Legal Definitions - ten-day rule

Ten-Day Rule

The ten-day rule is a legal principle designed to protect sellers who provide goods to buyers on credit. It applies when a seller delivers goods and then discovers that the buyer is insolvent, meaning they are unable to pay their debts. Under this rule, the seller generally has a limited timeframe to demand the return of the goods.

Specifically, the seller must demand the return of the goods within ten days after the buyer received them. However, this timeframe can be extended if the buyer had previously provided the seller with a written statement confirming their solvency (ability to pay) within three months before the goods were delivered.

Here are some examples illustrating the ten-day rule:

• Imagine a wholesale electronics distributor, "TechSupply Inc.," sells a large shipment of new laptops to a retail store, "Gadget Hub," on 30-day credit terms. The laptops are delivered on Monday. By the following Wednesday (nine days later), TechSupply Inc. learns through industry news that Gadget Hub has suddenly filed for bankruptcy and is liquidating all its assets, making it insolvent. Under the ten-day rule, TechSupply Inc. can immediately demand the return of the laptops because they discovered Gadget Hub's insolvency within the ten-day window after delivery.

• Consider a custom cabinet maker, "Fine Woodworks," who delivers a kitchen full of bespoke cabinetry to a homeowner, "Mr. Henderson," who agreed to pay the remaining balance within two weeks. Five days after the installation is complete, Fine Woodworks discovers that Mr. Henderson has lost his job and declared himself unable to pay any outstanding debts. Because Fine Woodworks learned of Mr. Henderson's insolvency within ten days of the cabinets being received, they can invoke the ten-day rule to demand the removal and return of the cabinetry.

• A textile manufacturer, "Fabric Mills," ships a large order of specialized fabric to a clothing designer, "Haute Couture," on credit. Three weeks before placing the order, Haute Couture had sent Fabric Mills a detailed financial statement, signed by their CFO, clearly indicating strong cash reserves and excellent solvency. Seven days after the fabric delivery, Fabric Mills learns that Haute Couture has unexpectedly ceased operations due to severe financial difficulties. Because Haute Couture had provided a written representation of solvency within three months prior to delivery, Fabric Mills would have more than the standard ten days to demand the return of the fabric, giving them additional time to act on the discovery of insolvency.