Most businesses know to be wary of credit applications or agreements which may include provisions for high rates of interest or other pro-creditor terms — indeed, well-run businesses know to use such forms themselves.

What surprises many businesses is the fact that high rates of interest can be assessed in some cases, even if no written agreement is ever signed.  This is due to a section of the Uniform Commercial Code, in effect in Virginia, which establishes what is known as the “merchant’s reply doctrine”.

In transactions limited to sales of goods between businesses accustomed to dealing in goods of the kind being sold, provisions written on packing slips, invoices, or other written acknowledgments can become a part of the parties’ contract.  The burden is on the business receiving the written notice to advise the other party that the term is unacceptable.

If the business receiving the notice fails to object, the other party is entitled to assume that its standard terms are acceptable.  This puts the burden of reply on any “merchant” receiving such notices.

The merchant’s reply doctrine has been used to obtain awards of interest at rates as high as 36% in commercial collections and even in mechanic’s lien litigation.  Attorney’s fee awards may also be granted without a signed contract, based upon the UCC section.

Yet it must be borne in mind that the merchant’s reply doctrine is a double-edged sword.  The same businesses which use the law to their advantage when selling goods to their wholesale customers may find that their own suppliers include credit terms on shipping acknowledgments and invoices.  The key is to read the fine print and object, preferably in writing, when an unacceptable provision is spotted.

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