Question

The defendant purchased sewing machines from a Swiss manufacturer. The contract specified that payment was to be made in Swiss francs. The machines were imported into the United States for sale through distributors. The importer’s contract with a distributor contained an “open-price term” that allowed it to pass cost increases in the machines to the distributor. The open-price term worked well until fluctuation in the exchange rate between the U.S. dollar and the Swiss franc became extreme. When the Swiss franc rose in value against the dollar, the importer’s profit margin was cut in half. The importer then imposed a 10 percent surcharge to protect itself. The distributor did not feel that this additional “cost” fell under the terms used in the contract. The importer believed that increased costs due to currency fluctuations were covered by the open-price term, and further, that the exchange rate risk had rendered performance under the contract commercially impracticable. The distributor brought this action to have the contract enforced at its original price. Judgment for whom, and why? Bernina Distributors v. Bernina Sewing Machine Co., 646 F.2d 434 (10th Cir. 1981).

Answer 1

Here , the importer went into open price contract with the distributor under which cost increase can be passed to them . While importer imports the sewing machine from swiss there is huge currency fluctuation between swiss franc and us dollars. Ideally as the importer is dealing with foreign imports they must have some hedging arrangement for protection of their interest , under these circumstances they cannot pass currency fluctuation to distributors for their mistake of not hedging the position ,only the price increase from swiss manufacturer should be passed on . Hence judgement should favour distributor.