Andrea Tosato
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UCC Article 12 and Controllable Electronic Records

By , Homer R. Mitchell Endowed Professor in Commercial and Insurance Law, SMU Dedman School of Law.

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What Is UCC Article 12?

In 2022, the American Law Institute and the Uniform Law Commission adopted amendments to the Uniform Commercial Code that include a new Article 12, the first comprehensive private law framework in American law for commercial transactions involving digital assets.1 The amendments were the product of a joint drafting process that began in 2018, when the two organizations convened a committee to study whether the UCC needed updating to accommodate transactions facilitated by emerging technologies such as distributed ledger technology, cryptocurrencies, and other digital assets.2 Between 2020 and 2022, the proposed revisions underwent multiple rounds of drafting and extensive public review; the American Law Institute approved the resulting amendments in May 2022, and the Uniform Law Commission followed two months later.3

Article 12 turns on an entirely new legal category, the controllable electronic record (CER). The new article “introduces ‘controllable electronic records’ (CERs) as a novel category of personal property, together with a regime deliberately crafted to align with parties’ expectations and market practices.”4 As of early 2026, the 2022 Amendments have been enacted in thirty-three states and the District of Columbia, including New York, Delaware, California, and Florida, with legislation pending in additional states.5 They “have since gained significant momentum and are steadily progressing toward nationwide adoption.”6 Application in a particular state depends on its enacted text, effective date, and transition provisions.

What Is a Controllable Electronic Record?

A CER is defined as “a record stored in an electronic medium that can be subjected to control under Section 12-105.” Section 12-102(a)(1) excludes records governed by other regimes, including electronic documents of title, electronic money, and investment property.7 This definition has three elements. First, “record” means information stored in a medium and retrievable in perceivable form. Second, “electronic” encompasses any technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. Third, and most importantly, “control” is what constitutes the category and fixes its limits.8

Under Section 12-105, a person has “control” over an electronic record only when that person holds three distinct powers: (1) the power to avail itself of substantially all the benefit from the electronic record; (2) the exclusive power to prevent others from availing themselves of substantially all such benefit; and (3) the exclusive power to transfer control to another person or cause that person to obtain control of another CER as a result of the transfer. The record, an associated record, or the system must also enable the person readily to identify itself as holding these powers, including through a cryptographic key. Section 12-105(b)–(c) specifies when shared powers remain exclusive, and subsection (e) permits control through another person who acknowledges holding control on the purchaser’s behalf.9

The reach of the category is narrower than the definition alone suggests. “CERs are a very particular type of intangible asset. Their defining characteristic is that a person can enjoy them directly, without depending on an intermediary.”10 That characteristic distinguishes CERs from digital assets maintained and administered by service providers such as Google, Meta, Apple, or Microsoft, and from pure intangibles such as intellectual property rights, for which enforcement depends on state intervention and judicial proceedings.11

The new category is a distinctively American construct. “CERs are a new category of personal property, distinctly grounded in American functional pragmatism and without a parallel in traditional common law taxonomies.”12 Its functional character has a precedent in the Code itself. In the 1950s, Article 9 set American secured transactions law apart from the rest of the common law world through its functional approach and its array of collateral types; Article 12 repeats that choice, “forging a new personal property category—one that is based on operational characteristics rather than doctrinal purity.”13 Membership in the category and the rules that follow from it accordingly turn on what an asset can do rather than on where it sits in an inherited taxonomy.

How Are CERs Transferred?

Article 12 establishes two cardinal tenets governing the transfer of CERs.14 The first is the security of property principle, under which a purchaser of a CER acquires all rights the transferor had or had power to transfer.15 This principle is a cornerstone of the entire conveyancing framework of the UCC, rooted in the idea of free alienability.

The second is the take-free rule, under which a purchaser who obtains control of a CER for value, in good faith, and without notice of conflicting claims is a “qualifying purchaser” and acquires rights in the CER free from any property rights held by third parties.16 The effect of this rule is to make CERs “highly negotiable,” closely replicating the regime established by the UCC for negotiable instruments such as checks, promissory notes, and investment securities.17 “[T]he combined effect of these two tenets is to create a regime for ownership transfers of CERs that reduces title inquiry burdens, facilitates transactional certainty, and minimizes ownership disputes through its embrace of negotiability.”18 A qualifying purchaser need not trace the chain of title behind the transferor, which is the practical substance of negotiability.

How Can CERs Be Used as Collateral?

The 2022 Amendments introduce specialized rules for CERs across the three fundamental aspects of secured transactions: attachment, perfection, and priority.19 Throughout, “[t]he key policy choice of the 2022 Amendments is that control of a CER is accorded similar legal significance and effects as the possession of a tangible good.”20 Every rule that follows is an application of that equivalence.

Two routes lead to attachment. The first is a traditional signed security agreement describing the CER collateral. The second is control acquired pursuant to the debtor’s security agreement, which dispenses with the formality of a signed record. Both routes also require value and rights in the collateral or the power to transfer rights to a secured party.21

The same duality governs perfection. A secured party may file a financing statement in the relevant public registry or may instead perfect by taking control of the CER.22 Control-based perfection dispenses with the inquiry into where a financing statement must be filed, an inquiry that turns on the location of the debtor and is vexed in the case of assets transferred pseudonymously. Moreover, secured parties who acquire control for value, in good faith, and without notice of competing claims can achieve qualifying purchaser status and thereby obtain their security interest free from any prior property rights.23

The departure from prior law is sharpest at priority. A secured creditor who perfects by control “has priority over a conflicting security interest held by a secured party that does not have control.”24 This non-temporal rule creates an exception to the general first-to-file-or-perfect hierarchy of Article 9. If Lender A perfects by filing and Lender B later perfects by control, Lender B prevails despite Lender A’s earlier perfection.25

These collateral rules reach beyond cryptocurrency lending. Where a loan is secured by an NFT instead of a mortgage on the real property, “the NFT financing model is not a mere technological upgrade, but rather transports parties out of the domain of traditional mortgages and into secured transactions law, with significant legal and policy implications.”26 The collateral in that structure is the token itself, so the Article 9 rules of attachment, perfection, and priority govern the security interest.

What Are Controllable Accounts and Controllable Payment Intangibles?

The CER framework generally does not extend to tokenizations, as Article 12 explicitly provides that rights in property evidenced by a CER are governed by “law other than this article.”27 “Without express recognition in property law, a purported tokenization remains legally ineffective regardless of how it is encoded in smart contracts.”28 From this general rule, the 2022 Amendments carve out two important exceptions: controllable accounts and controllable payment intangibles.29

A controllable account builds on the familiar UCC definition of an “account,” a right to payment for goods sold, services rendered, or similar obligations. Two further requirements apply. The account must be evidenced by a CER, and the account debtor must agree to pay the person who has control of that CER.30 A controllable payment intangible follows the same architecture, resting on a “payment intangible,” a general intangible under which the principal obligation is monetary.31

Both categories benefit from the same take-free rule that applies to CERs themselves, and the account debtor may agree not to assert claims or defenses against subsequent transferees.32 “The combined effect engenders highly negotiable payment rights: qualifying purchasers acquire these tokenized receivables free from competing claims or defenses, with their risk reduced to the creditworthiness of the account debtor.”33 The take-free rule addresses competing property claims; a waiver of defenses remains subject to the conditions and exceptions in Section 9-403.

The novelty of these two categories lies in the medium rather than in the idea. “[C]ontrollable accounts are a paradigm shift. Previously, the UCC only provided for tokenizing payment obligations in paper form, such as promissory notes, checks, and bills of exchange.”34 The 2022 Amendments “herald a new era of electronic negotiable instruments” by enabling payment obligations to be evidenced by CERs with comparable legal protections for good faith purchasers.35 The road to tokenization nevertheless remains narrow, for “[t]he ability to tokenize under these commercial law provisions is limited to accounts and payment intangibles; contract law cannot be used to conjure additional tokenizations without explicit legal authorization.”36 Other electronic instruments remain subject to their own statutory regimes, including electronic documents of title under Article 7.

For stablecoins used as money, the distinction between title to the token and the redemption claim is consequential. Negotiability matters because “a monetary instrument must also circulate freely among holders without inquiry into provenance.” If structured as a controllable account or a controllable payment intangible, the redemption right of a stablecoin would benefit from the take-free rule and would travel with the token to each successive holder; whether the GENIUS Act embeds the redemption right in the token in this fashion remains unresolved.37 For a fuller treatment of how Article 12 applies to stablecoins, see the companion research page on Stablecoins and Private Law.

Which Law Governs a CER?

Uniform law is enacted state by state, and digital assets circulate without regard to state lines, so the 2022 Amendments pair the substantive regime of Article 12 with a dedicated choice-of-law rule. Under Section 12-107, as a general rule, “the local law of a controllable electronic record’s jurisdiction governs a matter covered by this article.”38 “Section 12-107 establishes a multi-step structure, a ‘waterfall,’ to determine the governing law for a CER.”39 Each step is reached only if the step above it yields no answer.

The first step is an express designation of the CER’s jurisdiction in the record itself or an attached or logically associated record that is readily available for review. A designation in the rules of the system comes second. If neither supplies an answer, the inquiry turns to a statement of governing law in the record or associated record, followed by a statement of governing law in the system rules.40 If none of these provisions supplies a jurisdiction, the waterfall ends in “a default rule that designates the District of Columbia as the governing jurisdiction.”41 Moreover, to the extent Section 12-107 designates a governing law, “that law governs even if the matter or a transaction to which the matter relates does not bear any relation to the controllable electronic record’s jurisdiction.”42 Digital asset systems can therefore embed certainty about governing law directly in their records and protocols.

How Does Article 12 Relate to Article 8?

Digital assets can also be brought within the framework of UCC Article 8, which governs the indirect holding of securities and other financial assets through intermediaries. Under Section 8-102(a)(9)(iii), virtually any property can be treated as a “financial asset” if it is held by a securities intermediary in a securities account and the parties have expressly agreed to that treatment, a formula capacious enough to encompass digital assets.43 This opt-in mechanism allows digital asset custodians and exchanges to position themselves as securities intermediaries and to offer their customers the protections of Article 8, which range from rules governing transfer and collateralization to the insulation of customer assets from the claims of the intermediary’s creditors.44 That protection creates “a form of asset partitioning that insulates the entitlement holder’s interests from the intermediary’s insolvency risk.”45 A customer of a failed custodian therefore asserts a proprietary interest in the assets held for entitlement holders. This protection does not guarantee recovery in full where assets are missing or a secured creditor has priority under Section 8-511.

The 2022 Amendments reinforced this pathway by updating the official commentary to Article 8. The revised comments expressly confirm that digital assets can be held in securities accounts and treated as financial assets, controllable electronic records among them. They further clarify that when parties agree to this treatment, the rules of Article 12 do not apply to the entitlement holder’s security entitlement; instead, Article 8 governs.46 The updated comments also broaden the range of entities that can qualify as securities intermediaries, confirming that “a cryptocurrency exchange that holds only cryptocurrencies (and not securities) for customers might be a securities intermediary.”47 Whether an exchange occupies that role turns on the terms on which it holds, not on the nature of what it holds.

The critical distinction between the two regimes is one of intermediation. Article 8 presupposes that financial assets are held through securities intermediaries in securities accounts.48 Article 12 enables persons to hold and transfer CERs directly through control, while also permitting control through another person under Section 12-105(e). The two regimes are therefore complementary. Market participants who custody their digital assets with exchanges or custodial platforms can access the protections of Article 8 through an opt-in agreement; those who hold CERs directly in self-custodied wallets can transact under Article 12. Opting in remains a choice rather than a mandate. “While some leading platforms, such as Coinbase, have explicitly incorporated Article 8 into their terms of service, the majority of platforms operating in the United States do not.”49 The 2022 Amendments thus provide American law with two parallel private law frameworks, each calibrated to a different model of digital asset holding and transacting.50

Why Does This Matter?

Before the 2022 Amendments, the private law framework for digital assets was fundamentally misaligned with market realities. Digital assets were classified as “general intangibles” under Article 9, a residual category that provided no specialized rules for their unique characteristics.51 Secured parties could perfect in one way only, by filing a financing statement in the applicable public registry. The inherent time lag of public registration systems contrasted sharply with the near-instantaneous execution of digital asset transfers, and the pseudonymity of distributed ledger networks made it difficult to determine the correct filing jurisdiction or to search for existing liens.52 There was no take-free rule for purchasers of digital assets and no control-based mechanism for attachment, perfection, or priority. By the early 2020s, market participants were routinely ignoring this framework, transferring digital assets directly to lenders with minimal documentation and no public filings.53

Article 12 addresses these deficiencies. Control replaces filing as the primary mechanism for perfection and priority, and the qualifying purchaser take-free rule provides negotiability comparable to that of checks, promissory notes, and investment securities. Controllable accounts and controllable payment intangibles extend the framework to tokenized payment obligations, with equivalent protections for good faith purchasers. The result is “a workable legal infrastructure that provides legal certainty, conforms to stakeholders’ expectations, and sustains innovation.”54 State enactment, effective dates, and transitional protections determine when these rules govern particular transactions.

Notes

  1. Andrea Tosato & Christopher K. Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. 257, 261–62 (2026). ↩
  2. Andrea Tosato, Diane Lourdes Dick & Christopher K. Odinet, Debt Tokens, 173 U. Pa. L. Rev. 1103, 1150–51 (2025). ↩
  3. Christopher K. Odinet & Andrea Tosato, Digital Commercial Law: Private Law in the Age of Tokens, Platforms, and Automation ch. 2, at 58 (2026). ↩
  4. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 261. ↩
  5. See Legislative Bill Tracking, Unif. L. Comm’n, https://www.uniformlaws.org/committees/community-home?communitykey=1457c422-ddb7-40b0-8c76-39a1991651ac (providing a real-time tracker and updated map of state legislation adopting the 2022 UCC Amendments); Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1152 (reporting adoption in twenty-five states as of early 2025). ↩
  6. Odinet & Tosato, Digital Commercial Law ch. 2, at 58. ↩
  7. U.C.C. § 12-102(a)(1) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 309–10. ↩
  8. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1152–53. ↩
  9. U.C.C. § 12-105(a)–(e) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1152–53. ↩
  10. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1153. ↩
  11. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1153–54. ↩
  12. Odinet & Tosato, Digital Commercial Law ch. 2, at 59. ↩
  13. Odinet & Tosato, Digital Commercial Law ch. 2, at 61. ↩
  14. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1154 (citing Giuliano G. Castellano & Andrea Tosato, Commercial Law Intersections, 72 Hastings L.J. 999, 1042 (2021)). ↩
  15. U.C.C. § 12-104(d) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 314–15. ↩
  16. U.C.C. §§ 12-102(a)(2), 12-104(e) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 314–16. ↩
  17. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1155. ↩
  18. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 316. ↩
  19. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 315–19. ↩
  20. Odinet & Tosato, Digital Commercial Law ch. 2, at 63. ↩
  21. U.C.C. §§ 9-203(b), 9-107A (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 316–17. ↩
  22. U.C.C. § 9-310(b)(8) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 316–17. ↩
  23. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 317–19. ↩
  24. U.C.C. § 9-326A (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 318. ↩
  25. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 317–19. ↩
  26. R. Wilson Freyermuth, Christopher K. Odinet & Andrea Tosato, Crypto in Real Estate Finance, 75 Ala. L. Rev. 93, 94 (2023). ↩
  27. U.C.C. § 12-104(f) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 317–19. ↩
  28. Odinet & Tosato, Digital Commercial Law ch. 3, at 85. ↩
  29. U.C.C. § 9-102(a)(27A)–(27B) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 319–20, and Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1157–58. ↩
  30. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 319–20. ↩
  31. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 319–20. ↩
  32. U.C.C. §§ 9-317(i), 9-403(b)–(d) (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 319–20. ↩
  33. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 320. ↩
  34. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1159. ↩
  35. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1159; Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 320–21. ↩
  36. Odinet & Tosato, Digital Commercial Law ch. 3, at 88. ↩
  37. Christopher K. Odinet, Andrea Tosato & Yesha Yadav, The Moneyness of Stablecoins, 136 Yale L.J. (forthcoming 2026); Odinet & Tosato, Digital Commercial Law ch. 8, at 318. ↩
  38. U.C.C. § 12-107(a) (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  39. Carla L. Reyes, Andrea Tosato & Andrew Hinkes, Code is Not Law, 54 Fla. St. U. L. Rev. (forthcoming 2026). ↩
  40. U.C.C. § 12-107(c)(1)–(4) (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  41. Reyes, Tosato & Hinkes, Code is Not Law; see also U.C.C. § 12-107(c)(5) (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  42. U.C.C. § 12-107(e) (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  43. U.C.C. § 8-102(a)(9)(iii) (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  44. U.C.C. §§ 8-501 to -511 (Am. L. Inst. & Unif. L. Comm’n 2022); discussed in Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1115. ↩
  45. Odinet & Tosato, Digital Commercial Law ch. 4, at 120; U.C.C. §§ 8-503, 8-511 (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  46. U.C.C. § 8-102 cmt. 9 (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  47. U.C.C. § 8-102 cmt. 14 (Am. L. Inst. & Unif. L. Comm’n 2022). ↩
  48. Tosato, Dick & Odinet, Debt Tokens, 173 U. Pa. L. Rev. at 1115, 1153–54. ↩
  49. Odinet & Tosato, Digital Commercial Law ch. 4, at 122. ↩
  50. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 309–21. ↩
  51. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 301–03. ↩
  52. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 301–03. ↩
  53. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 302–03. ↩
  54. Tosato & Odinet, Digital Assets and the Property Question, 78 Fla. L. Rev. at 321. ↩
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