[Code of Federal Regulations]
[Title 29, Volume 3]
[Revised as of July 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR789.5]

[Page 709-710]
 
                             TITLE 29--LABOR
 
         CHAPTER V--WAGE AND HOUR DIVISION, DEPARTMENT OF LABOR
 
PART 789_GENERAL STATEMENT ON THE PROVISIONS OF SECTION 12(a) AND SECTION 
 
Sec. 789.5  ``* * * acquired * * * in good faith * * * for value without 
notice * * *.''

    Section 12(a) and section 15(a)(1) of the Act provide that a 
purchaser must acquire the goods in good faith in reliance on the 
specified written assurance in order to be accorded the statutory 
protection.

The legislative history of the amendments indicates that a purchaser's 
good faith is not to be determined merely from the actual state of his 
mind but that good faith also depends upon an objective test--that of 
what a ``reasonable, prudent man, acting with due diligence, would have 
done in the circumstances.'' This good faith requirement is, in the 
words of the House Managers, ``comparable to similar requirements 
imposed on purchasers in other fields of law.'' The final determination 
of what will amount to good faith can be made only upon the basis of the 
pertinent facts in each situation.

[[Page 710]]


It is clear, however, that good faith as used in the Act, not only 
requires honesty of intention but also that a purchaser must not know, 
have reason to know, or have knowledge of circumstances which ought to 
put him on inquiry that the goods in question were produced in violation 
of any of the provisions of the Act referred to in sections 12(a) and 
15(a)(1).

These good faith provisions are reinforced by the requirement in 
sections 12(a) and 15(a)(1) that the purchaser must also acquire his 
goods ``for value without notice'' of an applicable violation of the 
Act.

To illustrate the application of the above principles, let us assume 
that a purchaser of goods for value acquires them in reliance upon a 
written assurance from the producer, manufacturer, or dealer that the 
particular goods were produced in compliance with all applicable 
requirements of the Act, and that the form and content of the assurance 
is sufficient to meet the conditions of sections 12 and 15(a)(1) of the 
Act. If a reasonable, prudent man in the purchaser's position, acting 
with the diligence, would have no reason to question the truth of the 
assurance that the applicable requirements has been complied with, the 
purchaser's reliance on such written assurance would be considered to be 
in good faith and without notice of any violation, and the purchaser 
would be protected in the event that violations of the child-labor or 
the wage-hour standards of the Act had actually occurred in the 
production of such goods by the vendor or by prior producers of the 
goods. In such circumstances, the purchaser's protection would not be 
contingent on his securing separate written assurances from the prior 
producers or on his assuring himself that his vendor had secured 
specific guarantees from them with respect to compliance.