Last August, we reported that a Pennsylvania Superior Court decision (Butler v. Charles Powers Estate) threatened to undermine nearly 200 years of mineral-rights law in Pennsylvania by rejecting the “Dunham Rule” – a legal doctrine that presumes that in private deed transactions where there is a reservation or exception for “minerals,” without any specific mention of oil or natural gas, the term minerals was not intended by the parties to include oil or natural gas. The surprising court decision in Butler had the potential to impact thousands of private deed transactions that relied upon the Dunham Rule for certainty of title to oil, gas and minerals.
In a unanimous decision announced April 24, 2013, however, the Pennsylvania Supreme Court overturned the lower court in Butler and affirmed the applicability of the Dunham Rule. As a result, the claims of the heirs of Charles Butler to natural gas in the Marcellus Shale underlying the Butlers’ property was rejected because the 1881 deed in question reserved to them “one-half of the minerals and petroleum oils” – but not the natural gas. In its reasoning, the Supreme Court traced the history of the Dunham Rule, finding that it has been an unaltered, unwavering rule of property law for 177 years. The court further held that longstanding rules of real property should not be overthrown except for compelling reasons of public policy or demands of justice. Neither the superior court nor the heirs of Charles Powers provided any basis for overruling or limiting the Dunham Rule, which has formed the basis for thousands of real property transactions spanning two centuries.
By affirming the Dunham Rule, the Pennsylvania Supreme Court delivered a level of certainty to title to oil, gas and minerals in private deed transactions. If a reservation or conveyance of “minerals” does not also specifically grant or reserve oil and gas, the law presumes that the oil and gas was not granted or reserved. Buyers and sellers of real property intending to grant or reserve oil, gas and minerals must express such intent in the deed. Property owners intending to enter into oil and gas leases may find that a reservation in a prior deed in the chain of title casts doubt on the owner’s oil and gas estate or rights. For fee mortgage lenders, the language of a deed grant or reservation may determine whether the lender’s collateral includes or excludes oil and gas rights and estates underlying the surface estate.