[Code of Federal Regulations]
[Title 7, Volume 10]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1427.175]

[Page 509-510]
 
                          TITLE 7--AGRICULTURE
 
  CHAPTER XIV--COMMODITY CREDIT CORPORATION, DEPARTMENT OF AGRICULTURE
 
PART 1427_COTTON--Table of Contents
 
                  Subpart D_Recourse Seed Cotton Loans
 
Sec.  1427.175  Liability of the producer.

    (a)(1) If a producer makes any fraudulent representation in 
obtaining a loan, maintaining a loan, or settling a loan or if the 
producer disposes of or moves the loan collateral without the prior 
approval of CCC, such loan amount shall be refunded upon demand by CCC. 
The producer shall be liable for:
    (i) The amount of the loan;
    (ii) Any additional amounts paid by CCC for the loan;
    (iii) All other costs which CCC would not have incurred but for the 
fraudulent representation or the unauthorized disposition or movement of 
the loan collateral;
    (iv) Applicable interest on such amounts; and
    (v) Liquidated damages under paragraph (e) of this section.
    (2) Notwithstanding any provision of the note and security 
agreement, if a producer has made any such fraudulent representation or 
if the producer has disposed of, or moved, the loan collateral without 
prior written approval from CCC, the value of such collateral acquired 
by CCC shall be equal to the sales price of the cotton less any costs 
incurred by CCC in completing the sale.
    (b) If the amount disbursed under a loan, or in settlement thereof, 
exceeds the amount authorized by this subpart, the producer shall be 
liable for repayment of such excess, plus interest. In addition, seed 
cotton pledged as collateral for such loan shall not be released to the 
producer until such excess is repaid.
    (c) If the amount collected from the producer in satisfaction of the 
loan is less than the amount required under this subpart, the producer 
shall be personally liable for repayment of the amount of such 
deficiency plus applicable interest.
    (d) If more than one producer executes a note and security agreement 
with CCC, each such producer shall be jointly and severally liable for 
the violation of the terms and conditions of the note and security 
agreement and the regulations in this subpart. Each such producer shall 
also remain liable for repayment of the entire loan amount until the 
loan is fully repaid without regard to such producer's claimed share in 
the seed cotton pledged as collateral for the loan. In addition, such 
producer may not amend the note and security agreement for the 
producer's claimed share in such seed cotton, after execution of the 
note and security agreement by CCC.
    (e) The producer and CCC agree that it will be difficult, if not 
impossible, to prove the amount of damages to CCC if a producer makes 
any fraudulent representation in obtaining a loan or in maintaining or 
settling a loan or disposing of or moving the collateral without the 
prior approval of CCC. Accordingly, if CCC or the county committee 
determines that the producer has violated the terms or conditions of the 
note and security agreement, liquidated damages shall be assessed on the 
quantity of the seed cotton which is involved in the violation. If CCC 
or the county committee determines the producer:
    (1) Acted in good faith when the violation occurred, liquidated 
damages will be assessed by multiplying the quantity involved in the 
violation by:
    (i) 10 percent of the loan rate applicable to the loan note for the 
first offense;
    (ii) 25 percent of the loan rate applicable to the loan note for the 
second offense; or

[[Page 510]]

    (2) Did not act in good faith about the violation, or for cases 
other than first or second offense, liquidated damages will be assessed 
by multiplying the quantity involved in the violation by 25 percent of 
the loan rate applicable to the loan note.
    (f) For first and second offenses, if CCC or the county committee 
determines that a producer acted in good faith when the violation 
occurred, the county committee shall:
    (1) Require repayment of the loan principal applicable to the loan 
quantity affected by the violation, and charges plus interest applicable 
to the amount repaid;
    (2) Assess liquidated damages under paragraph (e) of this section; 
and
    (3) If the producer fails to pay such amount within 30 calendar days 
from the date of notification, call the applicable loan involved in the 
violation.
    (g) For cases other than first or second offenses, or any offense 
for which CCC or the county committee cannot determine good faith when 
the violation occurred, the county committee shall:
    (1) Assess liquidated damages under paragraph (e) of this section;
    (2) Call the applicable loan involved in the violation.
    (h) If CCC or the county committee determines that the producer has 
committed a violation under paragraph (e) of this section, the county 
committee shall notify the producer in writing that:
    (1) The producer has 30 calendar days to provide evidence and 
information to the county committee regarding the circumstances which 
caused the violation, and
    (2) Administrative actions will be taken under paragraphs (f) or (g) 
of this section.
    (i) Any or all of the liquidated damages assessed under the 
provision of paragraph (e) of this section may be waived as determined 
by CCC.