## Facts

- Allen J. and Carol A. Kazmierczak, farmers, bought fertilizer and chemicals from Terra International, Inc. on credit in 1990 and 1991.
- In each of those years, the debtors executed a new security agreement granting Terra a security interest in crops, Terra filed a financing statement, and the debtors paid the yearly debt in full.
- In 1992, Terra again advanced credit for fertilizer and chemicals; the parties intended to execute another security agreement, but the debtors filed bankruptcy before doing so.
- Terra filed a secured bankruptcy claim for about $72,000 and asserted it was secured by the 1992 crops, relying on a future-advances (“dragnet”) clause in the 1991 security agreement.
- The 1991 agreement stated the crops collateral secured “all Debtor’s present and future debts, obligations and liabilities of whatever nature” to Terra.
- The bankruptcy trustee argued the parties’ prior practice of signing a new security agreement each year showed they did not intend the 1991 agreement to secure the 1992 advances.

## Issues

1. Under Wisconsin law, did the 1991 security agreement’s dragnet clause secure Terra’s 1992 advances for fertilizer and chemicals?
2. Could the trustee use course-of-dealing (and related extrinsic) evidence to limit or defeat an unambiguous future-advances clause?

## Decision

- The Seventh Circuit affirmed the district court’s reversal of the bankruptcy court.
- The court held the 1991 dragnet clause was valid and enforceable under Wisconsin law and secured the 1992 indebtedness.
- The court rejected the trustee’s attempt to use course-of-dealing evidence to contradict the clause’s unambiguous text.
- Terra’s claim was treated as secured in the bankruptcy case.

## Legal Principles

- A security agreement may secure future advances when the agreement’s language clearly provides for “present and future debts.”
- Under Wisconsin law and U.C.C. Article 9 concepts, dragnet (future-advances) clauses are generally enforceable according to their unambiguous terms.
- Extrinsic evidence, including course of dealing, cannot be used to negate or contradict clear contractual language in a commercial security agreement absent an independent ground for invalidation.
- A secured transaction may combine (1) a lien reaching after-acquired collateral (a “floating” component) and (2) a lien expanding to cover later extensions of credit (a “dragnet” component).

## Conclusion

The Seventh Circuit enforced a plainly worded future-advances clause in a crop security agreement, holding that it secured later fertilizer-credit advances despite the parties’ past practice of executing new yearly agreements, and that course-of-dealing evidence could not override unambiguous contract text.


In re Kazmierczak, 24 F.3d 1020 (7th Cir. 1994)