Most real estate sales don't close until the buyer has received a satisfactory title report verifying that the property is being purchased free and clear of any claims by third parties. With rare coins, unfortunately, there are no official title documents to review.

However, Section 2-312 of the Uniform Commercial Code provides that every contract for the sale of goods (including coins) includes a warranty by the seller that he or she has good title and can transfer it to the buyer free and clear. This is not an absolute guarantee that no third party will claim the goods. It is only a guarantee that if such a claim does arise, the buyer can claim against the seller for breach of the warranty. Ideally, when a third party shows that a coin you purchased three years ago is rightfully his, you would turn over the coin and recover your entire purchase price (plus interest) from the dealer. The reality of warranties of title is not nearly so good, however. A warranty is only as strong as the person giving it, and many dealers simply cannot easily refund a customer's purchase price. Also, Code section 2-725 limits claims for breach of the warranty of title to four years from the date of sale, while title claims can arise long thereafter. This is another good reason to ask questions about the coins you are buying and, better yet, to do business only with the most reputable dealers.

Most collectors know that title doesn't pass for stolen coins. But what happens if the coins you buy aren't stolen, but someone claiming to be their owner says he or she was never paid in full for them? I was involved in a nationally-publicized court case involving a Western painting. The owner of the painting had consigned it to a dealer on condition that if the dealer didn't sell it within a certain period of time, the dealer had to buy it at an agreed price. The dealer tendered his check and when the time period expired the owner deposited the check. It bounced. The owner telephoned the dealer, and discovered that the painting had been sold weeks earlier (for a fair price) to an art collector who was unaware of the bounced check. The dealer had spent all the proceeds from the sale, so the owner sued the collector for return of the painting.

The collector got to keep the painting. Sound illogical? Think of it this way -- the collector should not have to pay for the original owner's poor choice of dealer. If the sale of a work of art (or rare coin) could be rescinded because the seller has not yet paid the consignor, it would mean the end of the great public auction houses, who convey title to hundreds of millions of dollars of artwork each year, but may pay consignors as much as 45 days after they themselves are paid. Bidders at a Heritage or Superior auction would be reluctant to risk their money if a subsequent payment dispute between the auction house and the consignor could result in their having to return the item. A bounced check from a dealer is a risk assumed by someone who wishes the benefits of consigning to a dealer, and that risk can be mitigated by working with a financially secure dealer or making appropriate security arrangements. In the case of the Western painting, the collector assumed the risk that the dealer would transfer title to a good faith purchaser before meeting all the payment terms of their consignment agreement. As the New York Court of Appeals stated in the case of Porter v. Wertz, a case involving consignment of a very valuable Utrillo painting:

"The "entruster provision" of the Uniform Commercial Code is designed to enhance the reliability of commercial sales by merchants (who deal with the kind of goods sold on a regular basis) while shifting the risk of loss through fraudulent transfer to the owner of the goods, who can select the merchant to whom he entrusts his property."