mineral owners to

enter into a lease at some point in the future” and goes as far as asking this Court to

take judicial notice “that Harrells’ interpretation of the Reservation would render

the Property unleaseable and undevelopable ad infinitum.” A’ants Br. at 11-12.

Appellant cites two cases in support of his argument that Harrells’ interpretation of

the Reservation hinders future leasing1: Moore v. Noble Energy, Inc., 374 S.W.3d
644 (Tex. App.—Amarillo 2012, no pet.) and Clifton v. Koontz, 325 S.W.2d 684,

695-96 (Tex. 1959).

      In Moore v. Noble Energy, the question before the court was whether a

reservation in a 1955 warranty deed was ambiguous. 374 S.W.3d 644. The court

considered each possible interpretation, and determined that the phrase “one-half

non-participating royalty interest,” standing along, would reserve to the grantor a

fifty percent interest in the production, free of production costs.” Id. at 650. The

court did note that a construction of the 1955 deed to reserve a one-half royalty is

“doubtful” but in no way charged courts with interpreting deed reservations in a

manner that will not frustrate the ability of the mineral owners to enter into a lease

at some point in the future. What the court was charged with was examining the

deed as a whole, including the parenthetical phrase. Id. (citing Columbia Gas

1 It is important to note that Appellant did not submit, and could not submit, any summary
judgment evidence showing that any leasing of the minerals is impaired.

                                                                                       19
Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996)

([c]onstruction of the language to reserve a one-half royalty would also require that

the parenthetical phrase be ignored, contrary to the rule of construction mandating

that we examine the deed as a whole)).

      In Clifton v. Koontz, the issue before the court was whether a lessee violated

an implied covenant to reasonably develop the lease at issue by drilling additional

wells on a multi-strata property. 325 S.W.2d at 695. The court looked at both

“reasonable diligence” and what a “reasonably prudent operator” might do and

determined the lessee did not violate the implied covenant to reasonably develop

the lease. Id. It is not disputed that a reasonably prudent operator should proceed

with due regard to his own interests as well as those of a lessor, however the

“reasonably prudent operator” standard does not factor into the construction of the

reservation language in this deed. Furthermore, the “reasonably prudent operator”

or “reasonable diligence” in no way makes the Property unleaseable and

undevelopable ad infinitum, and such a conclusion is certainly misplaced.

      B.     Appellant Did Not Plead Ambiguity

      Appellant argues that “it is well-established law that where an ambiguity

exists in a contract, the contract language will be construed strictly against the

party who drafted it since the drafter is responsible for the language used.” A’ants

Br. at 14. Appellant also argues that the Harrells offered no summary judgment

                                                                                  20
evidence to establish that Harrells did not draft the Warranty Deed. Id. The

Harrells did not offer summary judgment evidence because ambiguity was never

an issue. Appellant did not plead ambiguity nor did he argue ambiguity in his

Motion for Summary Judgment.            In the absence of the allegations of

ambiguity…parole evidence is not admissible to show the intentions of either the

grantor or grantee in the deed, but such intention is to be determined by the trial

court as a matter of law from the language which appears in the deed itself, and the

deed will be enforced as written. Reeves v. Towery, 621 S.W.2 209, 212 (Tex.

App.—Corpus Christi 1981, writ ref’d n.r.e. (citations omitted); Ayert v. Grande,

Inc., 717 S.W.2d 891, 893 (Tex. 1986) (“[n]either party contended the 1983 deed is

ambiguous, so we construe the language of the deed to ascertain the intent of the

parties without considering parole evidence, i.e. as a matter of law”).   Appellant

has never claimed, and cannot now claim, that the Warranty Deed is ambiguous.

      Appellant also argues that it is well-established in Texas that deeds are

interpreted to convey the greatest estate possible to the grantee. See A’ants Br. at

15. Appellant’s argument is generally true in deed construction, but does not take

into account the reservation language. “A general warranty deed conveys all of the

grantor’s interest unless there is language in the instrument that clearly shows an

intention to convey a lesser interest.” Reeves, 621 S.W.2 at 212 (citing Cockrell v.

Gulf Sulphur Co., 157 Tex. 10, 15, 299 S.W.2d 672, 675 (1957)). The property

                                                                                 21
intended to be reserved is never included in the grant. Benge v. Scharbauer, 152
Tex. 447, 259 S.W.2d 166 (1953).         As shown in the arguments above, the

Reservation in the Warranty Deed clearly shows the intention to reserve a

fractional royalty interest.

                               PRAYER FOR RELIEF

      Appellees Charles E. Harrell and Hollis R. Harrell pray that this Court

affirm the traditional summary judgment granted by the trial court in favor of the

Harrells and against Dragon, in its entirety. Appellees Charles E. Harrell and

Hollis R. Harrell pray for whatever additional relief to which they may be entitled.

                                           Respectfully submitted,

                                             /s/ Jesse R. Castillo
                                            Jesse R. Castillo
                                             State Bar No. 03986600
                                            jcastillo@casnlaw.com
                                            CASTILLO SNYDER, P.C.
                                            Bank of America Plaza, Suite 1020
                                            300 Convent Street
                                            San Antonio, Texas 78205
                                            Telephone: (210) 630-4200
                                            Facsimile: (210) 630-4210

                                            Counsel for Appellees Charles E.
                                            Harrell and Hollis R. Harrell

                                                                                  22
                        CERTIFICATE OF COMPLIANCE

      In Compliance with Texas Rule of Appellate Procedure 9.4(i)(3), Appellees
Charles E. Harrell and Hollis R. Harrell certify that the number of words in
Appellee’s Brief, including its headings, footnotes, and quotations, is 5,744.

                                                                            23
                            CERTIFICATE OF SERVICE

      I certify that, on this 18th day of June, 2015, a true and correct copy of the

foregoing Brief of Appellee has been served as follows:

Clinton M. Butler                          ROBINSON C. RAMSEY
CLINTON M. BUTLER                          State Bar No. 16523700
State Bar No. 24045591                     Email: rramsey@langleybanack.com
Email: cbutler@langleybanack.com           LANGLEY & BANACK, INC.
ELIZABETH R. KOPECKI                       Trinity Plaza II, Suite
State Bar No. 24087859                     900 745 E. Mulberry
Email:                                     Avenue San Antonio,
ekopecki@langleybanack.com                 Texas 78212
LANGLEY, BANACK & BUTLER                   Telephone:
114 N. Panna Maria Avenue                  210.736.6600
Karnes City, Texas 78118                   Telecopier: 210.735.6889
Telephone: 830.780.2700
Telecopier: 830.780.2701                   ATTORNEYS FOR APPELLANT
                                           PETER J. DRAGON

                                             /s/ Jesse R. Castillo
                                             Jesse R. Castillo

                                                                                 24