Guide to the Uniform Commercial Code (UCC): Articles 1-9

The Uniform Commercial Code (UCC) is a model law adopted by all 50 U.S. states to make commercial transactions fair, consistent, and predictable. It helps lenders, businesses, financial institutions, and consumers transact with clear expectations, regardless of jurisdiction. Jointly created by the Uniform Law Commission (ULC) and the American Law Institute (ALI), the UCC eases the complexities of doing business across state lines.

Although not a federal law, the UCC establishes uniform legal standards for commercial areas like banking, sales, leases, investment securities, and negotiable instruments. It also sets a uniform legal standard for secured transactions involving personal property across all 50 states. Each jurisdiction in the United States may make its own modifications to the UCC and organize it differently.

The Uniform Commercial Code is divided into the following articles:

UCC Article 1 - General Provisions

Uniform Commercial Code Article 1 is the foundation of the entire UCC. It establishes the core definitions and interpretation principles that guide how all other UCC articles work. Article 1 provides the framework for understanding the meaning of various terms and the UCC's requirements of good faith, which apply across all UCC articles, making this Article 1 essential to the Code's overall purpose.

Definitions and General Rules for All UCC Articles

This section provides the common terminology used throughout all UCC articles and clarifies key concepts such as contract, agreement, good faith, value, and security interest. By standardizing these terminologies, the section reduces confusion and minimizes conflicting interpretations.

How to Interpret and Apply the Code's Provisions

UCC Article 1 guides businesses and courts in interpreting and applying the code's rules consistently and fairly in resolving commercial disputes. It stipulates the principles of construction that parties and courts must use when examining UCC rules, which ensures that the code is applied in a way that reflects its original purpose and supports predictable outcomes.

The Principle of Good Faith in Every Commercial Transaction

Article 1 established the good faith requirement in commercial transactions to ensure that all parties involved in a UCC-governed agreement act fairly and honestly in performing and enforcing their contractual commitments. Good faith means honesty and includes observing reasonable commercial standards for fair dealing, ensuring that business practices reflect fairness and integrity.

Rules on Course of Performance, Usage of Trade, and Variation by Agreement

UCC Article 1 recognizes how parties rely on prior dealings and established industry customs to influence how agreements are interpreted, provided they are consistent with good faith. It explains how the court should interpret ambiguous terms in a contract and determine what both parties genuinely intended when the written terms do not reflect the complete facts. The course of performance considers how parties have behaved in executing the current contract, while usage of trade means common practices within a particular industry.

Connection Between the UCC and Federal Laws (E-SIGN Act)

Article 1 explains the connection between the Uniform Commercial Code and federal laws in relation to modern electronic transactions, particularly the Electronic Signatures in Global and National Commerce Act (E-SIGN Act). It aligns its provisions with the E-SIGN Act to ensure that electronic signatures, digital records, and electronic contracts are valid and enforceable under the UCC like their paper counterparts.

Learn more: UCC Article 1 - General Provisions

UCC Article 2 - Sales

Uniform Commercial Code Article 2 governs the sale of goods and establishes a uniform legal framework for everyday transactions such as retail purchases, equipment sales, wholesale distribution, and supply agreements. It also defines the rules that determine how contracts are formed and performed and the remedies available if anything goes wrong.

Additionally, Article 2 outlines what each party in a contract must do to fulfill the contract and the rights they have in the event that the other side breaches. It provides precise standards for creating a binding sales contract even where the contract terms are not fully detailed.

Formation of Sales Contracts

Under Article 2, a legally binding agreement can be created through offers, acceptances, confirmations, and behavior that clearly shows both parties intend to form a contract. This flexible and practical approach of creating a contract is essential in commercial transactions such as retail orders, equipment purchases, or supply agreements where parties perform a contract before completing paperwork.

Transfer of Title and Risk of Loss

UCC Article 2 recognizes that ownership and risk of loss (liability) shift from the seller to the buyer in commercial transactions that involve delivery arrangements and shipping carriers. Title (ownership) passes to the buyer immediately after the seller's delivery obligation.

In a destination contract, title passes when the goods reach the buyer's location, while the seller keeps the risk until the goods arrive and are handed to the buyer. For a shipment contract, title passes when the seller gives the goods to the carrier. The buyer also assumes risk once the goods are handed to the carrier.

Implied and Express Warranties

Article 2 provides protections for buyers by defining the warranties that cover the sale of goods. It defines both implied warranties and express warranties and differentiates between the two categories.

An implied warranty applies when the seller is a merchant dealing in goods of the kind it sells. It guarantees that the goods are consistent in kind and quality and are fit for their ordinary purpose. Additionally, an implied warranty protects the buyer even when nothing is said.

Conversely, an express warranty applies when the seller explicitly represents something about the goods, such as specifications, promises (verbal or written), or product descriptions. It holds the seller responsible for the accuracy of their claims.

Remedies for Breach of Contract

UCC Article 2 also outlines how buyers and sellers may recover damages or require performance of a contract if the other party breaches. It provides seller's remedies when the buyer defaults and buyer's remedies when the seller defaults.

Learn more: UCC Article 2 - Sales

UCC Article 2A - Leases

Uniform Commercial Code Article 2A governs only the leasing of goods and applies to both consumer leases and commercial leases. It provides a uniform legal framework for lease transactions involving movable assets, such as equipment, machinery, vehicles, and tools. UCC Article 2A outlines the rights, obligations, and remedies for parties in lessor-lessee relationships when a lease contract is formed, performed, or breached. It also sets out the duties of lessees.

Formation of Lease Agreements

Under Article 2A, a lease contract is formed when the parties involved reach an agreement to transfer the right of possession and use of goods for a specified term in exchange for payment. The contract may be created through written agreements or conduct that shows both parties had intentions to enter a lease. In some cases, it is formed through oral agreements.

For a lease to be valid, it must include goods identification, payment terms, lease term, right to use and possess the goods, responsibilities of each party, and return conditions or purchase options.

Rights and Obligations of Lessors and Lessees

Article 2A establishes a set of rights and obligations for both the lessee and lessor in a lease contract to ensure the contract runs smoothly from delivery to the end of the term. The lessor is the party providing the goods, while the lessee is the party receiving the goods.

A lessee has the obligation of timely rent payment, proper use and maintenance of goods, acceptance/inspection after delivery, and return of goods at the end of the lease term. On the other hand, the lessor has a responsibility to deliver conforming goods, provide the right to use and possess the goods, perform certain maintenance (depending on the lease type), and ensure delivery as agreed upon in the contract.

Warranties and Risk Allocation

The rules of warranties and risk allocation under UCC Article 2A ensure that lessees receive goods that meet basic quality standards while fairly distributing responsibilities between the lessee and lessor. They reduce disputes and create predictable outcomes when something goes wrong. Article 2A provides both implied and express warranties to protect lessees. It also determines who bears responsibility when something falls through with the leased goods.

Default and Remedies

Under Article 2A, both lessees and lessors have clearly defined rights and remedies when one party breaches a lease contract. If a lessee defaults in its obligations or breaches the lease, the lessor may cancel the lease, repossess the goods, or withhold delivery of the goods. They may also enforce security interests (if the agreement has any) or sue for damages or unpaid rent.

Similarly, if the lessor defaults or fails to perform as agreed upon, the lessee can cancel the lease, recover damages, or recover rent already paid. Additionally, they may accept the goods and recover damages for any diminished value caused by defects or seek specific performance where the goods are difficult to replace.

Learn more: UCC Article 2A - Leases

UCC Article 3 - Negotiable Instruments

Uniform Commercial Code Article 3 covers negotiable instruments, which are legal documents that function as promises or orders to pay money. These instruments play a central role in everyday financial transactions, and they include checks, promissory notes, drafts, and cashier's checks. UCC Article 3 establishes the rules that determine how negotiable instruments are created, transferred, enforced, and discharged, supporting efficient credit arrangements, banking operations, and business payments.

Rights and Liabilities of Issuers and Holders

Each party involved in transactions requiring a negotiable instrument has clearly defined rights and liabilities under UCC Article 3. The issuer has a responsibility to pay the amount specified on the instrument according to the terms on that instrument. The obligation to pay becomes enforceable after issuance or delivery, and if the issuer's bank dishonors a check for any reason, the issuer remains liable to the holder, who can enforce it.

The holder is the person possessing the negotiable instrument and entitled to enforce it. They can be the original payee, a bank that has processed the instrument, or an individual who receives it through negotiation.

Endorsements and Transfer Rules

UCC Article 3 establishes rules that ensure negotiable instruments can move freely in commerce while still preserving each party's legal rights. It sets out how these instruments are endorsed, negotiated, and transferred. The issuer's signature placed on the instrument endorses it and allows its transfer to another party. An endorsement can either be special, blank, or restrictive.

Under Article 3, a negotiable instrument is negotiated or transferred once delivered to another party in a way that the recipient now becomes the new legal holder, who gains the right to enforce that instrument.

Forgery and Fraud Protections

Under UCC Article 3, certain rules ensure the integrity of negotiable instruments by protecting parties from losses caused by altered instruments, forged signatures, and counterfeit documents. No forged signature on a negotiable instrument is as effective as the signature of the issuer whose name was forged. Any bank that pays such an instrument often bears the initial loss unless the customer was negligent.

Article 3 also requires banks to use ordinary care to identify altered checks and treat counterfeit instruments like forgeries. The party enforcing an altered instrument may only recover the original, unaltered amount.

Enforcement and Discharge of Obligations

Obligations created by any negotiable instrument under UCC Article 3 do not last indefinitely. An obligation ends once payment is made according to the instrument's terms or the transaction is intentionally cancelled by destroying the instrument, writing "cancelled", returning it to the issuer, or striking out the signature. Other means of discharging obligations under Article 3 include renunciation and impairment of recourse.

Learn more: UCC Article 3 - Negotiable Instruments

UCC Article 4 - Bank Deposits and Collections

Uniform Commercial Code Article 4 regulates how banks handle and process deposits, checks, and collection items. It creates a uniform framework for processing payments and imposes the duties of accuracy, timeliness, ordinary care, and good faith on banks to ensure efficient bank operations. Article 4 also clearly defines the responsibilities of banks and customers in the deposit and collection process.

Roles of Depository, Collecting, and Payor Banks

Under Article 4, each bank involved in the collection process has its own responsibilities. The depository bank is the first to receive a check from the depositor (customer). Its major duties include collecting and processing the deposit, creating a transaction record, forwarding the check for collection promptly, and protecting the customer's rights.

The collecting bank, sometimes called the intermediary bank, processes the check after the depository bank and before it is sent to the payor bank. It is responsible for forwarding the check through the clearing system, maintaining ordinary care (processing based on industry standards), transmitting accurate presentment details, and providing timely notice of dishonor (for a returned check).

Also called the drawee bank, the payor bank makes the final decision in the check collection process. It examines the check upon presentment, plays its role within strict deadlines, posts the transaction accurately, returns dishonored checks without delay, and protects the drawer by detecting alterations or forged signatures.

Timely Presentment and Return Requirements

UCC Article 4 imposes strict timing rules that require banks to promptly complete both presentment and return of items to avoid liability. Depository and intermediary banks must send deposit items for presentment with reasonable promptness. In other words, they must forward the items the next business day at the latest, use standard clearing channels, and avoid unnecessary delays.

Any bank that decides not to pay a check must return it or notify the necessary parties of dishonor or nonpayment by midnight the next banking day the bank collects the check. A bank that delays in processing deposit items risks liability for the amount of the check, while the depositor may lose protection against wrongful charges for overdrafts.

Customer Responsibilities Under UCC 4-406

Section 4-406 of the Uniform Commercial Code stipulates important responsibilities for customers to prevent unauthorized withdrawals and fraud. Customers have a duty to examine bank statements promptly with reasonable care and report alterations or unauthorized signatures. A bank may be discharged from liability for an unauthorized item if the customer fails to fulfill its responsibilities. However, if the bank acts negligently, a customer may be protected if they can prove the bank failed to exercise ordinary care.

Liability for Errors and Wrongful Dishonor

Under Article 4, a bank that commits errors or wrongfully dishonors valid checks or legitimate transactions can be held liable for the customer's losses. Errors largely arise from posting an item to the wrong account, misencoding the amount on the check, delaying presentment, and failing to credit a deposit. On the other hand, a wrongful dishonor happens when the bank refuses to pay a valid check that should have been honored. While banks may be liable for errors, the UCC allows certain limits that sometimes protect banks against liabilities.

Learn more: UCC Article 4 - Bank Deposits

UCC Article 4A - Funds Transfers

Uniform Commercial Code Article 4A establishes the framework for electronic funds transfers (EFTs), such as ACH credits, wire transfers, and other large-value payments used by financial institutions and businesses. It covers high-value commercial electronic funds transfers, not consumer transactions governed by federal law. UCC Article 4A provides clear rules on how payments are issued and authenticated, liability rules for delays or errors, the rights and obligations of parties involved, and how and when fund transfers are completed.

Payment Orders and Authorization

Under UCC Article 4A, a payment order is the instruction that initiates an EFT. It is a formal notice from a sender delivered through secure wire platforms, online platforms, automated treasury systems, or authenticated email channels ordering the bank to transfer a specified amount to a designated beneficiary. A payment order will include the transfer amount, recipient details, beneficiary bank, and the sender's clear authority.

UCC Article 4A requires banks to authenticate payment orders using commercially reasonable security procedures before processing transactions. To avoid unauthorized funds transfers, banks have the right to reject payment orders if they cannot reliably verify the sender's identity.

Security Procedures and Error Liability

UCC Article 4A required banks handling EFTs to use commercially reasonable security procedures to verify the authenticity of payment orders before processing to prevent unauthorized transfers. A commercially reasonable procedure is one that aligns with the customer's needs, reflects industry standards, and is appropriate for the transaction size and type. Common security procedures include encrypted tokens, passwords, multi-factor authentication, biometric tools, and callback verification.

If the bank follows a commercially reasonable verification system but a customer's negligence caused a loss, the customer may bear the loss. However, the bank is liable for any loss resulting from an unauthorized or fraudulent transfer caused by its failure to follow the agreed-upon procedures.

Timing and Completion of Transfers

UCC Article 4A also articulates rules for determining when electronic funds transfers are considered complete. An EFT is considered completed when the designated beneficiary's bank accepts the payment order, identifies the account to be credited, and has no reason to refuse the order. The beneficiary has rights over the funds once the account is credited, and the sender can no longer cancel the transaction unless all parties agree.

However, under Article 4A, a sender may request the bank to reverse or amend a funds transfer if the payment order is sent in error, but only if the receiving bank has yet to accept it. Similarly, if the payment system or bank makes an error, the bank must correct the error or refund. Where there is no bank or payment system error and the beneficiary bank has accepted the funds, a refund is only possible if special statutory exceptions apply or the beneficiary voluntarily returns the funds.

Learn more: UCC Article 4A - Funds Transfers

UCC Article 5 - Letters of Credit

Uniform Commercial Article 5 governs letters of credit (LC), a financial tool that guarantees payment between buyers and sellers in commercial transactions. It provides the legal framework that sets out how letters of credit are issued and verified, documentation requirements for demanding payment, and the rights and responsibilities of the issuing bank, confirming bank, and beneficiaries.

Letters of credit are commonly used in international trade, cross-border supply agreements, construction projects, and large equipment purchases. With a letter of credit, the bank can assure a seller that it will release payments once the seller presents documents showing it met its obligations.

Issuance and Confirmation

A buyer's bank (issuing bank) issues a letter of credit as an agreement to guarantee payment to the beneficiary (seller), provided the seller presents the required documentation listed in the credit. An issuing bank will only issue a letter of credit upon the buyer's request. Afterward, the bank will evaluate the buyer and, if found creditworthy, secure repayment terms or collateral before issuing the letter. Once issued, the bank sends the letter, which outlines the conditions for payment, to the seller.

If the transaction is international, the seller may need further assurance through a confirming bank, which will add its independent guarantee of payment. Sellers often require confirmation for extra security, protection against insolvency, and confidence that payment will be honored. Once the letter of credit is confirmed, the issuing and confirming banks are obligated to pay the seller upon presenting the required documents.

Rights and Duties of Banks and Beneficiaries

UCC Article 5 defines the rights and duties of banks and beneficiaries in the letters of credit process. A bank is only obliged to pay when the seller presents strictly compliant documents, which may include insurance documents, commercial invoices, packing lists, airway bills or bills of lading, and drafts.

To avoid rejection, the beneficiary must present the required documents exactly as specified in the letter of credit. The issuing bank must honor payment on time once the beneficiary presents documents that strictly comply with the terms of the LC, even if there are disputes between the seller and buyer about shipment delays or performance issues.

Fraud and Dispute Protections

UCC Article 5 covers safeguards preventing fraudulent or abusive draws under letters of credit. While banks are obliged to honor presentations that appear compliant, they may refuse to honor the draw upon suspecting material fraud. Courts may even intervene in such cases. To protect parties involved in the letter of credit process, Article 5 makes provisions for prompt notice of discrepancies, indemnification rights, judicial remedies, and clear timelines to prevent delay or payment manipulation.

Learn more: UCC Article 5 - Letters of Credit

UCC Article 6 - Bulk Transfers and Sales

Uniform Commercial Code Article 6 originally covered large-scale sales of business inventory, otherwise called a bulk sale. A bulk sale occurs when a business sells all its stock, merchandise, or equipment in a single transaction. UCC Article 6 was created to prevent dishonest businesses from selling all their assets to avoid paying creditors and leaving lenders and suppliers unpaid.

However, lawmakers have over time realized that other legal frameworks, such as creditor protection rules and bankruptcy law, offer more effective ways of addressing bulk transfer concerns. As a result, most states in the U.S. have now repealed Article 6, and only a few states still apply the rules.

Purpose of Bulk Transfer Rules

UCC Article 6 attempted to regulate bulk asset sales and transfers and protect creditors from fraudulent asset sales. In other words, it aimed to stop debtors from selling their assets to escape creditors, which often happened, and without public notice before modern debtor-creditor and bankruptcy laws.

Article 6 rules helped guarantee that creditors had the opportunity to protect their interests and prevented debtors from quickly and discreetly liquidating their assets to avoid payment. While these rules are now largely obsolete, their original purpose continues to influence how creditors are protected against fraudulent bulk asset transfers.

Modern Repeal and Alternatives

Some modern laws now offer more effective ways to address creditors' concerns about bulk transfers and sales since most states repealed UCC Article 6. These include bankruptcy laws and fraudulent transfer laws.

Learn more: UCC Article 6 - Bulk Transfers

UCC Article 7 - Documents of Title

Uniform Commercial Code Article 7 governs documents of title, which are documents that prove ownership of goods or the right to control them while they are in storage or transit. They include warehouse receipts, bills of lading, and electronic documents of title. Article 7 protects legitimate purchasers, creates liability standards for warehouse operators and carriers, and supports the use of electronic records that facilitate modern supply-chain operations.

Warehouse Receipts and Bills of Lading

These are legally recognized evidence of a party's right to possess, claim ownership, or control goods that are being transported or stored. They are the two primary documents of title regulated by UCC Article 7. Warehouse receipts are issued by warehouse operators, while carriers issue bills of lading.

A bill of lading is proof that a carrier has received goods for shipment. While it primarily serves as a contract of carriage, it may also be used as a document title when it is negotiable. With a negotiable bill of lading, goods can be transferred to another party by delivering or indorsing the document, enabling the commercial sale of the goods in transit.

A warehouse receipt confirms that the warehouse operator is holding specific goods for a depositor. It represents the right to possession. Therefore, it can be transferred to another party, such as a lender, buyer, or consignee, without physically moving the goods. A warehouse receipt identifies the goods, the party entitled to receive them, and the storage terms.

Rights and Duties of Warehouse Operators and Carriers

UCC Article 7 clearly sets out the rights and duties of warehouse operators and carriers to ensure the safe custody of goods and proper delivery.

Warehouse operators have the responsibility to protect goods stored in their facilities by ensuring reasonable storage conditions, preventing loss or damage, and complying with industry standards for goods handling and record keeping. UCC Article 7 gives them the right to collect storage charges and, in some instances, place liens on goods for unpaid fees.

The duties of carriers include transporting and delivering goods according to the terms stipulated in the bill of lading. UCC Article 7 requires them to load, handle, and ship goods with reasonable care and deliver such goods only to the party entitled to receive them as written in the document. Carriers have rights to limit liability for unauthorized release or misdelivery if permitted under the bill of lading and applicable law.

Electronic Documents of Title

UCC Article 7 validates electronic documents of title for modern logistics systems and gives them the same legal force as conventional paper documents of title. In other words, electronic bills of lading and electronic warehouse receipts are legally effective if they satisfy the UCC's requirements for secure control, uniqueness, and reliable transmission.

Learn more: UCC Article 7 - Documents of Title

UCC Article 8 - Investment Securities

Uniform Commercial Code Article 8 regulates the ownership, control, and transfer of investment securities. It establishes the legal framework for how securities such as bonds, stocks, mutual fund shares, and similar investment instruments are issued, held, bought, and sold. Article 8 also stipulates the rights of investors, the duties of issuers, and the rules for resolving claims or disputes involving investment securities.

Ownership and Transfer of Securities

Under UCC Article 8, there are clear rules on how investors obtain and transfer ownership of securities. Securities may be held in bearer form or registered form. In bearer form, the person holding the securities does not require registration, and ownership transfer occurs by physically delivering the security certificate to the new holder. Securities held in registered form specify the individual entitled to it, and the owner's name appears on the issuer's records. The issuer typically registers the transfer of the security to a new owner.

Rights of Security Holders

UCC Article 8 outlines the rights of security holders, which assure them of ownership and benefits associated with their investments. Security holders can have voting rights and the rights to receive interest payments and dividends. Voting rights include voting on corporate governance matters in the case of common stock.

Furthermore, there is strong protection for purchasers in good faith (protected purchasers) under Article 8. These are legitimate buyers who acquire securities without notice of any adverse claims and still give value for them.

Intermediary and Electronic Holding Systems

UCC Article 8 recognizes that physical security certificates are phasing out. Most modern securities are maintained through intermediary holding systems that allow custodians, brokers, or banks to hold securities on behalf of investors in digital forms. Consequently, instead of possessing security certificates directly, investors can hold interests and rights in the securities through their financial institutions. Article 8 also establishes the responsibilities of intermediaries and investors' protection within these electronic holding systems.

Learn more: UCC Article 8 - Investment Securities

UCC Article 9 - Secured Transactions

Uniform Commercial Code Article 9 governs creditors' and lenders' credit agreements and secure loans using borrowers' personal assets as collateral. This article is one of the most widely adopted parts of the Uniform Commercial Code. Common assets covered by Article 9 include inventory, accounts receivable, equipment, fixtures, and machinery.

UCC Article 9 provides the legal framework for establishing, perfecting, and enforcing creditors' security interests, which ensures that lenders have a public way to establish their rights in a debtor's property if the borrower defaults. It also establishes priority rules, which determine which lender's claim holds first in the event that multiple lenders have interest in a specific collateral.

Creation of Security Interests

Under UCC Article 9, a lender creates a security interest in collateral once the debtor grants a security agreement containing details of the collateral and stipulating the intent to give the lender rights in the specified asset. With the agreement in place, the lender obtains attachment, implying that the creditor can legally enforce the security interest if the borrower defaults or declares bankruptcy.

Perfection and Priority

A lender's security interest in a specific collateral is perfected by filing a UCC-1 financing statement with the Secretary of State in the borrower's state of residence or business incorporation. This filing establishes the creditor's priority right in the collateral and recognizes its claim ahead of claims made by third parties or other lenders if the borrower defaults. Essentially, under UCC Article 9, the first lender to perfect its security interest in collateral has the strongest claim.

Default and Remedies

UCC Article 9 specifies creditors' rights and remedies in the event that debtors default. When a borrower defaults or breaches the lending agreement, the lender (secured party) has the right to enforce its security interests, and one of the major remedies is repossession.

Repossession permits the creditor to legally recover the collateral without the court's intervention, provided it is done without breaching the peace. Once the secured party recovers the collateral, they may lease, sell, or dispose of it in a commercially reasonable manner to recoup the outstanding debt.

UCC Filings and Public Record System

In addition to establishing legal priority on collateral, filing a UCC-1 financing statement with the Secretary of State allows lenders to record their security interests and make them publicly visible. Under UCC Article 9, a UCC-1 filing becomes a part of the public record and creates a searchable record that informs buyers and other creditors that specific assets are already pledged as collateral. This public filing system prevents hidden claims and disputes, supporting transparency in commercial lending markets and ensuring predictable outcomes when multiple parties have competing interests.

Learn more: UCC Article 9 - Secured Transactions

(Optional) UCC Article 12 - Controllable Electronic Records

Uniform Commercial Code 12 is a new addition to the UCC that addresses emerging technologies and digital assets, such as tokenized assets, cryptocurrencies, and other blockchain-based instruments. It defines how parties can get control over a digital asset, how security interests can attach and be perfected, how ownership can be transferred, and how legal claims are prioritized. This newest framework also brings legal certainty to commercial transactions involving digital tokens and other emerging forms of electronic value.

Scope and Purpose

UCC Article 12 was designed to bring predictability and uniformity to digital-asset transactions. It provides a modern legal structure for controllable electronic records, a category of digital assets, such as non-fungible tokens (NFTs), stablecoins, and cryptocurrencies. This article covers any type of electronic record that parties can control, use to exercise certain rights, and transfer.

Rights of Transfer and Control

UCC Article 12 clearly stipulates how a person can obtain control of a controllable electronic record and how they can transfer the rights in that record. A party is considered as having control when they can use the digital asset, transfer it to another party, and prevent others from accessing it through a private key or equivalent authoritative protocol.

The rights of transferees are protected under UCC Article 12, ensuring they can transfer digital assets with legal certainty. Legitimate purchasers who acquire a controllable electronic record typically receive strong protections against competing claims, similar to how buyers of physical goods are protected under other UCC articles.

Learn more: UCC Article 12 - Controllable Electronic Records

Disclaimer - This guide is for educational purposes only. It does not provide any legal advice. For the official text of the Uniform Commercial Code (UCC) or state-specific variations of the code, contact the Uniform Law Commission (ULC) or qualified legal professionals.