In a normal conveyance between private parties in Pennsylvania, the so-called “Dunham Rule” governs whether use of the term "minerals" includes or excludes oil and natural gas. Dunham & Shortt v. Kirkpatrick, 101 Pa. 36 (1882). The rule is as follows: if, in connection with a conveyance of land, there is a reservation or an exception of "minerals" without any specific mention of natural gas or oil, a rebuttable presumption arises that the word "minerals" was not intended by the parties to include natural gas or oil. Highland v. Commonwealth, 400 Pa. 261, 161 A.2d 390 (1960) (citing cases).
To take any case out of the rule’s operation, the evidence must be clear and convincing that the parties used the word “minerals” in a different sense than is presumed under the Pennsylvania rule. As in all contracts, the intention of the parties governs, but whether the reservation of minerals will be considered sufficiently ambiguous to allow for the introduction of parol evidence as to the parties’ intent is a threshold issue. Id.
At least one court has recognized that the Pennsylvania rule is anachronistic.
We note initially that the parties and the court are again plagued by the ancient case of Dunham and Shortt v. Kirkpatrick, 101 Pa. 36 (1882), when in 1882 the Supreme Court of Pennsylvania concluded that a reservation of "all minerals" in an agreement or deed did not include a reservation of petroleum rights. Dunham and its progeny extended this unique Pennsylvania theory to include both oil and gas. Subsequent court interpretations have established this peculiar Pennsylvania presumption to be a rebuttable one. We note that this anachronistic presumption has come before the courts of this county in recent decades for interpretation. We presume that other counties where oil and gas drillings have sprung into existence after about 1950 have been plagued with the "Dunham problem" when drafting attorneys or individuals entering into agreements, leases or conveyances which reserved mineral rights were not aware of the Dunham decision and proceeded under the nearly universal assumption that a reservation of mineral rights included reservation of oil and gas interest in the land.
Broughton v. Northwest Natural Gas Co., 1988 Pa. Dist. & Cnty. Dec. LEXIS 26, 2 Pa. D. & C.4th 226, 227-28 (Crawford Co., 1988). Noting that a determination as to whether the plaintiffs had an interest depended on the application of Dunham, the court concluded without hesitancy that the facts established that it was the original intent that the reservation of "minerals" include gas and oil rights. Id. at 230.
On the other hand, the Pennsylvania Supreme Court stated over fifty years ago, “Dunham v. Kirkpatrick has now been the law of this State for seventy years and is still no less a rule of property which is not to be disturbed.” Bundy v. Myers, 372 Pa. 583, 94 A.2d 724 (1953). Recognition has been given to the fact that contracting parties in Pennsylvania have relied on this rule in using the term “minerals” and that to adopt a different interpretation might have the effect of altering the parties’ intent.
Thus, in order to obtain a result that the exception/reservation or grant of “minerals” included oil and gas rights, a party would have to rebut the presumption to the contrary with clear and convincing evidence that the parties’ intent was to include the oil and gas. Silver v. Bush, 213 Pa. 195, 62 A. 832, 1906 Pa. LEXIS 445 (1906). In Silver, the habendum in each deed was "to have and to hold the said piece or parcel of land except the mineral underlying the same and the right of way to and from said mineral which the first parties reserve." It was argued that the grantees took only an estate in the surface for agricultural and other strictly surface purposes and that all minerals of every kind underlying the surface were excepted from the grant. Rejecting that argument, the court held that such a narrow construction could not be sustained because to so hold would create an exception as large as the grant, which would be a nullity. The court examined the definition of “mineral” at length and relied on the Dunham rule when holding that including gas under the term “mineral” would be a new use of the term and the inference would be strong that if the parties intended to include gas, they would have said so expressly.
In coming to its conclusion, the court also relied on the parties’ intent:
The crucial question... is what was the sense in which the parties used the word. Mineral is not per se a term of art or of trade, but of general language, and presumably is intended in the ordinary popular sense which it bears among English speaking people. It may in any particular case have a different meaning, more extensive or more restricted, but such different meaning should clearly appear as intended by the parties....
Silver, 213 Pa. 195, 197.
Thus, no rule exists that says that in all cases, minerals in an exception and reservation do not include gas and oil. Instead, a rebuttable presumption exists. In determining the likelihood of success of proving an intent to include oil and gas, a review of the Highland case is instructive as to the adage that reasonable minds can differ on the construction of instruments. The common pleas court had held that the term minerals had encompassed natural gas. On appeal, the decision was reversed, with four justices in favor of reversal and two dissenting. The dissent, written by Justice Musmanno, sets forth a very compelling argument as to why “minerals” should have included natural gas in the instruments at issue and calls into question the majority opinion as being “entirely illogical and wholly insupportable.” Much, then, depends upon the interpretation of the particular judge on the bench.
I would be interested in hearing from other practitioners in Pennsylvania as to their experience with the Dunham Rule.