Coin Dealer Ethics Follow-Up - Goodwill

Last week, I presented a scenario where a coin dealer (Ernest) sold his business (Honest Man Coins), only to die a short time later.  A customer (Jason) approached the new owner (Robert), who had retained the same business name, hoping to return some coins he had purchased from the previous owner, because newly-discovered technology had condemned them as counterfeit.  (You can read the entire scenario and see all of the reader comments on the original Coin Dealer Ethics - Goodwill page.)  One of the key points of this scenario is that there is an intangible asset called "goodwill" that figures into the sale of most existing businesses.  The new owner expects to enjoy the good reputation the business has earned over time, but does this obligate him to suffer the downside as well?  If the coins were sold with a lifetime guarantee of authenticity, would a customer have a claim against the new owner?

This topic didn't exactly resonate with readers; only seven comments had been left as I write this follow-up, but those who commented did have some interesting things to say.

Whose lifetime? A coin’s? It can last thousands of years. Ernest’s? He is dead so I would think the guarantee has expired and so has his reputation... Also, how does Robert know that the fake coins were actually bought at Honest Man Coins? Robert wasn’t there when Jason bought them so they could have come from another source and Jason is trying to recoup his losses from this new business owner. -- Robert G.

When I wrote this, I deliberately left the "lifetime guarantee" vague, since it is often vague when you really do buy coins. (This entire scenario was fictional, as noted in the original column.) In fact, the original owner's heart attack was an after-thought, to make sure that everyone didn't interpret "lifetime" in terms of Ernest's life span, and merely conclude that Ernest should guarantee the coins. I thought that might make it too cut and dried, leaving little to debate. However, Robert G. did express another good objection, also brought up by a reader named Sandra:

In general, I would say that dealers shouldn’t be held accountable for fakes, if the technology wasn’t available to them to tell the difference beforehand, totally irrespective of the question of goodwill regarding the store purchase. If the dealer is suspected of creating or purposely selling fake coins, he should be prosecuted, but that’s a different question. -- Sandra

Another reader felt that it matters who gives the guarantee:

I would hold a grading company responsible, even if it changed ownership, if it offered a guarantee of authenticity. I am not sure a local coin dealer should be held to the same standard, however, for an unavoidable error that was made by the previous owner. -- gdnp

A reader named Ervin doesn't think the solution should be so quick and easy:

Jason needs to get a second or third opinion before approaching the new owner. -- Ervin

A couple of people came down solidly on the side of passing the obligation to the new owner:

I’m not a lawyer but I have been involved with several sales of businesses. Unless the buyer (new owner) has inserted a specific statement to the contrary, he/she is assuming all the rights, obligations and responsibilities of the existing business. This includes to his customers, suppliers and employees. The legal accountabilities of a business cannot be thrown aside by selling the business. -- William Cook

If you buy a business, lock, stock, and barrel, you should honor all warranties offered by the previous owner. If a car dealership changes ownership, does this void the warranty on your car? If you don’t want to honor the warranty, then change the name. -- Bill E.

A reader who calls himself Coin Database disagrees with these views:

I’m not sure how it is possible to really sell “goodwill.” Any time you take over a business and keep it in the same location, you inherit their reputation to some extent. As far as guarantees, I don’t think he should be obligated to honor it. -- Coin Database

Jason might have avoided being in this scenario if he had bought only coins that were certified by a major grading service such as NGC or PCGS. I say might because I think it will be a very interesting day indeed, if some kind of new coin-scanning laser technology really does emerge that condemns a large number of the U.S. gold coins that currently reside in top-notch slabs...

Have you seen a shaky ethical situation related to coins? Do you have a good scenario we could discuss in this column? Share your idea below, or email it to coins.guide@about.com, and we'll see what everyone thinks. (Don't worry if you can't write well; that's my job.) :)

Want more? Check out the Top 10 Coin Dealer Ethics columns.