KRS 355.4-402: Bank's liability to customer for wrongful dishonor -- Time of

determining insufficiency of account.

(1) Except as otherwise provided in this article, a payor bank wrongfully dishonors an

item if it dishonors an item that is properly payable, but a b ank may dishonor an

item that would create an overdraft unless it has agreed to pay the overdraft.

(2) A payor bank is liable to its customer for damages proximately caused by the

wrongful dishonor of an item. Liability is limited to actual damages proved and may

include damages for an arrest or prosecution of the customer or other consequential

damages. Whether any consequential damages are proximately caused by the

wrongful dishonor is a question of fact to be determined in each case.

(3) A payor bank's determination of the customer's account balance on which a decision

to dishonor for insufficiency of available funds is based may be made at any time

between the time the item is received by the payor bank and the time that the payor

bank returns the item o r gives notice in lieu of return, and no more than one

determination need be made. If, at the election of the payor bank, a subsequent

balance determination is made for the purpose of reevaluating the bank's decision to

dishonor the item, the account balan ce at that time is determinative of whether a

dishonor for insufficiency of available funds is wrongful.