The Abstraction Principle in German Law

This one is a blog piece rather than an essay – so no references or special research! After a heated debate with a fellow student, here’s my argument why the abstraction principle in German law is inconsistent.

The basic explanation of the principle in question is this: there are obligatory contracts (ones which impose obligations on the parties) and real contracts (where a tangible thing is transferred), and the creation or rescission of one does not automatically affect the other. So, for example, if I buy a loaf of bread, I’m actually making three contracts instead of one – the contract of sale and purchase (obligatory), the contract to transfer ownership of my money to the vendor (real) and the contract to receive ownership of the bread from the vendor (real). The first one, which is the agreement, obliges me to carry through the other two. But making the agreement doesn’t automatically make me the owner of the bread, because of the abstraction principle. Under property rules, I only become the owner when the third contract is carried through i.e. when I’m given the bread.

Here’s a longer version of this explanation by German lawyer Jens Ferner: http://www.ferner-legal.com/?p=315.

Mind-blowing to the common law lawyer, I know. But it did make its own kind of sense, echoing patterns of the Roman Law that build mainland Europe’s civil law systems – until I realise that quite apart from being a bit convoluted, it just doesn’t actually work.

Take this problem. Person X goes to buy a vase from Person Y. X is misled by Y to think the vase is an ancient artifact, and worth £4 million instead of £400, its actual worth. Y offers to sell the vase to X for £3 million, which X readily accepts, thinking that it is a good deal. Y gives X the vase and X gives Y the money. The next day, X find out that the vase isn’t authentic. Now X wants the money back from Y.

The contract itself is, beyond question, voidable on the grounds of misrepresentation. But the abstraction principle means that ownership of both the vase and money have been exchanged nevertheless. In order to put this right, there’s a provision in the BGB (statute), namely §812 I 1 Var. 1, that gives the parties the right to reverse the passing of ownership where the contract has been voided. So X has a right to reclaim ownership of the money.

So far, the theory is good. However, the textbooks also advocate another way for X to get the money back, and this is where it goes pear-shaped. X can also claim for restitution, as owner of the money, against the possessor Y. In order to do this, it must be established that
a) X is the owner
b) Y is the possessor
c) Y does not have a right of possession.

b) and c) are straightforward enough – Y has got the money; and doesn’t have a right to it because the contract is void so Y never had a claim to the money from X.

To establish that X is still the owner (requirement a), however, we have to prove that X’s contract in passing ownership to Y was void. Here we come around in a full circle. Unbelievably, although the abstraction principle specifically separates the contract of purchase from the contract of transferring the money, the misrepresentation of the vase is still a permissible reason that X handing over the money is void. For me, this undermines the whole principle.

My opponent in this debate argued that I should use common sense and apply the ‘but for’ test to the scenario. ‘But for’ the fact that X thought the vase was an antique, would X have transferred ownership of the money? Apparently not. This makes it a permissible reason to rescind the transfer. But the thing is, X might have transferred the money. We don’t know. X might have transferred the money anyway because she had just stolen a bag of cash and needed to be rid of it, and the fact that the vase was authentic was really just a subordinate reason for her action.

The ‘but for’ test, used in the context of causality in criminal law, is useful, and I could agree that applying it by strict logic would be far-fetched and inappropriate (e.g. ‘But for’ the defendant hitting the victim on the head with a hammer, would the victim have died? Well, maybe he would have been hit by an asteroid instead, we don’t know). But in the context of the BGB, which inherently makes a point to separate the motivations behind the transfer of ownership (i.e. the purchase contract) and the fact of the transfer itself, surely it’s contradictory to assume the circumstances of one can automatically affect the circumstances of the other. That undermines the whole idea of the abstraction principle, surely? If the transfer of ownership can be directly voided by a mistake in relation to the validity of the obligatory contract, why bother keep them separate in the first place?

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