In the

United States Court of Appeals

For the Seventh Circuit

Nos. 09-3151, 09-3265

AMERICAN LAND HOLDINGS OF INDIANA, LLC, et al.,

Plaintiffs-Appellants/

Cross-Appellees,

v.

STANLEY JOBE, et al.,

Defendants-Appellees,

and

WILLIAM BOYD ALEXANDER,

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.

ARGUED MARCH 30, 2010—DECIDED MAY 6, 2010

Before POSNER, ROVNER, and TINDER, Circuit Judges.
2 Nos. 09-3151, 09-3265

POSNER, 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 crossappeal, 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 defendants’ 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 entitlement 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 successors “all the coals, clays, minerals and mineral substances 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 substances,’ 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 Emphasis 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, Geological 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 expert 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 ambiguous 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 surface, whatever exactly that means.

Assuming that these intermediate appellate decisions

are authoritative statements of Indiana law, nevertheless 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 observation 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 introduction 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 preclude 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 interpretation 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, Fundamentals of Property Law 490 (2d ed. 2004), but a twoedged 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 comparable 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 underground 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 presumption 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 interpreting 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 perpetuities, 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 section 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, comments 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 wasteful. 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 conveyed 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 perpetuities.”

The district judge as we said was entitled to reject Peabody’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 perpetuities. 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 perpetuities 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 underground. The grant of that option is the grant of an appurtenant right that Peabody can exercise at any time. Consolidation 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 (limited) 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