Abstraction principle (law)

Contract law

Formation
Capacity Offer and acceptance Meeting of the minds² Abstraction principle^4,5 Posting rule¹ Mirror image rule Invitation to treat Firm offer Consideration^1,4 Implication-in-fact Collateral contract
Defences
Misrepresentation Mistake Threats and unequal bargaining power Illegality and public policy Unconscionability Culpa in contrahendo² Force majeure Frustration of purpose Impossibility Impracticability Hardship Set-off Illusory promise¹ Statute of frauds¹ Non est factum¹ Unclean hands¹ Accord and satisfaction¹ Exculpatory clause
Interpretation
Parol evidence³ Contract of adhesion Integration clause Contra proferentem UNIDROIT Principles of International Commercial Contracts
Dispute resolution
Choice of law clause Forum selection clause Hague Choice of Court Convention Arbitration New York Convention UNCITRAL Model Law on International Commercial Arbitration Mediation Singapore Mediation Convention Enforcement of foreign judgments Hague Judgments Convention
Rights of third parties
Privity of contract¹ Assignment Delegation Novation Third-party beneficiary
Breach of contract
Anticipatory repudiation Cover Exclusion clause Efficient breach Deviation Fundamental breach
Remedies
Specific performance³ Money damages Liquidated, stipulated, or penal damages³ Rescission
Quasi-contractual obligations
Promissory estoppel¹ Quantum meruit¹ Unjust enrichment Restitution Negotiorum gestio²
Duties of parties
Duty of honest contractual performance (or doctrine of abuse of rights)⁶ Duty of good faith (also implied covenant of good faith and fair dealing or duty to negotiate in good faith)⁷ Contract A and Contract B⁶
Related areas of law
Conflict of laws Commercial law
By jurisdiction
Australia Canada China (mainland) Ireland India Saudi Arabia United Kingdom England and Wales Scotland United States
Other law areas
Tort law Property law Wills, trusts, and estates Criminal law Evidence
Notes
1 Specific to common law jurisdictions 2 Specific to civil and mixed law jurisdictions 3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions 4 Specific to the German Bürgerliches Gesetzbuch and other civil codes based on the pandectist tradition 5 Explicitly rejected by the UNIDROIT Principles of International Commercial Contracts 6 Specific to Canadian contract law both in Québec and in the country's common law provinces 7 Specific to civil law jurisdictions, the American Uniform Commercial Code, and Canadian jurisprudence in both Québec and the common law provinces pertaining to contractual and pre-contractual negotiation
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The abstract system of title transfer (German: Abstraktionsprinzip) is a legal term in German law relating to the law of obligations (Schuldrecht) and property law (Sachenrecht). Although no express reference to it is made in the German Civil Code (BGB), the concept of separating a personal undertaking to pay or exchange goods or legal rights (e.g. through contract) from the conveyance of title to those goods or legal rights (e.g. through a deed or land registration) is fundamental to German private law (as well as Brazilian law, Greek law, South African law, and Scots law).

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General features

Abstract title transfer is based on the Roman maxim traditionibus non nudis pactis dominia rerum transferuntur: ownership is transferred by delivery and not by contract alone. The abstract system dominates the entire BGB and is vital for the understanding of how it treats legal transactions, such as contracts. For example, under the BGB's system, ownership is not transferred by a sale contract, as in some other jurisdictions (e.g. France, Italy, etc.). Instead, the sale contract merely obligates the seller to transfer ownership of the good sold to the buyer, while the buyer is obligated to pay the stipulated price. The buyer does not automatically gain ownership by virtue of the contract of sale whereas the seller has not automatically gained ownership of the money. Article 433 of the BGB explicitly states this obligation of the seller, as well as the buyer's obligation to pay the agreed upon price and take the thing he bought. So, seller and buyer have just made reciprocal undertakings and gained reciprocal obligations. For transfer of ownership, another contract is necessary which is governed by §§ 929 et seq. Thus, in a simple purchase of goods paid immediately in cash, German civil law interprets the transaction as (at least) three contracts: the contract of sale itself, obligating the seller to transfer ownership of the product to the buyer and the buyer to pay the price; a contract that transfers ownership of the product to the buyer, fulfilling the seller's obligation; and a contract that transfers ownership of the money (bills and coins) from the buyer to the seller, fulfilling the buyer's obligation.

This does not mean that contracts in Germany are more complicated to the people involved. Especially the contracts of everyday life do not differ from those in other countries in their outer appearance. For instance, if someone buys a newspaper at a newsstand without saying one single word to the seller, all the three abovementioned contracts are performed and can be construed to have been performed from the parties' behavior.

Function

Although abstract title transfer seemingly contradicts the usual common sense interpretation of commercial transactions, it is undisputed among the German legal community. The main advantage of the abstract system is its ability to provide a secure legal construction to nearly any financial transaction however complicated this transaction may be. A good example is retention of title. If someone buys something and pays the purchase price by installments, the system faces two conflicting interests: the buyer wants to have the purchased goods immediately, whereas the seller wants to secure full payment of the purchase price. Under abstract title transfer, the BGB has a simple answer to that: the purchase contract obligates the buyer to pay the full price and requires the seller to transfer property upon receipt of the last installment. Since the obligations and the actual conveyance of title are in two different contracts, it is quite simple to secure both parties' interests. The seller retains title up to the last payment, and the buyer is merely the holder of the purchased goods. If he fails to pay in full the seller may reclaim his property just like any other owner.

Critics

Critics say that what German legal scholars call Verpflichtungsgeschäft and Verfügungsgeschäft (i.e. undertakings vs. conveyance) are actually the same thing, but expressed in other words. Stating that this difference turns the transaction into something more secure is a false inference. In fact, all other jurisdictions preserve the same certainty through other legal doctrines and devices in their civil codes, not necessarily demanding a double-analysis of the same matter and treating it like two different legal acts.

This is the main criticism of those jurisdictions that follow the opposite system, the causal system of title transfer (Germ: Kausalprinzip or Prinzip der kausalen Tradition), which follows the canon law maxim solo consensus obligat, under which the meeting of the minds in a contract of sale is sufficient both to create obligations and convey title. This includes mainly jurisdictions that have adopted or been influenced by the Napoleonic Code, e.g. France, Louisiana, Quebec, Portugal, French-speaking Africa, much of Latin America, etc.

External links

Ferner-Legal.com: German Lawyer explains the abstraction principle

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