The third party intermediaries are banks (at least one in buyer's nation and usually a second one in seller's nation) and at least on carrier. Thus, the parties involved are (1) a buyer, who is also presumably a "customer" of (2) Buyer's Bank, (3) a Seller, (4) a bank with an office in the Seller's nation, and (5) at least one carrier. Among them, these parties are able to take a large risk which is not subject to any firm evaluation, and divide it into several small, calculable risks, each of each is easily borne by one party.
Thus, the documentary sale is one example of several different interrelated contacts that not all risk allocation is a "zero sum game,: but may in fact create a "win-win' situation.
The three most important of these documentary sale: the sale contract between the buyer and seller; the letter of credit contract between buyer's bank and seller; and the bill of lading contract between seller and the carrier.
How does it start? For illustration purpose, let's assume that X (the buyer) sent a letter to Y (the seller), requesting a price quotation. X could send a simple letter asking for quotations from Y's price catalog; because this is a specialized sale, it will request a proforma invoice which should state the cost of each of the components of the international sale -- goods will be manufactured for this particular customer. X can use this opportunity to indicate the sale terms which it prefers such as payment, shipping terms, including the preferred method of handling insurance during transit.
Y responds by sending X 's a Proforma Invoice which gives X multiple price options of when payment is due, who bears the cost of the freight charges, insurance, the risk of lost if the goods are damaged or destroyed in transit, the risk of fluctuations in freight costs until the goods arrive at their destination port.
After receipt of the Proforma Invoice, and shopping around, X decides to buy the goods from Y. It sends a Purchase Order which duplicates the pricing in the Proforma Invoice. The Purchase Order Form may or may not have a large amount of small print clauses set forth on the reverse side. If it does, a "Battle of Forms" can arise. X considers its Purchase Order to be an offer, but could others consider the Purchase Order to be an acceptance of an offer contained in the Proforma Invoice? Compare the common law analysis of advertisements as offers with the Convention on International Sales of Goods (CISG) Article 14.
Authors: International Business Transactions by Ralph H. Folsom, Michael Wallace Gordon, John A. Spanogle, Jr.
