Abstraction principle (law)
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The abstraction principle or Abstraktionsprinzip is a legal term in German law relating to the law of obligations (Schuldrecht) and property law (Eigentumsrecht). Although no express reference to it is made in the German civil law code (BGB), the concept of "abstracting" a personal obligation to pay or exchange goods or legal rights (e.g. through contract) from the transfer of proprietary title of goods or legal rights is fundamental to German private law.
The abstraction principle dominates the entire code and is vital for the understanding of how the BGB treats legal transactions, such as contracts. One example to clarify this: In the system of the BGB, ownership is not transferred by a contract of sale, as in some other jurisdictions. Instead, a contract of sale merely obliges the seller to transfer ownership of the good sold to the buyer, while the buyer is obliged 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. Section 433 of the BGB explicitly states this obligation of the seller, as well as the buyer's obligation to pay the negotiated price and take the thing he bought. So, seller and buyer have just gained reciprocal claims. For transfer of ownership, another contract is necessary which is governed by sections 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, obliging 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 doesn't mean that contracts in Germany are more complicated to the people involved. Especially the contracts of everyday life don't 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 contracts which are mentioned above are fulfilled by conclusive demeanor.
Although the principle of abstraction seemingly contradicts the usual common sense interpretation of commercial transactions, it is undisputed among the German legal community. The main advantage of the principle of abstraction is its ability to provide a secure legal construction to nearly any financial transaction however complicated this transaction may be. A good example is the well known 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 vendor wants to secure full payment of the purchase price. With the principle of abstraction the BGB has a simple answer to that: the purchase contract obliges the buyer to pay the full price and requires the vendor to transfer property upon receipt of the last installment. As the obligations and the actual conveyance of ownership are in two different contracts it is quite simple to secure both parties' interests. The vendor keeps the rights to the property up to the last payment and the buyer is the mere holder of the purchased goods. If he fails to pay in full the vendor may reclaim his property just like any other owner.