## Facts

- Willard Willis Wallman operated a crop farming business in Beadle County, South Dakota.
- In exchange for an FmHA loan made about a year before bankruptcy, Wallman executed a promissory note and a security agreement granting FmHA a security interest in, among other items, “[a]ll crops … now planted … or which are hereafter planted or otherwise become growing crops or other plant products.”
- FmHA properly perfected its security interest under applicable nonbankruptcy law (the parties did not dispute perfection).
- Wallman filed for Chapter 11 relief on January 20, 1983 and continued farming while reorganizing.
- On August 27, 1985, Wallman and FmHA entered into a written settlement agreement described as a full compromise of their controversies and intended, where appropriate, for inclusion in the Chapter 11 plan process. The settlement stated that FmHA’s liens on machinery and equipment would remain until paid in full.
- In 1986, while the Chapter 11 case was still pending, Wallman planted and harvested a wheat crop.
- On November 15, 1986, Wallman delivered a portion of the wheat to the Yale Elevator and received a $9,983 check payable jointly to Wallman and FmHA based on FmHA’s asserted interest in the crop proceeds.
- On January 26, 1987, Wallman moved for contempt and sanctions, arguing that § 552 eliminated any prepetition “future crops” lien as to crops planted postpetition and therefore eliminated any lien in the proceeds.
- Although the dispute would ordinarily be brought by an adversary proceeding to determine the extent and validity of a lien, the court elected to decide the lien question in the contested matter.

## Issues

1. Whether 11 U.S.C. § 552(a) prevents a prepetition security agreement with an after-acquired “future crops” clause from attaching to crops planted after the Chapter 11 petition date.
2. Whether, despite § 552(a), FmHA had enforceable rights in the 1986 wheat crop proceeds based on the parties’ postpetition settlement and the Chapter 11 case context.
3. Whether FmHA’s assertion of an interest in the elevator check supported contempt or sanctions.

## Decision

- The court concluded that § 552(a) cuts off the effect of a prepetition after-acquired property clause as to crops first planted postpetition; FmHA could not reach the 1986 crop solely by relying on the prepetition “hereafter planted” language.
- The court nonetheless rejected the debtor’s request for contempt-based relief and did not treat FmHA as acting unlawfully in claiming an interest in the 1986 wheat proceeds, because FmHA’s position was supported by the parties’ postpetition settlement arrangement and the reorganization framework.
- The motion for contempt and sanctions was denied, with the court resolving the dispute by determining the parties’ rights rather than imposing punitive remedies.

## Legal Principles

- Under 11 U.S.C. § 552(a), property acquired by the debtor or the estate after the petition date is generally not subject to a lien created by a prepetition security agreement, even if the agreement contains an after-acquired property clause.
- Section 552(b) provides a limited exception allowing a lien to continue in postpetition “proceeds, products, offspring, or profits” of prepetition collateral when the security agreement and nonbankruptcy law so provide.
- Crops planted and grown after the petition date are ordinarily treated as postpetition-acquired property for § 552(a) purposes, so a prepetition “future crops” clause does not, by itself, attach to those crops or their sale proceeds.
- A creditor may still obtain enforceable rights in postpetition crops or proceeds through a postpetition agreement or court-approved reorganization arrangement, depending on the terms and procedural posture of the Chapter 11 case.
- Contempt or sanctions generally require a clear violation of a court order or bankruptcy protection; where the dispute is a bona fide disagreement about lien scope and effect, the usual remedy is a determination of lien rights, not contempt.

## Conclusion

In re Wallman held that § 552(a) prevents FmHA’s prepetition “future crops” clause from automatically attaching to wheat planted after Wallman filed Chapter 11, but the court denied contempt and sanctions because FmHA’s claim to the elevator check proceeds was supported by the parties’ postpetition settlement and the case’s reorganization arrangements, making punitive relief inappropriate.


In re Wallman, 71 B.R. 125 (1987)