KRS 355.4-406: Customer's duty to discover and report unauthorized signature or

alteration.

(1) A bank that sends or makes available to a customer a statement of account showing

payment of items for the account shall either return or make available to the

customer the items paid or provide information in the statement of account

sufficient to allow the customer reasonably to identify the items paid. The statement

of account provides sufficient information if the item is described by item number,

amount, and date of payment.

(2) If the items are not returned to the customer, the person retaining the items shall

either retain the items or, if the items are destroyed, maintain the capacity to furnish

legible copies of the items until the expiration of seven (7) years a fter receipt of the

items. A customer may request an item from the bank that paid the item, and that

bank must provide in a reasonable time either the item or, if the item has been

destroyed or is not otherwise obtainable, a legible copy of the item.

(3) If a bank sends or makes available a statement of account or items pursuant to

subsection (1) of this section, the customer must exercise reasonable promptness in

examining the statement or the items to determine whether any payment was not

authorized because of an alteration of an item or because a purported signature by or

on behalf of the customer was not authorized. If, based on the statement or items

provided, the customer should reasonably have discovered the unauthorized

payment, the customer must promptly notify the bank of the relevant facts.

(4) If the bank proves that the customer failed, with respect to an item, to comply with

the duties imposed on the customer by subsection (3) of this section, the customer is

precluded from asserting against the bank:

(a) The customer's unauthorized signature or any alteration on the item, if the

bank also proves that it suffered a loss by reason of the failure; and

(b) The customer's unauthorized signature or alteration by the same wrongdoer on

any other item paid in good faith by the bank if the payment was made before

the bank received notice from the customer of the unauthorized signature or

alteration and after the customer had been afforded a reasonable period of

time, not exceeding thirty (30) days, in whic h to examine the item or

statement of account and notify the bank.

(5) If subsection (4) of this section applies and the customer proves that the bank failed

to exercise ordinary care in paying the item and that the failure substantially

contributed to los s, the loss is allocated between the customer precluded and the

bank asserting the preclusion according to the extent to which the failure of the

customer to comply with subsection (3) of this section and the failure of the bank to

exercise ordinary care c ontributed to the loss. If the customer proves that the bank

did not pay the item in good faith, the preclusion under subsection (4) of this section

does not apply.

(6) Without regard to care or lack of care of either the customer or the bank, a customer

who does not within one (1) year after the statement or items are made available to

the customer (subsection (1)) discover and report the customer's unauthorized

signature on or any alteration on the item is precluded from asserting against the

bank the una uthorized signature or alteration. If there is a preclusion under this

subsection, the payor bank may not recover for breach of warranty under KRS

355.4-208 with respect to the unauthorized signature or alteration to which the

preclusion applies.