KRS 355.4A-202: Authorized and verified payment orders.

(1) A payment order received by the receiving bank is the authorized order of the

person identified as sender if that person authorized the order or is otherwise bound

by it under the law of agency.

(2) (a) If a bank and its customer have agreed that the authe nticity of payment orders

issued to the bank in the name of the customer as sender will be verified

pursuant to a security procedure, a payment order received by the receiving

bank is effective as the order of the customer, whether or not authorized, if:

1. The security procedure is a commercially reasonable method of

providing security against unauthorized payment orders; and

2. The bank proves that it accepted the payment order in good faith and in

compliance with the bank's obligations under the security procedure and

any agreement or instruction of the customer, evidenced by a record,

restricting acceptance of payment orders issued in the name the

customer.

(b) The bank is not required to follow an instruction that violates an agreement

with the customer, evidenced by a record, or notice of which is not received at

a time and in a manner affording the bank a reasonable opportunity to act on it

before the payment order is accepted.

(3) (a) Commercial reasonableness of a security procedure is a question of law to be

determined by considering the wishes of the customer expressed to the bank,

the circumstances of the customer known to the bank, including the size, type,

and frequency of payment orders normally issued by the customer to the bank,

alternative se curity procedures offered to the customer, and security

procedures in general use by customers and receiving banks similarly situated.

(b) A security procedure is deemed to be commercially reasonable if:

1. The security procedure was chosen by the customer after the bank

offered, and the customer refused, a security procedure that was

commercially reasonable for that customer; and

2. The customer expressly agreed in a record to be bound by any payment

order, whether or not authorized, issued in its name and accepted by the

bank in compliance with the bank's obligations under the security

procedure chosen by the customer.

(4) The term "sender" in this article includes the customer in whose name a payment

order is issued if the order is:

(a) The authorized order of the customer under subsection (1) of this section; or

(b) Effective as the order of the customer under subsection (2) of this section.

(5) This section applies to amendments and cancellations of paymen t orders to the

same extent it applies to payment orders.

(6) Except as provided in this section and in KRS 355.4A -203(1)(a), rights and

obligations arising under this section or KRS 355.4A -203 may not be varied by

agreement.