Well, this was posed as an "ethical question" rather than a legal question. The law can vary slightly from place to place, and (more importantly) the procedures can vary. The local police can generally provide details. Most of what has been said here is, I believe, mostly correct.
As an ethical question, however, I agree that the seller (Joe) should refund the money to the buyer, get the instrument back, and should probably then turn it over to the police (who can then be responsible for ensuring that it gets back in the right hands). Joe should then try to get the authorities to prosecute the bad seller, and also try to recover his money from the bad seller in a civil action (or ancillary to the criminal action, if provided for by local procedures). The innocent parties -- the victim of the theft, and the buyer -- should be protected first. Joe comes only after them. Part of this involves the notion that Joe should, in the first place, be responsible for seeing that instruments he takes on trade or buys used are legit. That's a responsibility he has as a retailer.
Mark
J. Mark Lane
Stanley #10 F5
Pomeroy #72 F4
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