UCC Articles 9 and 12: A Modern Legal Framework for Secured Transactions and Digital Assets

Introduction

As the proliferation of digital assets, including cryptocurrencies, stablecoins, and tokenized securities, becomes increasingly mainstream in global finance, the legal frameworks that govern property rights over such digital assets have finally begun to adapt. The Uniform Law Commission (ULC) and the American Law Institute (ALI) approved significant revisions to the Uniform Commercial Code (UCC), including key amendments to Article 9 and the addition of Article 12. These revisions introduced a newly defined class of digital assets called “controllable electronic records” (CERs), which aim to establish a legal framework tailored to the practicalities of digital assets.¹ For legal practitioners and business professionals, understanding the intersection of Articles 9 and 12 is essential to navigating the legal landscape of digital commerce, fintech, blockchain platforms, and tokenized financing structures in the secured financing arena.

Overview of Article 12: Controllable Electronic Records

What Is Article 12?

Article 12, officially titled “Controllable Electronic Records,” is intended to govern the ownership, transfer, and enforceability of rights in certain types of digital assets.² More specifically, Article 12 introduces the concept of control as the functional equivalent of possession in the digital realm, providing rules for secured transactions and good faith purchasers.³ Importantly, Article 12 does not materially alter the long-standing principles set forth in Article 9 beyond their original purpose; rather, it builds on them, incorporating new legal concepts into Article 12 to address the unique characteristics of digital assets.

Control As a Means To Address Challenges Associated With Digital Assets

At the core of Article 12’s legal framework is the concept of “control,” which serves as a method to address the unique challenges posed by digital assets.⁴ This framework aims to bridge the gap between the decentralized nature of these assets and the legal need for clear and exclusive rights, especially for the purposes of security and perfection. By making control the central standard for legal recognition, Article 12 helps mitigate common challenges associated with digital assets, such as double-spending and conflicting claims of ownership or transfer, thereby reducing uncertainty and enhancing transactional reliability.⁵ Furthermore, Article 12 clarifies that security interests in CERs are enforceable against third parties once control is achieved or perfected in accordance with the amended provisions of Article 9.⁶ By tying its rules closely to those in Article 9, Article 12 builds a consistent and reliable legal framework for handling digital asset rights.⁷

CERs and the Concept of Control

Article 12 defines CERs as “record[s] stored in an electronic medium that can be subjected to control under Section 12-105.”⁸ To determine whether a person has control of a CER, Article 12 establishes a multipronged test.⁹ Under this framework, a person is deemed to have control of a CER if they can (a) use “substantially all the benefit from the electronic record,” (b) hold the “exclusive power” to prevent others from using those benefits and transfer control to someone else (with limited exceptions),¹⁰ and (c) be readily identifiable as having those powers, “including by name, identifying number, cryptographic key, office, or account number.”¹¹ Importantly, exclusive control is not lost when a system within which the CER exists imposes usage restrictions, when the system contains automated protocols (such as time locks or smart contract triggers), or when the power is shared with another individual through shared management arrangements.¹² A person may maintain legal control over their crypto wallet or token despite the presence of such features or shared management structures embedded within the digital asset. 

This nuanced framework reflects the practical realities of digital asset management, where technical features and collaborative arrangements are common. By focusing on the ability to exercise exclusive rights and be clearly identified as the party in control, Article 12 provides a flexible yet robust legal standard for determining control over CERs. This, in turn, supports greater certainty and reliability in digital asset transactions, ensuring that legal rights can be effectively asserted and enforced even in complex technological environments.

Achieving Control in the Digital Asset Environment

Under Article 12, control can be established through several methods that reflect how digital assets function in practice. One common method is through a custodial arrangement, where a third-party service (such as a cryptocurrency exchange or digital asset custodian) holds the asset on behalf of the secured party.¹³ In these arrangements, the underlying agreement typically grants the secured party exclusive authority to direct or restrict transfers of the asset, thereby meeting Article 12’s requirements for control.¹⁴

Alternatively, control can be achieved through the use of smart contracts. These are self-executing code deployed on a blockchain that can be programmed to enforce the terms of control automatically. For example, a smart contract can be designed so that only the secured party has the ability to initiate transfers or access the digital assets, ensuring that the secured party maintains exclusive control as required by Article 12.¹⁵
 
Another method involves the use of multi-signature wallets, which require multiple cryptographic keys to authorize any transaction.¹⁶ By holding a majority of the required keys, a secured party can maintain majority control over these keys, ensuring that transfers cannot occur without their consent and thereby satisfying the legal standard for control.¹⁷

Each of these mechanisms translates the legal concept of control into verifiable technical arrangements. This alignment provides greater certainty for secured parties and market participants, ensuring that rights in digital assets can be reliably established, perfected, and enforced.¹⁸

The ‘Shelter Principle’ and Digital Assets

A significant legal challenge in the context of digital assets (such as CERs, controllable accounts, and controllable payment intangibles) is the difficulty of tracking asset transfers.¹⁹ This challenge arises from the nonpublic, unrecorded nature of private key exchanges, which can obscure the chain of title and create uncertainty for market participants. To address these concerns, the UCC adopted the “shelter principle” in UCC § 12-104(d), which provides a legal mechanism to reduce uncertainty and support the negotiability of these assets.²⁰

Under UCC § 12-104(d), a recipient of a CER, controllable account, or controllable payment intangible receives all the rights that the original owner had or was authorized to transfer.²¹ This means that, generally, the recipient “steps into the shoes” of the original owner, inheriting all the same rights or interests the original owner held in the asset.²²
  
The UCC also introduces the concept of a “qualifying purchaser,” defined as a good faith purchaser for value who obtains control of the asset without notice of any competing claims.²³ A qualifying purchaser takes control of the CER, controllable account, or controllable payment intangible free from adverse claims, thereby enjoying a higher level of legal protection and certainty.²⁴

However, the shelter principle has limits. Its protections do not extend to recipients who act in bad faith, engage in fraudulent conduct, or acquire assets through unlawful means.²⁵ Such parties are expressly excluded from the definition of qualifying purchaser and cannot rely on the shelter principle to take control of a CER, controllable account, or controllable payment intangible free from adverse claims.²⁶ This important limitation is reinforced by UCC §§ 1-304 and 1-201(b)(20), which require all parties to act in good faith and fair dealing under Article 12.²⁷ These provisions ensure that the benefits of the shelter principle are reserved for honest market participants and that the integrity of digital asset transactions is maintained.²⁸

By balancing the need for negotiability and certainty with protections against misconduct, Article 12’s shelter principle offers a practical and equitable framework for transferring digital assets, supporting both market efficiency and legal integrity.

Article 9: Secured Transactions in Digital Assets

Article 9 of the UCC governs secured transactions, allowing creditors to take a security interest in property to secure payment or performance of an obligation.²⁹ The 2022 updates to Article 9 expanded the types of collateral to specifically include CERs.³⁰ This recognition allows CERs to be pledged as collateral much like traditional assets, such as accounts receivable, intellectual property rights, or chattel paper.³¹

In connection with this recognition, the amendments introduced two new collateral types: “controllable accounts” and “controllable payment intangibles.”³² These categories encompass payment rights linked to CERs, expanding the types of digital assets that can be used in secured transactions.³³ By including these new forms of collateral, the revised Article 9 ensures that the legal framework keeps pace with technological innovation and the changing landscape of digital business.

Key Changes and Adoptions

Digital Assets, Attachment, and Perfection

Neither Article 12 nor the revised Article 9 changes the basic rules for creating a security interest in CERs, since CERs fit within existing collateral categories. To create (or “attach”) a security interest in a CER, the debtor needs to sign a security agreement that clearly describes the collateral, as required by UCC § 9-203.³⁴ Once attachment is achieved, the secured party can “perfect” their interest–making it legally enforceable against others–by filing a financing statement.³⁵ This method is consistent with the approach used for other general intangibles.³⁶ However, as noted above, Article 12 and the revised Article 9 also authorize perfection by control for CERs, controllable accounts, or controllable payment intangibles, eliminating the need to rely solely on the filing of a financing statement.³⁷

Priority Rules

The provisions of Articles 12 and 9 introduce a “first to control” rule to determine the priority of security interests in CERs.³⁸ Under this rule, a secured party who perfects their interest through control enjoys priority over a party who merely perfects by filing, such as by submitting a UCC-1 financing statement.³⁹ This approach reflects and extends the existing logic found in Article 9’s treatment of deposit accounts and investment property, where control similarly governs priority.⁴⁰ The rationale behind this rule is to incentivize parties to obtain actual control over digital assets, as control not only ensures enforceability but also confers a superior legal position in the event of competing claims.⁴¹

Non-Uniform Adoption and Interstate Uncertainty

As of mid-2025, more than half of U.S. states have adopted the 2022 UCC amendments, including Article 12 and the revised Article 9.⁴² However, the non-uniform pace of adoption raises legal uncertainties for transactions that cross state lines. Since the UCC is a model law rather than federal legislation, its effectiveness depends on consistent enactment across states.⁴³ In states that have not yet adopted Article 12, CERs may not be expressly recognized as a distinct asset class and control may not serve as a valid method of perfection.⁴⁴ This divergence can create conflict-of-law issues, especially in transactions involving parties located in different states.⁴⁵ For example, a security interest perfected by control in a state that recognizes CERs may not be enforceable, or may be subordinated, in a jurisdiction that does not.⁴⁶

These concerns are addressed in the official commentary to Article 12, where the drafters established clear guidelines to mitigate the uncertainties associated with jurisdictional variances.⁴⁷ If the CER expressly designates a jurisdiction for purposes of the UCC, that jurisdiction’s law will govern.⁴⁸ If the CER does not specify, but the system in which the CER is recorded expressly provides a jurisdiction for UCC purposes, the law of that jurisdiction will apply.⁴⁹ If neither of these designations exists but the CER specifies a governing law (even if it does not explicitly mention the UCC), the law of that jurisdiction will govern.⁵⁰ Finally, if the CER is silent but the system in which it is recorded specifies a governing law, that law will apply.⁵¹

Conclusion

With the implementation of UCC Article 12 and the revised Article 9, the legal foundation for digital asset transactions has taken a significant step forward. This new framework not only clarifies the legal status and transferability of digital assets but also expands the range of assets that can be used as collateral in debt financing. By recognizing CERs as a distinct category of property, the revised UCC opens the door to new forms of secured transactions, enabling borrowers and lenders to structure deals using digital assets in ways that were previously uncertain or impractical under traditional rules

 ¹ ULC Approves ALI Joint Project on UCC and Emerging Technologies, American Law Institute (July 15, 2022), https://www.ali.org/news/articles/ulc-approves-ali-joint-project-ucc-and-emerging-technologies
² Sandra Feldman, UCC Adds Article 12 and Other Amendments To Address Emerging Technologies, Wolters Kluwer (Mar. 27, 2024), https://www.wolterskluwer.com/en/expert-insights/uniform-commercial-code-ucc-amended-to-address-emerging-technologies
³ Id.
⁴ See UCC § 12-102(a)(1) (2022).
⁵ See UCC §§ 9-326(a), 12-104(e).
⁶ See UCC § 9-314.
⁷ See id. § 12-105 (explaining how control governs priority); see UCC § 9-101 et seq. (providing rules for perfection and priority of security interests).
⁸ UCC § 12-102(a)(1).
⁹ See id. § 12-102.
¹⁰ Id. § 12-105.
¹¹ Id.
¹² See id. § 12-105(b).
¹³ See UCC § 12-105(a)(1)(B) (defining control in part by the exclusive power to transfer a CER); see also Michelle Legge, Custodial, KOINLY (Nov. 9, 2023), https://koinly.io/crypto-glossary/custodial/. 
¹⁴ See UCC § 12-105(a) (requiring exclusive power to avail oneself of the record and prevent others from doing so); see also Steven L. Schwarcz, Regulating Global Stablecoins: A Model-Law Strategy, 75 VAND. L. REV. 1729 (2022).
¹⁵ See Aaron Wright & Primavera De Filippi, Decentralized Blockchain Technology and the Rise of Lex Cryptographia, 1 STAN. J. BLOCKCHAIN L. & POL’Y 1, 6-10 (2019) (explaining smart contracts and their enforceability); see also UCC § 12-105(a) cmt. 2 (noting that control may be established through automated processes).
¹⁶ Katie Miller & Vikki Velasquez, Multi-Signature Wallets: Definition and Use Cases, INVESTOPEDIA (Sept. 5, 2024), https://www.investopedia.com/multi-signature-wallets-definition-5271193?.
¹⁷ Id.
¹⁸ See id. § 12-105(b) (providing that a person has control of a CER if they meet the criteria in subsection (a)).
¹⁹ Cryptopedia Staff, What Are Public and Private Keys?, CRYPTOPEDIA (June 28, 2022), https://www.gemini.com/cryptopedia/public-private-keys-cryptography. 
²⁰ UCC § 12-104(d).
²¹ Id.
²² Id.
²³ UCC § 12-102(a)(2).
²⁴ UCC § 12-104(e)-(f).
²⁵ UCC §§ 1-304, 302-3(b). 
²⁶ Id. 
²⁷ UCC §§ 1-304, 1-201(b)(20).
²⁸ See id.
²⁹ See UCC §§ 9-109, 1-201(b)(35). 
³⁰ See §§ 9-109(a), 12-102(a)(1).
³¹ See §§ 9-203, 12-105. 
³² UCC § 9-102(a)(27A)-(27B). 
³³ See id.
³⁴ UCC § 9-203(a).
³⁵ UCC § 9-312(a). 
³⁶ UCC § 9-310(b)(8).  
³⁷ Bringing the UCC Into the Digital Age: Review of the 2022 UCC Amendments, NORTON ROSE FULBRIGHT (2023). 
³⁸ See UCC § 9-326A (providing that a security interest perfected by control has priority over a conflicting interest perfected by filing).
³⁹ See id.
⁴⁰ See Uniform Commercial Code Amendments: Prefatory Note and Comments 182, AM. L. INST. & UNIF. L. COMM’N 2022, https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=09f06049-988c-759e-87a5-432c12085487.
⁴¹ See id.
⁴² See ULC, Legislative Bill Tracking, https://www.uniformlaws.org/committees/community-home?communitykey=1457c422-ddb7-40b0-8c76-39a1991651ac#LegBillTrackingAnchor. 
⁴³ See ULC, Uniform Commercial Code, last visited Aug. 22, 2025, https://www.uniformlaws.org/acts/ucc.
⁴⁴ See Kara Bruce, Christopher K. Odinet & Andrea Tosato, The Private Law of Stablecoins, 54 ARIZ. ST. L. J. 1074 (2022) (discussing uncertainty in the legal treatment of digital assets due to non-uniformity across jurisdictions). 
⁴⁵ See UCC § 12-107. 
⁴⁶ See id.
⁴⁷ See id.
⁴⁸ See id.
⁴⁹ See id.
⁵⁰ See id.
⁵¹ See id.