Is a business obligated to honor gift certificates issued by the previous owner?

UPDATED: Oct 1, 2022

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Is a business obligated to honor gift certificates issued by the previous owner?

I bought a gift certificate at a business that has changed hands. The new owners say that they will not honor

the gift certificate. Do new owners have the right not to honor the certificate?

Asked on January 12, 2019 under Business Law, Maine


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

It depends on how they bought the business. To oversimplify somewhat, there are essentially three ways to buy a business:
1) The business was an LLC or corporation and the new owner bought the LLC or corporation itself. Since the business is the same legal entity, it has to honor gift certificates, etc. pursuant to their terms; the fact that a new person (or other LLC or corporation) now owns the LLC or corporation does not change any of its obligations.
2) The business was an LLC or corporation, but the buyer did not buy the LLC or corporation--the buyer bought basically everything (including, say, the name) the business owned and hired some or all of the staff, but it's a new and different legal entity. In that case, the business does not have to honor the gift certificate, the same way that if you had an agreement with a friend that he could use your car as long as he bought case for it, but you then sold the car to a new owner, the new owner does not have to honor that arrangement.
3) The business was not an LLC or corporation (for example, it was a sole proprietorship). In that case, there was no legal entity to sell: by definition, some new person or entity (e.g. an LLC or corporation) bought what the old business owned, same as 2), above. In that case again, since the new business is a different legal person than the old one, it does not need to honor the certificates.
So you need to know how the business was sold to answer this question.
Of course, even in case 1), even though the business should honor the certificates, if they refuse to do so, you'd have to sue them to force them to honor it (or get an amount of money from them equal to the remaining balance). It is highly questionable whether it's worth suing for $69.03.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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