Originally Posted by will76

Reading this again.... you said you emailed the register about a domain name that hadn't been updated in a couple years (meaning the website is old), to see if they would email the owner if he would be interested in selling. This tells me two things (which you left out, but i guess was implied).
1. The domain wasn't expired, if it was expired you would have purchased it out right.
2. The owner didn't have his name on the whois, for some reason the register (must be a small company) registered the domain in their name, for the owner.

Assuming the above is correct then there is no other explanation than the host made a mistake and didn't consult with the current owner. If you say you are an ethical and honest guy then I think you just answered your own question of what you should do next.