KRS 355.3-405: Employer's responsibility for fraudulent indorsement by employee.

(1) In this section:

(a) "Employee" includes an independent contractor and employee of an

independent contractor retained by the employer;

(b) "Fraudulent indorsement" means:

1. In the case of an instrument payable to the employer, a forged

indorsement purporting to be that of the employer; or

2. In the case of an instrument with respect to which the employer is the

issuer, a forged indorsement purporting to be that of the person

identified as payee;

(c) "Responsibility" with respect to instruments means authority:

1. To sign or indorse instruments on behalf of the employer;

2. To process instruments received by the employer for bookkeeping

purposes, for deposit to an account, or for other disposition;

3. To prepare or process instruments for issue in the name of the employer;

4. To supply information determining the names or addresses of payees of

instruments to be issued in the name of the employer;

5. To control the disposition of instruments to be issued in the name of the

employer; or

6. To act otherwise with respect to instruments in a responsible capacity.

"Responsibility" does not include authority that merely allows an employee to

have access to instruments or blank or incomple te instrument forms that are

being stored or transported or are part of incoming or outgoing mail, or similar

access.

(2) For the purpose of determining the rights and liabilities of a person who, in good

faith, pays an instrument or takes it for value or for collection, if an employer

entrusted an employee with responsibility with respect to the instrument and the

employee or a person acting in concert with the employee makes a fraudulent

indorsement of the instrument, the indorsement is effective as the i ndorsement of

the person to whom the instrument is payable if it is made in the name of that

person. If the person paying the instrument or taking it for value or for collection

fails to exercise ordinary care in paying or taking the instrument and that fa ilure

substantially contributes to loss resulting from the fraud, the person bearing the loss

may recover from the person failing to exercise ordinary care to the extent the

failure to exercise ordinary care contributed to the loss.

(3) Under subsection (2 ) of this section, an indorsement is made in the name of the

person to whom an instrument is payable if:

(a) It is made in a name substantially similar to the name of that person; or

(b) The instrument, whether or not indorsed, is deposited in a depositary bank to

an account in a name substantially similar to the name of that person.