Legal Question in Credit and Debt Law in California

Great question, seemingly simple but actually very complex. A gift certificate is like any other liability of a business, because they don't expire by law and are esseintially a debt owed. When you buy a business it is very important to do your due diligence regarding all assets and liabilities you are acquiring. Then you need to structure the purchase accordingly. It sounds like you did not do that and these gift certificates are now a surprise that needs to be accounted for. The key question is what form of business entity did you buy and how did you buy it. Was it a sole proprietorship, partnership, LLC, corporation? Did you do a purchase of assets or purchase of shares? Did you structure it as a going concern purchase, acquiring assets and liabilities, or were liabilities to be paid by the buyer out of the proceeds? The bottom line is you have to review the transaction to determine whether you acquired that liability or if it stayed with the previous owner.

Of course the next step of the analysis is the business issue. Even if the previous owner is liable to the customer for the value of the gift certificate do you really want to tell a customer, sorry, go get your money back from the previous owner? If it is a large amount of money in a business where you are unlikely to see this person again as a paying customer, then maybe you want to say exactly that, if the liability belongs to the previous owner. If it is a modest amount and the customer may come back, you may want to just write it off to customer relations. If there are a whole lot of certificates circulating, however, you may want to have an attorney take it up with the seller as a failure to disclose material liabilities issue.