In the
United States Court of Appeals
For the Seventh Circuit
Nos. 09-3151, 09-3265
A MERICAN L AND H OLDINGS OF INDIANA, LLC, et al.,
Plaintiffs-Appellants/
Cross-Appellees,
v.
S TANLEY JOBE, et al.,
Defendants-Appellees,
and
W ILLIAM B OYD A LEXANDER,
Defendant-Appellee/
Cross-Appellant.
Appeals from the United States District Court
for the Southern District of Indiana, Terre Haute Division.
No. 2:08-cv-0448-WTL-WGH—William T. Lawrence, Judge.
A RGUED M ARCH 30, 2010—D ECIDED M AY 6, 2010
Before P OSNER, R OVNER, and T INDER, Circuit Judges.
2 Nos. 09-3151, 09-3265
P OSNER, Circuit Judge. This diversity suit, brought by
affiliates of the Peabody Energy Corporation (for
simplicity we’ll pretend there is a single plaintiff and call
it Peabody), seeks both a declaration that Peabody has
the right to strip mine coal on the defendants’ land, and
specific performance of an option to purchase the land.
The land is in Indiana, and the substantive issues in
the case are governed by Indiana law. The district judge,
after conducting a bench trial, entered judgment for
the defendants, 655 F. Supp. 2d 882 (S.D. Ind. 2009),
and Peabody appeals. One of the defendants (Alexander)
cross-appeals—improperly, because he is seeking not to
modify the judgment but merely to defend it (so far as it
affects him) on an alternative ground to the district judge’s.
WellPoint, Inc. v. Commissioner, 599 F.3d 641, 647-51 (7th
Cir. 2010). The other defendants also filed a cross-
appeal, but have dismissed it.
The defendants own a total of 62 acres of farmland
in Sullivan County, Indiana; there are farmhouses and
other buildings on the land. The land is an island in an
area that Peabody is busy strip mining for coal, and it is
eager to strip mine the defendants’ land as well, and
insists that a 1903 deed entitles it to do so. The coal
beneath the land is worth $50 million (of course minus
the cost of extraction) at the current spot price of
$42 per ton for coal of this type and quality. The parties
say the coal is worth $180 million, but that appears to be
an arithmetical error; for the quantity of coal that
Peabody expects to extract if it is allowed to strip mine
the land is only 1.2 million tons. (There is, however, more
at stake for Peabody, because if it cannot extend its
Nos. 09-3151, 09-3265 3
existing strip mine across the defendants’ land it will
apparently be unable to get at another 2.5 millions tons
of coal in the land immediately surrounding the defen-
dants’ land.)
Peabody contends that the deed entitles it both to strip
mine the land without compensating the owners and
also, if it wants, to obtain full title to the land (that is,
fee simple) for $30 an acre. Under the first entitle-
ment the right to use the surface would revert to the
defendants when Peabody was finished strip mining it;
under the second it would be Peabody’s property to do
with it as it wanted, forever. One might wonder why
Peabody would prefer litigating rather than just digging
an underground mine, as the deed allows. But the
district judge found that strip mining was necessary to
remove all the coal—underground mining wouldn't do it
because the coal seams aren’t very thick and in places
they are layered over one another so that a good amount
of the coal would have to be left in place in order to
support the shafts required for getting at and extracting
the rest of the coal.
The deed, given by the defendants’ predecessors to
Peabody’s predecessor, grants the latter and its suc-
cessors “all the coals, clays, minerals and mineral sub-
stances underlying” the defendants’ land, “together with
the right to mine and remove said coals [etc.—we can
ignore the reference to ‘clays, minerals and mineral sub-
stances,’ as do the parties] without further payment of
any nature whatsoever.” Moreover, the coal company
is not to be liable for any damages “occasioned by
mining or removing of said coals . . . not to exceed
4 Nos. 09-3151, 09-3265
5 acres”—in other words, it can damage five acres of
the defendants’ 62 acres without having to pay for the
damage. And “at any time hereafter upon demand and
payment therefor at rate of $30 per acre,” the grantors
are to convey to the coal company “without further
payments . . . such portion of surface of said Real Estate
as may be necessary for location of coal mines, tracks,
tipples, railroads, railroad switches and all buildings
necessary to carry on business of mining and transporting
said . . . coal.” The coal company is also “granted the
use of so much of surface of said Real Estate as may
be necessary in putting down test holes and holes for
pumping water from and for ventilating and draining
mines and for other like purposes necessary to secure
[the coal company’s] mining and removing that portion
of said Real Estate thereby granted and conveyed to it.”
However, “no . . . coal . . . [is] to be mined or removed from
under any dwelling house now situated on said Real
Estate,” and “five acres of surface where present
buildings are now situated is reserved by the grantors.”
Peabody argues that the conveyance of “all the coals”
means that it owns all the coal under the surface of the
defendants’ land and so, since the deed entitles it “to mine
and remove” the coal, it can extract it by any method
it wants, including strip mining.
But the further portions of the deed that we quoted
seem to confine the coal company’s use of the surface to
structures and activity relating to underground mining.
For $30 an acre the company can purchase portions of
the surface for structures related to such mining, but
removal of the surface for purposes unrelated to under-
Nos. 09-3151, 09-3265 5
ground mining is nowhere authorized unless by the
reference to “all the coals.”
The tension between the right to mine “all the coals” and
the limits on the mining company’s use of the surface
of the land marks the deed as ambiguous. And so the
judge admitted extrinsic evidence (evidence beyond the
deed itself) to help him decide whether the deed had
conveyed, either directly or by grant of the purchase
option, the right to strip mine the land. Extrinsic
evidence is admissible to disambiguate an ambiguous
deed, Symmes v. Brown, 13 Ind. 318 (1859); Hoose v. Doody,
886 N.E.2d 83, 89-90 (Ind. App. 2008); Kopetsky v. Crews,
838 N.E.2d 1118, 1124 (Ind. App. 2005); United States v.
LaRosa, 765 F.2d 693, 696-97 (7th Cir. 1985) (Indiana law),
just as it is admissible to disambiguate an ambiguous
contract.
The key extrinsic evidence presented at the bench trial
was that there was no strip mining of coal in Sullivan
County, Indiana, in 1903; and apparently no strip
mining of coal anywhere in the United States at that
time, beyond isolated experimentation. See Denver
Harper, Chris Walls & Deborah DeChurch, “Coal
Mining History of the United States With an Empha-
sis on Indiana” (Indiana Geological Survey 2003),
igs.indiana.edu/geology/coalOilGas/coalMiningHistory/
coal_history.html (visited April 12, 2010); Denver
Harper, “The Development of Surface Coal Mining in
Indiana” 5-7 (Indiana Dept. of Natural Resources, Geologi-
cal Survey Special Report No. 35, 1985). Commercially
significant strip mining had to await the advent of the
huge steam shovels developed for the construction of
6 Nos. 09-3151, 09-3265
the Panama Canal, which began in 1904. Strip mining
even on a modest scale seems not to have been done in
Sullivan County until 1918, or to have become common
anywhere in Indiana until the 1920s. See Harper et al.,
supra; Harper, supra, at 7-11; Harper, “Coal Mining in
Sullivan County, Indiana” 2 (Indiana Dept. of Natural
Resources, Geological Survey Special Report No. 43, 1988).
The defendants’ expert witnesses testified consistently
with the published sources; Peabody offered no ex-
pert testimony relating to the history of strip mining
in Indiana.
The judge concluded that the right to mine “all the
coals” referred to extracting the coal beneath the surface
of the defendants’ land by underground mining only.
That explained, he thought, why all the surface uses
permitted to the coal company, and the purchase option
as well, related expressly to underground mining—none
to strip mining. His conclusion that the deed is am-
biguous and the infeasibility of strip mining at the time
it was granted allows the ambiguity to be resolved in
favor of the surface owner is consistent with the case
law. Phillips v. Fox, 458 S.E.2d 327, 335 (W. Va. 1995);
Skivolocki v. East Ohio Gas Co., 313 N.E.2d 374, 376, 378-79
(Ohio 1974); Stewart v. Chernicky, 266 A.2d 259, 262-65
(Pa. 1970); West Virginia-Pittsburgh Coal Co. v. Strong, 42
S.E.2d 46, 47-50 (W. Va. 1947); cf. Compass Coal Co. v.
Commonwealth of Pennsylvania Game Commission, 454
A.2d 1167 (Pa. Commonwealth Ct. 1983). The Indiana
Supreme Court has not spoken to the issue. But Peabody
argues that Indiana’s intermediate appellate court
has held in a pair of successive cases—Consolidation Coal
Nos. 09-3151, 09-3265 7
Co. v. Mutchman, 565 N.E.2d 1074 (Ind. App. 1990), and
Mutchman v. Consolidation Coal Co., 666 N.E.2d 461 (Ind.
App. 1996)—that a conveyance of the right to mine
“all coal” (the phrase in our deed is “all the coals,” but
presumably the meaning is the same) can be limited to
underground mining only if the deed imposes a “severe
limitation” on the mining company’s use of the sur-
face, whatever exactly that means.
Assuming that these intermediate appellate decisions
are authoritative statements of Indiana law, never-
theless we don’t read them as Peabody does. In the first
Mutchman case the court was interpreting a large
number of heterogeneous deeds granting coal rights,
and the court noted that two sets of the deeds “appear to
severely limit surface use, either by expressly stating
that it is not the intention of the grantors to ‘grant any
surface rights,’ or requiring the grantee to accommodate
surface farming and pay damages for crops as the
damage occurs.” 565 N.E.2d at 1082. That was an ob-
servation rather than the statement of a rule. The court
said that the deeds were ambiguous and so, “to construe
[them], it would be appropriate to permit the intro-
duction of extrinsic evidence to aid in construction.” Id.
at 1083. It further observed that they “expressly preclude
use of the surface or . . . require immediate payment of
damages for injury to the surface.” Id.
On remand from the first Mutchman decision by the
appellate court, the trial court received evidence
which showed that in 1922, when the deeds in question
had been issued (the date is not in the Mutchman
opinion, but is in the briefs in that case), “strip mining
8 Nos. 09-3151, 09-3265
methods were being used in the counties surrounding
[the county in which the grantors’ land was located]; and
it was most likely the grantors of the coal deeds were
aware of the probability that their coal was being
acquired for strip mining . . . [and] would have been
aware of the widespread solicitation of land for strip
mining purposes.” 666 N.E.2d at 465-66. The appellate
court concluded that “from this evidence, we cannot say
it was unreasonable for the trial court to conclude that
the grantors had knowledge that the surface coal could
be removed by strip mining methods, and, if the
grantors did not want their land strip mined, they
could have clearly limited the use of the surface to pre-
clude strip mining.” Id. at 466.
Neither appellate opinion in the Mutchman case holds
that only a “severe limitation” on a coal company’s right
to use the surface of the land to get at its coal can
exclude, from a grant of the right to mine “all coal” or
“all the coals,” coal that can be extracted only by strip
mining. We read the court to be saying that, consistent
with the cases we cited earlier, if the deed both grants
the coal company the right to mine “all the coals”
and imposes restrictions inconsistent with a literal inter-
pretation of that right the deed is ambiguous and
extrinsic evidence can properly be used to disambiguate
it. A conveyance that contains a contradiction must be
interpreted with the help of something more than the
inconsistent text and that something usually and in this
case, as in Mutchman, is extrinsic evidence.
The deed in our case satisfies the condition that it
be ambiguous (thus allowing recourse to extrinsic evi-
Nos. 09-3151, 09-3265 9
dence) because it imposes a number of restrictions, and
in fact rather onerous ones, on the coal company’s use
of the surface; to get free of most of them the company
would have to pay the grantors $30 per acre, which is
the equivalent of having to pay damages for impairing
the landowners’ use of the surface, a restriction similar
to one mentioned in Mutchman. The deed forbade the
company to take coal from under the defendants’
buildings or the five acres on which the buildings sat
(plus yards presumably, since apparently there was only
one farmhouse in 1903 plus some farm buildings, and the
ensemble would not have occupied five acres). Peabody
acknowledges that if it had to leave five acres of the
surface untouched it might be unable to recover most
of the coal beneath the defendants’ land.
It tries to sneak around this limitation by arguing
that since the contours of the five-acre reserved tract are
not indicated in the deed, the reservation is void under
Indiana property law because its boundaries cannot be
determined. True, Edens v. Miller, 46 N.E. 526 (Ind. 1897);
De Long v. Starkey, 92 N.E.2d 228, 230 (Ind. App. 1950); 10
Indiana Law Encyclopedia (Deeds) § 17 (2010); see also
Barlow Burke, Ann M. Burkhart & R.H. Helmholz, Funda-
mentals of Property Law 490 (2d ed. 2004), but a two-
edged sword: if the five-acre tract carved out of the 62-
acre grant is indefinite (and the indefiniteness cannot
be resolved by extrinsic evidence), as appears to be the
case, the 57-acre tract in which Peabody does
have mineral rights is equally indefinite. Anyway the
indefiniteness is irrelevant. The only significance of the
five-acre reservation for the case at hand is the light it
10 Nos. 09-3151, 09-3265
casts on the parties’ understanding of what the deed
granted the coal company: the grantors could hardly
have thought that the reservation was void and the
coal company’s rights therefore more extensive than
the deed said they were.
So the 1903 deed is richly ambiguous, like the com-
parable deeds in the Mutchman cases. But there is a
critical difference between this case and Mutchman, and
it is the difference between 1903 and 1922. By 1922 it was
clear that a coal company seeking a grant of “all coal”
might seek to strip mine it, but nineteen years earlier
strip mining of coal had been unknown and apparently
unanticipated. And notice that Peabody’s claim
produces a paradox: if Peabody built a rail line to the
entrance to an underground mine, it would have to pay
$30 per acre for the surface occupied by the track; but
if it destroyed the surface completely by strip mining,
it would, on its interpretation of the deed, owe nothing.
The difference between strip mining and under-
ground mining, as far as the effect on the grantor of the
mining rights is concerned, is profound: strip mining
destroys the surface, making it completely unusable by
the owner of the surface unless and until it is restored
after all the coal has been stripped, while underground
mining allows some and maybe almost all of the surface
to remain undisturbed and thereby usable by the
surface owner. On this basis, some courts create a pre-
sumption against interpreting a grant of mineral rights
to convey a right to strip mine the grantor’s land. E.g.,
Phillips v. Fox, supra, 458 S.E.2d at 332-35; Skivolocki v.
Nos. 09-3151, 09-3265 11
East Ohio Gas Co., supra, 313 N.E.2d at 377-79 and n. 1;
Stewart v. Chernicky, supra, 266 A.2d at 263; Compass Coal
Co. v. Commonwealth of Pennsylvania Game Commission,
supra, 454 A.2d at 1169-70; see also Ward v. Harding, 860
S.W.2d 280, 282-88 (Ky. 1993); Doochin v. Rackley, 610
S.W.2d 715, 718-19 (Tenn. 1981); Wilkes-Barre Township
School District v. Corgan, 170 A.2d 97, 99-100 (Pa. 1961);
West Virginia-Pittsburgh Coal Co. v. Strong, supra, 42
S.E.2d at 49-50. We don’t have to go that far to conclude
that the district judge did not commit a clear error (the
proper standard of appellate review of a decision inter-
preting a contract, deed, or other document with the aid
of extrinsic evidence, e.g., Matterhorn, Inc. v. NCR Corp.,
763 F.2d 866, 873 (7th Cir. 1985)) in ruling that, in light
of the language of the deed read against a background
that includes the technology of coal mining when the
deed was signed, the grant of a right to mine “all the
coals” was intended to be limited to underground
mining, and likewise the right to use the surface to
enable mining.
For completeness we address the two alternative
grounds for affirmance proposed by the defendants.
One, which is limited to Peabody’s claim for specific
performance of the option to purchase the defendants’
land, is that the option violates the rule against perpetu-
ities, which remains in force in Indiana. Ind. Code §§ 32-17-
8-1 et seq. (Uniform Statutory Rule Against Perpetuities).
For property interests created as in this case before 1991
(the date of the Indiana statute), the common law
rule against perpetuities continues to govern, see sec-
tion 32-17-8-1(b), and invalidates the grant of a property
12 Nos. 09-3151, 09-3265
interest that goes into effect more than 21 years and nine
months after the death of a person living when it was
made. Francis v. Yates, 700 N.E.2d 504, 506 (Ind. App. 1998);
Buck v. Banks, 668 N.E.2d 1259, 1260-61 (Ind. App. 1996);
see also Ind. Code § 32-1-4-1 (1982). If the grantee is a
corporation and the agreement doesn’t use a person’s
life as a measuring rod for the vesting deadline, the
grant must go into effect within 21 years. E.g., Murphy
Exploration & Production Co. v. Sun Operating Limited
Partnership, 747 So. 2d 260, 265 (Miss. 1999); Symphony
Space, Inc. v. Pergola Properties, Inc., 669 N.E.2d 799, 806
(N.Y. 1996); see also Restatement of Property § 374, com-
ments h and o (1944). We haven’t found an Indiana
case, but we assume that the Indiana rule is the same.
There is a crucial difference between the going into
effect of a granted right and the exercise of the right by
its holder once it has gone into effect. If the 1903 deed
conveyed the right to strip mine, which is Peabody’s
primary argument, that right took effect in 1903, even
though strip mining did not begin then. Similarly, the
right to mine (if only by underground mining) the coal
under the defendants’ land took effect in 1903 and so
would not have been forfeited even if the mining of the
coal had not begun until 2000. The right to mine is an
“appurtenant” right, meaning a right (which may be
granted expressly, as in the deed involved in this case, or
by implication, as when a landowner sells a parcel
wholly surrounded by his land and the purchaser is
deemed to have an implied easement of ingress and
egress through the seller’s property) that is necessary to
the full exploitation of another property right. The right
Nos. 09-3151, 09-3265 13
to mine coal is appurtenant to the ownership of a coal
deposit, for without that right the coal would have
severely diminished value to its owner (though not zero
value, because the owner of the surface would have an
incentive to buy the coal from the owner of the coal). To
subject the exercise of an appurtenant right to the
rule against perpetuities would therefore encourage
premature exploitation of the right.
Suppose that after the sale of coal rights to Peabody’s
predecessor in 1903 the price of coal had plummeted or
the cost of extraction had soared and as a result mining
the coal was uneconomical, but that conditions gradually
improved and in 1923 the coal company judged that
mining the coal would be profitable beginning in 1925. If
to preserve its right to mine, the coal company had to
begin mining within 21 years of acquiring the right, it
would have an incentive to begin mining prematurely,
in order to preserve its right. And that would be waste-
ful. See, e.g., Quarto Mining Co. v. Litman, 326 N.E.2d 676,
685 (Ohio 1975); Douglas A. Kysar, “Law, Environment,
and Vision,” 97 Nw. U. L. Rev. 675, 698-99 (2003); Robert C.
Ellickson, “Property in Land,” 102 Yale L.J. 1315, 1368-69
(1993). In effect, it would be mining to acquire a right
to mine in the future, rather than mining because
it wanted to extract and sell the coal now.
Consistent with this analysis, we read in Threlkeld v.
Inglett, 124 N.E. 368, 371 (Ill. 1919) (citations omitted), that
“when anything is granted, all the means to attain it and
all the fruits and effects of it are granted also, and pass,
together with the grant of the thing itself, without any
14 Nos. 09-3151, 09-3265
words to that effect. Where a grant is made for a valuable
consideration it is presumed that the grantor intended
to convey and the grantee expected to receive the full
benefit of it, and therefore the grantor not only con-
veyed the thing specifically described, but all other
things, so far as it was within his power to pass them,
which were necessary to the enjoyment of the thing
granted. The deed, when made, would not only pass
the coal, oil, and gas, with the right to mine and remove
the same, but also the right to enter upon and use so
much of the surface of the land as might be necessary
to the enjoyment of the property and rights conveyed,
and the agreement was merely that the land taken for
such use should be paid for, when located, at the rate of
$150 an acre. It was not within the rule against perpetu-
ities.”
The district judge as we said was entitled to reject Pea-
body’s contention that the 1903 deed conveyed to its
predecessor the right to strip mine the defendants’ land.
But not because Peabody (or its predecessor) failed to
begin strip mining the land by 1924. Peabody also claims,
however, that the deed gave it an option to buy all the
defendants’ land at any time for $30 an acre—an option
that Peabody sought to exercise more than 21 years after
its predecessor acquired the option. That option is the
target of the defendants’ attack based on the rule
against perpetuities. There is a difference, pointed out in
Post v. Bailey, 159 S.E. 524, 526-27 (W.Va. 1931), between
the present grant of a right to the use of land and an
option to acquire that right in the future. In the latter
case, the grant, because it does not take effect until the
Nos. 09-3151, 09-3265 15
option is exercised, is subject to the rule against perpetu-
ities. West Virginia-Pittsburgh Coal Co. v. Strong, supra, 42
S.E.2d at 50-52; Barton v. Thaw, 92 A. 312, 315 (Pa. 1914).
Not that “option” is a magic word, the mere utterance
of which conjures up the rule. Buck v. Walker, 132 N.W.
205, 208 (Minn. 1911). The word is sometimes used to
designate an appurtenant right, as when one says that
by acquiring land zoned residential one acquired an
“option” to build a house, or not, as one chooses, at any
time. But that is different from an option to buy an adjacent
property—that is a right to the future grant of a property
right. And so the purchase option granted in the 1903
deed would be extinguished by the rule against perpetu-
ities were the option interpreted to enable Peabody to
buy the defendants’ land in order to strip mine it
rather than just to use parts of it to enable underground
mining. But we have rejected that interpretation. The
deed we have said permits the purchase of the surface
only as may be necessary for mining operations under-
ground. The grant of that option is the grant of an appurte-
nant right that Peabody can exercise at any time. Con-
solidation Coal Co. v. Mutchman, supra, 565 N.E.2d at 1084-
85; Quarto Mining Co. v. Litman, supra, 326 N.E.2d at 683-
85. If the right were not appurtenant to Peabody’s (lim-
ited) mining right—if it were a right to build a ferris
wheel on the defendants’ land—then it would be subject
to the rule against perpetuities. But it is not a right to
strip the surface.
The other alternative ground, this one pressed only by
defendant Alexander, on which we are urged to affirm the
16 Nos. 09-3151, 09-3265
district court’s decision (but only insofar as it relates to
Alexander) is that both federal law and Indiana law
forbid strip mining within 300 feet of a residence, and all
of Alexander’s land (it is only three acres) is within that
radius of his house. 30 U.S.C. § 1272(e); 312 Ind. Admin.
Code § 25-3-1(5). But if the deed gave the coal company
the right to acquire the surface (for any and all purposes,
including strip mining) for $30 an acre, the company
could exercise the right, tear down the house, and be
then free of legal restrictions on strip mining the land.
Because strip mining is a more valuable use of the
defendants’ land than farming and home occupying, our
decision will not prevent the land from being put to its
most valuable use, which is indeed for strip mining. It
will simply affect the terms on which Peabody acquires
the right to strip mine the land. It would like to be able
to acquire the right for $1860 (62 acres times $30). With
$50 million worth of coal under the land (though its net
value, as we said earlier, is less because of the cost of
extraction—but may be more because Peabody needs to
strip mine the defendants’ land in order to extract more
coal from beneath the surrounding land), it will have
to pay the defendants a good deal more.
The judgment is affirmed and the cross-appeal denied.
5-6-10