KRS 355.9-207: Rights and duties of secured party having possession or control of

collateral.

(1) Except as otherwise provided in subsection (4) of this section:

(a) A secured party shall use reasonable care in the custody and preservation of

collateral in the secured party's possession; and

(b) In the case of chattel paper or an instrument, reasonable care includes taking

necessary steps to preserve rights against prior parties unless otherwise

agreed.

(2) Except as otherwise provided in subsection (4) of this section, if a secured party has

possession of collateral:

(a) Reasonable expenses, including the cost of insurance and payment of taxes or

other charges, incurred in the custody, preservation, use, or operation of the

collateral are chargeable to the debtor and are secured by the collateral;

(b) The risk of accidental loss or damage is on the debtor to the extent of a

deficiency in any effective insurance coverage;

(c) The secured party shall keep the collateral identifiable, but fungible coll ateral

may be commingled; and

(d) The secured party may use or operate the collateral:

1. For the purpose of preserving the collateral or its value;

2. As permitted by an order of a court having competent jurisdiction; or

3. Except in the case of consumer goods, in the manner and to the extent

agreed by the debtor.

(3) Except as otherwise provided in subsection (4) of this section, a secured party

having possession of collateral or control of collateral under KRS 355.7-106, 355.9-

104, 355.9-105, 355.9-1051, 355.9-106, 355.9-107, or 355.9-1071:

(a) May hold as additional security any proceeds, except money or funds,

received from the collateral;

(b) Shall apply money or funds received from the collateral to reduce the secured

obligation, unless remitted to the debtor; and

(c) May create a security interest in the collateral.

(4) If the secured party is a buyer of accounts, chattel paper, payment intangibles, or

promissory notes or a consignor:

(a) Subsection (1) of this section does not apply unless the secured party is

entitled under an agreement:

1. To charge back uncollected collateral; or

2. Otherwise to full or limited recourse against the debtor or a se condary

obligor based on the nonpayment or other default of an account debtor

or other obligor on the collateral; and

(b) Subsections (2) and (3) of this section do not apply.