KRS 355.4-103: Variation by agreement -- Measure of damages -- Action constituting

ordinary care.

(1) The effect of the provisions of this article may be varied by agreement, but the

parties to the agreement cannot disclaim a bank's responsibility for its lack of good

faith or failure to exercise ordinary care or limit the measure of damages for the lack

or failure. However, the parties may determine by agreement the standards by which

the bank's responsibility is to be measured if those standards are not manifestl y

unreasonable.

(2) Federal Reserve regulations and operating circulars, clearing -house rules, and the

like have the effect of agreements under subsection (1) of this section, whether or

not specifically assented to by all parties interested in items handled.

(3) Action or nonaction approved by this article or pursuant to Federal Reserve

regulations or operating circulars is the exercise of ordinary care and, in the absence

of special instructions, action or nonaction consistent with clearing -house rules and

the like or with a general banking usage not disapproved by this article, is prima

facie the exercise of ordinary care.

(4) The specification or approval of certain procedures by this article is not disapproval

of other procedures that may be reasonable under the circumstances.

(5) The measure of damages for failure to exercise ordinary care in handling an item is

the amount of the item reduced by an amount that could not have been realized by

the exercise of ordinary care. If there is also bad faith it i ncludes any other damages

the party suffered as a proximate consequence.