1. The legal framework: Sale contracts & excuses for nonperformance 2. Litigant : the distributor
Defendant: the importer
3. Contractual analysis:
An American importer purchased sewing machines from a Swiss manufacturer with the contract that payment was made in Swiss France, and then the importer sold them to distributors in USA. The contract between the importer and a distributor in U.S contained an “open-price term”. When the Swiss franc rose in value against the dollar, the importer’s profit margin was cut in a half, so the importer imposed a 10% surcharge for distributor. The distributor did not agree with this extra charge. The judgment should go for whom, and why? 4. Key issues:
a) Were the increased costs due to currency fluctuations covered by the open-price term? b) Had the exchange rate risk had rendered performance under the contract commercially impracticable?
a) In theory, the currency fluctuation may be covered by the open-price term when both two parties use different kinds of currency. However, in this case, the currency fluctuation may not be covered by the open-price term in the contract between the importer and the distributor because both of them use the same kind of currency, the U.S. dollar. Therefore, the increased costs request from the importer may not be reasonable. b) Sometimes, the exchange rate risk may have rendered performance under the contract commercially impracticable when it is the result from a sudden event like: dumping, war, natural disaster, etc. However, in most of the cases, the exchange rate risk is considered as one of many business risks that companies have to anticipate and face. In this case, the event that the value of Swiss franc rose against the U.S. dollar, which reduced the profit of the importer, was just a popular business risk. Moreover, the effect of this currency fluctuation just reduced a half of the importer’s...