Opinion ID: 1251797
Heading Depth: 3
Heading Rank: 1

Heading: Forced Sale under Section 2328

Text: If the seller, without notice to the buyers secretly bids on his own goods, section 2328, subdivision (4) permits the buyer to do the following: (1) avoid the sale, or (2) take the goods at the last good faith bid. The only sale exempted from this notice requirement [5] is a forced sale. The parties are in agreement that the decision in the instant case turns on the definition of that term. Because the code fails to provide a definition of forced sale of goods, we give substance to that term in the context of the case at bench. (1a) Nevada National, while agreeing that it had given actual consent to the sale, argues that the sale was nonetheless forced. It argues that the auction sale is analogous to the sale of repossessed collateral. Nevada National cites Sly v. First Nat. Bank of Scotsboro (Ala. 1980) 387 So.2d 198. In that case a bank posted notice of its intention to sell repossessed collateral, an automobile, at public auction. Sly bid on the car, but the auctioneer told him the bank might not accept the bid. Sly sued the bank for fraud and breach of contract. Nevada National relies on dicta in Sly that the Alabama statute, identical to section 2328, impliedly gives a foreclosing creditor the right to bid without notice at sale of its collateral. ( Id., at p. 200.) The argument that we deal with collateral, however, is unsupported by the facts. Indeed, Nevada National cannot explain how the owner of construction equipment, who is in the business of leasing that equipment, qualifies as an execution creditor. Prior to the auction Nevada National was always the owner and title holder of the two backhoes and the trailer. It did not repossess equipment owned by another. [6] When Nevada National chose to sell its equipment at an auction, it did so as the owner, not as an execution creditor. To analyze the term forced sale, we must turn to the policy behind the forced sale exception. Section 2328, subdivision (4) generally provides that in the absence of explicit terms that inform the public that the seller reserves the right to bid at an auction, it is impermissible for the seller to bid, either directly or indirectly through an agent or employee. The forced sale provision, we have noted, is the only exception to this notice requirement. (2) The policy underlying the forced sale exception is obviously to inspirit bidding at forced sales. (1 Cal. Commercial Law (Cont.Ed. Bar 1966) § 3.60, p. 62.) This policy decision to encourage bidding is necessary because of the unfair, low prices typically received by sellers at forced sales. California courts have long expressed the need to distinguish prices at forced sales from fair market value because in forced sales the full potential value of the property being sold is rarely realized. ( Strutt v. Ontario Sav. & Loan Assn. (1972) 28 Cal. App.3d 866, 876 [105 Cal. Rptr. 395].) (1b) Given the policy behind the forced sale exception its inapplicability to the case at bench is manifest. There were several commercially reasonable alternatives available to Nevada National. First, because the auction was one with reserve, Nevada National could have refused the offers of the highest bidders. (§ 2328, subd. (3).) [7] Second, Nevada National could have sold the equipment before the auction or, third, it could have re-leased the equipment. [8] Instead, Nevada National chose to raise the sales prices by secretly bidding on its own goods, even though it had no intention of buying them if it were the successful bidder. Such sales tactics have long been disapproved by the law of this state. Long before the adoption of section 2328, the use of by-bidders or puffers to make sham bids was prohibited as a fraud against the public. (See, e.g., Haley v. Bloomquist (1928) 204 Cal.253, 257 [268 P. 365]; Dealey v. East San Mateo Land Co. (1913) 21 Cal. App. 39, 43 [130 P. 1066].) The sale of the equipment by Nevada National was not a forced sale within the meaning of section 2328, subdivision (4) since it was voluntary. [9] Accordingly, we conclude that Nevada National violated section 2328.