Contracts and Sales Multistate Bar Practice Exam

What is the effect of a dishonored check in a sales transaction?

1. The seller must forgive the debt

2. The buyer must pay in cash immediately

3. The seller can sue for the amount owed

4. The contract is declared void

The correct answer is: The seller can sue for the amount owed

In a sales transaction, when a check is dishonored, it signifies that the payment method is not valid, whether due to insufficient funds in the buyer's account, a closed account, or an uncollectible check. This situation does not negate the seller's right to receive payment for the goods or services provided. As such, the seller retains the option to pursue legal action to recover the amount owed. The seller's ability to sue for the amount owed is rooted in the principle that a valid contract exists until fulfilled, and the dishonored check is seen as a failure of the buyer to perform their payment obligation. Therefore, this course of action is a typical legal remedy available to the seller in the face of a payment default. In contrast, simply forgiving the debt, demanding immediate cash payment without further negotiation, or declaring the contract void each carry significant implications that do not immediately follow from the dishonor of a check. Forgiving the debt undermines the seller's right to be compensated. Immediate cash payment may not be feasible or reasonable, and voiding the contract would eliminate the agreement altogether, which is not a standard procedure in response to a dishonored check. Thus, suing for the amount owed stands as the most appropriate and legally sound response to