KRS 355.12-106: Discharge of account debtor on controllable account or controllable

payment intangible.

(1) An account debtor on a controllable account or controllable payment intangible

may discharge its obligation by paying:

(a) The person having control of the controllable electronic record that evidences

the controllable account or controllable payment intangible; or

(b) Except as provided in subsection (2) of this section, a person that formerly

had control of the controllable electronic record.

(2) Subject to subsection (4) of this section, the account debtor may not discharge its

obligation by paying a person that formerly had control of the controllable

electronic record if the account debtor receives a notification that:

(a) Is signed by a person that formerly had control or the person to which control

was transferred;

(b) Reasonably identifies the controllable account or controllable payment

intangible;

(c) Notifies the account debtor that control of the controllable electronic record

that evidences the controllable account or controllable payment intangible was

transferred;

(d) Identifies the transferee, in any reasonable way, including by name,

identifying number, cryptographic key, office, or account number; and

(e) Provides a commercially reasonable method by which the account debtor is to

pay the transferee.

(3) After receipt of a notification that complies with subsection (2) of this section, the

account debtor may discharge its obligation by paying in accordance with the

notification and may not discharge the obligation by paying a person that formerly

had control.

(4) Subject to subsection (8) of this section, notification is ineffective under subsection

(2) of this section:

(a) Unless, before the notification is sent, the account debtor and the person that,

at that time, had control of the controllable electronic recor d that evidences

the controllable account or controllable payment intangible agree in a signed

record to a commercially reasonable method by which a person may furnish

reasonable proof that control has been transferred;

(b) To the extent an agreement betwe en the account debtor and seller of a

payment intangible limits the account debtor's duty to pay a person other than

the seller and the limitation is effective under law other than this article; or

(c) At the option of the account debtor, if the notificati on notifies the account

debtor to:

1. Divide a payment;

2. Make less than the full amount of an installment or other periodic

payment; or

3. Pay any part of a payment by more than one (1) method or to more than

one (1) person.

(5) Subject to subsection (8) of this section, if requested by the account debtor, the

person giving the notification under subsection (2) of this section seasonably shall

furnish reasonable proof, using the method in the agreement referred to in

subsection (4)(a) of this section, tha t control of the controllable electronic record

has been transferred. Unless the person complies with the request, the account

debtor may discharge its obligation by paying a person that formerly had control,

even if the account debtor has received a notif ication under subsection (2) of this

section.

(6) A person furnishes reasonable proof under subsection (5) of this section that control

has been transferred if the person demonstrates, using the method in the agreement

referred to in subsection (4)(a) of this section, that the transferee has the power to:

(a) Avail itself of substantially all the benefit from the controllable electronic

record;

(b) Prevent others from availing themselves of substantially all the benefit from

the controllable electronic record; and

(c) Transfer the powers specified in paragraphs (a) and (b) of this subsection to

another person.

(7) Subject to subsection (8) of this section, an account debtor may not waive or vary

its rights under subsections (4)(a) and (5) of this section or its option under

subsection (4)(c) of this section.

(8) This section is subject to law other than this article which establishes a different

rule for an account debtor who is an individual and who incurred the obligation

primarily for personal, family, or household purposes.