KRS 355.3-310: Effect of instrument on obligation for which taken.

(1) Unless otherwise agreed, if a certified check, cashier's check, or teller's check is

taken for an obligation, the obligation is discharged to the same extent discharge

would result if an amount of money equal to the amount of the instrument were

taken in p ayment of the obligation. Discharge of the obligation does not affect any

liability that the obligor may have as an indorser of the instrument.

(2) Unless otherwise agreed and except as provided in subsection (1) of this section, if

a note or an uncertified check is taken for an obligation, the obligation is suspended

to the same extent the obligation would be discharged if an amount of money equal

to the amount of the instrument were taken, and the following rules apply:

(a) In the case of an uncertified c heck, suspension of the obligation continues

until dishonor of the check or until it is paid or certified. Payment or

certification of the check results in discharge of the obligation to the extent of

the amount of the check.

(b) In the case of a note, sus pension of the obligation continues until dishonor of

the note or until it is paid. Payment of the note results in discharge of the

obligation to the extent of the payment.

(c) Except as provided in paragraph (d) of this subsection, if the check or note is

dishonored and the obligee of the obligation for which the instrument was

taken is the person entitled to enforce the instrument, the obligee may enforce

either the instrument or the obligation. In the case of an instrument of a third

person which is nego tiated to the obligee by the obligor, discharge of the

obligor on the instrument also discharges the obligation.

(d) If the person entitled to enforce the instrument taken for an obligation is a

person other than the obligee, the obligee may not enforce th e obligation to

the extent the obligation is suspended. If the obligee is the person entitled to

enforce the instrument but no longer has possession of it because it was lost,

stolen, or destroyed, the obligation may not be enforced to the extent of the

amount payable on the instrument, and to that extent the obligee's rights

against the obligor are limited to enforcement of the instrument.

(3) If an instrument other than one described in subsection (1) or (2) of this section is

taken for an obligation, the effect is:

(a) That stated in subsection (1) of this section if the instrument is one (1) on

which a bank is liable as maker or acceptor; or

(b) That stated in subsection (2) of this section in any other case.