the contract. Because of the views already was cashier of the bank, owning a controlexpressed it is unnecessary to consider what, if any, application might be made of that principle here. The judgment is reversed, and the cause is remanded, with directions to render judgment for the defendant; the essential facts not being in dispute. All the Justices concurring. (98 Kan. 412) ARNOLD INV. CO. v. CITIZENS' STATE BANK OF CHAUTAUQUA et al. (No. 20613.) ling interest, until January, 1913, when he sold out and was succeeded by Turner. Wal-. terhouse had prior to this borrowed from the plaintiff (or from individuals who afterwards formed the plaintiff company), upon his own notes secured only by collateral which he had forged, to the amount of $25,041.08, and had sold to the plaintiff forged notes and mortgages indorsed by him, bringing the amount of his indebtedness up to $26,577.58. Turner, apparently to save Walterhouse from exposure, took care of this paper as it matured, paying the holder out of the funds of the (Supreme Court of Kansas. June 10, 1916.) bank. Turner then, obviously for the princi (Syllabus by the Court.) BANKS AND BANKING 80(4)-INSOLVENCY -RECEIVERSHIP-PREFERRED CLAIM. The owner of money fraudulently obtained and used in the business of an insolvent bank, by its cashier, is not entitled to repayment by the receiver, in preference to other creditors, except so far as he shows that the assets which reached the hands of the receiver were larger by reason of such transaction than they would otherwise have been; it is not enough to show that the assets of the bank were increased, or that the money was used in reducing its indebtedness. [Ed. Note.-For other cases, see Banks and Banking, Cent. Dig. §§ 187, 188; Dec. Dig. 80(4).] Appeal from District Court, Chautauqua County. Action by the Arnold Investment Company against the Citizens' State Bank of Chautauqua and its receiver. From a judgment for plaintiff, defendant receiver appeals. Judgment reversed in part and remanded, with directions. S. M. Brewster and S. N. Hawkes, both of Topeka, and T. A. Kramer, of El Dorado, for appellant. Holmes, Holmes & Page, Gilmore & Brown, and Pew & Proctor, all of Kansas City, Mo., and J. J. Campbell, of Pittsburg, for appellee. MASON, J. On January 27, 1915, the bank commissioner took charge of the Citizens' State Bank of Chautauqua, and shortly thereafter a receiver was appointed. It developed that the bank was insolvent, a condition obviously brought about largely at least through the fraudulent operations of its cashier, F. E. Turner. The Arnold Investment Company had purchased of Turner a number of notes and mortgages which he had forged, paying therefor in all $34,042.75. It brought an action to have the property in the hands of the receiver impressed with a trust for its benefit to this amount, on the theory that the money of which it had been thus defrauded had gone into and become a part of the assets of the bank. It recovered a judgment in accordance with the prayer of its petition, and the receiver appeals. The question involved is whether the evidence was sufficient to support the judgment. It showed these facts: C. R. Walterhouse pal purpose of filling or concealing the shortage in the funds of the bank thus occasioned, forged a number of notes and mortgages, payable to J. M. Vandeventer (the president of the bank) and himself, and indorsed by them, the Vandeventer signature being spurious, which he sold to the plaintiff. Transactions of this kind, by which the plaintiff paid $1,789.79, took place prior to the time (October 1, 1913) when all the Walterhouse paper had been taken care of, and after that date the plaintiff was in the same way defrauded of $34,042.75, the amount for which it obtained judgment in this action. The plaintiff paid for the forged paper, in each instance, by depositing the purchase price in a Kansas City bank, which was the correspondent of the Citizens' State Bank, "to the credit of the Citizens' State Bank, for the use and benefit of J. M. Vandeventer and F. E. Turner." The Kansas City bank entered these deposits to the credit of the Chautauqua bank without qualification, holding them subject to its order, paying no regard to the designation of the beneficiaries except to repeat it in giving notice of the credit. As notice was received of each of these deposits, Turner caused an entry to be made on the books of his bank charging the Kansas City bank with the amount indicated, but no entry was ever made crediting it to Vandeventer & Turner, as would have been done if the transaction had been genuine. From time to time the fund in the Kansas City bank was increased by other items, the nature of which was not shown, and diminished by the payment of drafts issued by Turner as cashier, and other disbursements authorized by him in that capacity. When the account was closed by the receiver it had been reduced to $142.65. When the commissioner took charge the bank's cash, including credits with its correspondents, amounted to about $3,800. At the time of the trial, in February, 1916, the receiver had on hand between $24,000 and $25,000 in money, $5,000 of which had been collected on the cashier's official bond, and a number of notes, some good, some doubtful, and some worthless, neither the face nor the actual value having been shown. Although the plaintiff, at the time of the surrender of the Walterhouse paper, received The plaintiff showed that its money, after the bank's money in exchange for worthless being deposited in the Kansas City bank, securities, the transaction really amounted to was paid out on the order of Turner as cashits innocent acceptance from Walterhouse, in ier; that it was used by the bank. But the payment of his genuine indebtedness, of cash rights of the plaintiff depend upon the parembezzled by Turner. Therefore the plain- ticular use that was made of it. If the bank tiff's title to the money is not assailable. bought with it notes or other property that Benjamin v. Bank, 158 Pac. 65, decided afterwards came into the hands of the reat this session; Nassau Bank v. Nat. Bank ceiver, in the original form or in some other, of Newburgh, 159 N. Y. 456, 54 N. E. 66. then to that extent the plaintiff was entitled to And, since this transaction was completed repayment before the declaration of any genbefore the fraud sought to be redressed in eral dividend. But if it used the money to this action was perpetrated, it can have no pay debts of Turner, or even to pay valid indirect bearing upon the merits of the case, debtedness of the bank, that circumstance Turner's knowledge of the fraud by which does not make a preferred creditor of the he obtained the money from the plaintiff is plaintiff. The reason for the distinction is imputable to the bank, for which he acted clear, although it has not always been rein accepting the proceeds. Peak v. Ellicott, garded. Priority of payment cannot be conAssignee, 30 Kan. 156, 162, 1 Pac. 499, 46 ceded to a particular creditor of an insolvent Am. Rep. 90. The plaintiff therefore has a estate merely because his claim originated valid demand against the bank as a general in a fraud practiced upon him. Such prefcreditor. But its claim to a preference must erence as he is given must be based upon the be denied because it has failed to trace any equities of the case, considering the rights of of its funds into the hands of the receiver. all the parties affected. If a solvent conIt has not proved-and indeed it has not cern wrongfully appropriates the money of pleaded-that the assets that came into the another to its own use, the effect is the same hands of the receiver were increased by the whether it buys property with it or pays a use that was made of its money. For any debt. But there no question of practical imthing that appears in the record, substan-portance can arise as to the trust character tially all the money, credits, and other prop- of the claim, inasmuch as it can be collected erty held by the receiver may have been in in full in any event. In the case of an inthe possession of the bank before the plain-solvent concern, however, the situation is tiff bought any of the paper forged by Turn- entirely different. If the money misappropriTo support its claim of priority theated reaches the hands of the custodian who plaintiff was not required to show that any administers the estate, in its original form of the specific funds obtained from it reached the receiver, or to identify any particular hands are thereby increased by the amount or in any other-that is, if the assets in his property held by him as the proceeds thereof. fraudulently obtained-the fund can be reBut no recovery on that basis could be had stored to the lawful owner, and no one will without showing that the assets that came into the hands of the receiver were larger than they would have been but for the wrongful obtaining of the plaintiff's money. It is not enough to show that the assets of the bank were increased by the deposit to its credit of the money obtained from the plain er. tiff. That condition necessarily results whenever money is paid to a bank, whatever may afterwards become of it. It is not enough that what may be called the net value of the insolvent estate to be administered has been increased-that the discrepancy between the liabilities and assets is diminished; that the percentage disbursed in dividends shall be enlarged. The test is whether the money which was wrongfully obtained has been so disposed of as to increase the fund that reaches the hands of the person charged with administering the insolvent estate, to be by him distributed among the creditors. For instance, if the only assets that came into the hands of the receiver of a national bank should be the proceeds of an assessment upon the stockholders, it is clear that they could not be impressed with a trust with respect to money wrongfully converted to its use by its officers, whatever disposition might have been made of it. be any worse off than if the transaction never had occurred. Restitution is made to the person defrauded, no one else is injured, and the original status is restored as to every one concerned. The transaction is simply undone, the result being the same whatever complications may have ensued, provided it is possible to establish that the fund to be disbursed has been made that much larger by reason of the wrongful obtaining of the money. But, if the money is used to pay in full a claim against the insolvent, the claimant who receives the payment 'gets more than he is entitled to, at the ultimate expense of the other creditors, if full restoration be made of the misappropriated fund. Here the capital stock of the bank was $10,000. When it was looted of $25,000 to protect the forgeries of Walterhouse it, of course, became insolvent. For the purpose of illustration let us assume that prior to this time its liabilities to creditors were $50,000 and its assets $60,000, so that on liquidation it could have paid its creditors and stockholders in full. Then by the embezzlement of $25,000 the stock was rendered valueless and each claim was subjected to a discount of 30 cents on the $1; the aggregate of $50,000 in claims being reduced in actual value to W. 115, 59 Am. St. Rep. 572, and in Carley v. $35,000. If in that situation the $30,000 Graves, 85 Mich. 483, 48 N. W. 710, 24 Am. (to use a round number) wrongfully obtained St. Rep. 99. But the Wisconsin case was from the plaintiff were used to pay claims afterwards overruled (Nonotuck Silk Co. v. against the bank, its total indebtedness was Flanders, 87 Wis. 237, 58 N. W. 383), as were thereby reduced to $20,000. If in such cir- the other cases cited (two of them expressly, cumstances the receiver should now pay the and one by implication), so that each of the plaintiff's claim in full, there would remain four states named the law on the subject but $5,000 to be distributed among depositors under discussion is now administered in acor other creditors, as innocent as the plain-cordance with the generally accepted rule, tiff of wrongdoing or neglect, who had parted as it has already been stated. Bradley v. with $20,000, and who, if the transaction Chesebrough, 111 Iowa, 126, 82 N. W. 472; between Turner and the plaintiff and the bank had never taken place, need have lost only 30 per cent. of their investment, instead of 75 per cent. The fact that other creditors may have reaped a corresponding advantage, to which they were not entitled, affords no justification for inflicting this additional loss on their less fortunate associates. The fund into which the misappropriated money must be traced (that is, the fund which must be shown to be larger by reason thereof than it would otherwise have been) in order that a preference may be allowed is the fund derived from the property that is still on hand when the system is instituted of dividing the remaining assets of the insolvent among creditors in proportion to their demands. The defrauded claimant is entitled to receive from that fund just what he can show that he contributed to it, and no more. He need not show that it is made up of the very specie obtained from him, nor need he be able to show that any particular portion of it resulted from the fraud practiced upon him. But he must show that it is larger by the amount of his claim than it would have been except for his contribution. Fire & Water Com'rs v. Wilkinson, 119 Mich. 655, 78 N. W. 893, 44 L. R. A. 493; State v. Bank of Commerce, 54 Neb. 725, 75 N. W. 28; City of Lincoln v. Morrison, 64 Neb. 822, 90 N. W. 905, 57 L. R. A. 885. In Myers v. Board of Education, 51 Kan. 87, 32 Pac. 658, 37 Am. St. Rep. 263, this court cited with approval the earlier Wisconsin case, but in later decisions the distinctions referred to have been noted and given effect, as shown by these quotations: v. "A trust is not imposed on the assignee unless the funds of the plaintiff actually came into with the estate, or had been used by the assignor his hands in their original form, or commingled to swell and increase the estate which passed by the deed of assignment. Myers v. Board of Education, 51 Kan. 87 [32 Pac. 658, 37 Am. St. Rep. 263] Hubbard v. Irrigation Co., 53 Kan. 637 [36 Pac. 1053, 37 Pac. 625]. This case, unlike any other that has been considered by the money came into the hands of the assignee this court, rests on the bare presumption that because it had been received by the assignor a short time before the assignment, and had never been repaid to the plaintiff.' Burrows Johntz, 57 Kan. 778, 782, 48 Pac. 27, 28. "The fund itself, or something into which it has gone and which stands as its representative, must be on hand, subject to identification, and separable from the general assets, in order to charge the assignee with the trust; or, if the fund has been so commingled with the general assets as to be incapable of identification or tracing, the estate which came to the assignee must ciable and tangible way, in order to charge it have been augmented or bettered, in an apprewith the trust. The mere saving of the estate by the discharge of general indebtedness otherwise payable out of it, or by the payment of the current expenses of the business, is not an augmentation or betterment of the estate, within the meaning of the rule." Insurance Co. v. Caldwell, 59 Kan. 156, 158, 52 Pac. 440. With respect to the views just stated there is little real difference of judicial opinion. Such as there is appears to arise less from a want of agreement upon the principles that should control than from a lack of uniformity in their application, and especially from the failure to keep in mind the distinction betwen an increase in the assets of an insolvent business as a going concern and an increase in the assets that reach the hands of the person charged with winding up its affairs; between, on the one hand, preserving assets although changing their form from money to credit or to specific property, and, on the other, dissipating them by paying dollar for dollar on claims that should* have been subjected to a discount. A majority of the court failed to give effect to this distinction in McLeod v. Evans, Assignee, etc., 66 Wis. 401, 28 N. W. 173, 214, 57 Am. Rep. 287. The same result was afterwards reached, in part at least through the influence of that decision, in Davenport Plow The principle by which the case is controlCo. v. Lamp, 80 lowa, 722, 45 N. W. 1049, led is well settled, and a further review of 20 Am. St. Rep. 442, in Capital Nat. Bank the authorities is not regarded as necessary. "In some of the cited cases the doctrine of the impressibility of insolvent estates with trusts was carried to the full length, and language is used which, taken apart from the facts in the cases, might give countenance to a rule that, if the trust fund had been used by the trustee even for the payment of his general which passed to his assignee, it would be suffiindebtedness, and without increasing the estate cient to charge the whole estate with a trust. * (Quoting the foregoing excerpt from Insurance Co. v. Caldwell.) From the testimony, it appears to us that the trust fund went into and enlarged the assets of the bank, and that it was a part of the estate which passed into the hands of the receiver, and is thereKan. 788, 794, 797, 64 Pac. 634, 636. fore a charge upon it." Bank v. Bank, 62 * * 78 N. E. 402, 6 L. R. A. (N. S.) 487, annotated in 116 Am. St. Rep. 230, 7 Ann. Cas. 551; note 15 L. R. A. (N. S.) 1100; note 86 Am. St. Rep. 802-807; Empire State Surety Co. v. Carroll County, 194 Fed. 593, 604-605, 114 C. C. A. 435; Clinton M. & M. Co. v. T. Co. of N. A., 35 S. D. 253, 151 N. W. 998. The portion of the judgment awarding the plaintiff priority of payment is reversed, and the cause is remanded, with directions to render judgment for the defendants on that issue. All the Justices concurring. (98 Kan. 279) WESTERN SILO CO. v. CARTER. * (No. 20201.) tive. Held, that the delay of the buyer in giving the written notice was waived by the seller. [Ed. Note.-For other cases, see Sales, Cent. Dig. § 439; Dec. Dig. 176(3).] Appeal from District Court, Lyon County. Action by the Western Silo Company against M. V. Carter. Judgment for defendant, and plaintiff appeals. Affirmed. L. B. Kellogg and Frith & Frith, all of Emporia, for appellant. W. L. Huggins and O. T. Atherton, both of Emporia, for appellee. JOHNSTON, C. J. This action was brought by the Western Silo Company against M. V. Carter, to recover the contract price of a wooden silo sold and deliv (Supreme Court of Kansas. June 10, 1916.) ered to Carter. The defense was that the (Syllabus by the Court.) 1. PLEADING 236(3) — AMENDMENT - DisCRETION OF COURT. The allowance of an amendment to a pleading at the opening of a trial, under which a party was permitted to set forth the amount of one element of damages which he had sustained because of facts already pleaded, is not an abuse of discretion nor a ground of reversal, especially where the court offered to give the objecting party a continuance of the case in order to make preparation to meet the new matter, which offer was refused. [Ed. Note. For other cases, see Pleading, Cent. Dig. § 601; Dec. Dig. 236(3).] 2. SALES 418(16)—REMEDIES OF BUYER DAMAGES FOR BREACH OF CONTRACT. plaintiff had failed to comply with its contract, and in a cross-petition defendant asked for damages sustained by loss of crops on account of the plaintiff's delay in shipping the silo, and also on account of defects in it. On June 10, 1912, the defendant had given his order, written upon one of the blanks furnished by the company's agent, calling for a silo 16 feet in diameter, made of yellow pine and priced at $238, to be shipped by August 1st, or at the plaintiff's earliest convenience. The order provided that the plaintiff was to be notified in writing of any missing or defective parts upon receipt of the silo, that it should have a reasonable time in which to replace such parts, and that when such replacements were made its responsibility would cease. It appears that the defendant, relying on the contract to deliver the silo, had planted a crop for ensilage, and under the direction of Wingert, the plaintiff's agent, had built a foundation upon which to erect a silo of the size purchased from the plaintiff. The silo was not received by the defendant until the middle of September, although it seems the plaintiff could have shipped it by August 5th. The defendant noticed when the shipment arrived that the materials were defective, but with the assistance of the agent he undertook to place the silo upon the foundation, and it was then found that there were three staves lacking, so that it was too small for the foundation; that the guy rods were too short; that the hoops did not fit; that the staves did not join tightly; and that there were knot holes in the material. It In the contract the buyer agreed that if appears that while the defendant was waitupon receipt of the silo any parts were found to be defective or missing he would at once notifying for the silo to arrive, his crop, which the seller in writing and give him reasonable had already ripened, dried up to such an extime to replace the parts, and that when such tent as to reduce its value as ensilage about replacements were made, the seller's responsibil- 50 per cent., but notice of this was not given ity would cease. The buyer did not give the seller written notice of the defects until January 18th following the delivery, nor was any notice given except to the local agent who made the sale. After the notice was given the seller entered into negotiations with the buyer in regard to remedying the defects, and expressed a willingness to supply what was lacking and defec Where a person agrees to make and sell a silo to another to be used and filled with ensilage from a growing crop, and to deliver the silo to the buyer on August 1st of that year or at the earliest convenience of the seller, but which was not delivered until September 20th following, although the seller could have conveniently shipped it to the buyer on August 5th, and where the silo delivered was defective in several respects and the result of the delay in delivering it was the ripening and deterioration of the crop planted by the buyer to be placed in the silo, the seller is liable, not only for the difference in value between the kind of silo purchased and the defective one delivered, but also for such damages as are the reasonable and natural consequences of the breach of the contract; and the deterioration of the crop grown to be placed in the silo because of the delay may reasonably be supposed to have been in the contemplation of the parties when the contract was made, and for this loss the seller is liable. [Ed. Note. For other cases, see Sales, Cent. Dig. 1197; Dec. Dig. 418(16).] 3. SALES 176(3)-WARRANTIES-NOTICE OF BREACH-WAIVER. to the plaintiff at the time of delivery. The For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes ed to make the silo large enough to fit his foundation. After the crop was placed in the silo, the defects in the latter caused a loss of about 40 tons of ensilage, alleged to be of the value of about $225. The first written notice given by the defendant to the plaintiff was in a letter written January 18, 1913, after which considerable correspondence on the matter was had between them. At the trial the plaintiff demurred to the cross-petition of the defendant. The court overruled the demurrer, but permitted the defendant to amend his cross-petition instanter, so as to set forth more fully the nature and extent of the loss resulting from the delay in shipping the silo. He was confined to proof of such damages, the court excluding all testimony of damages to ensilage after it was put in the silo. The court offered to permit a continuance at the defendant's cost on account of the amendment, but the plaintiff objected to a continuance, and elected to go to trial at that time. The defendant recovered judgment for $60, this being the difference between the damages which the jury found he had suffered, amounting to $175, and the reasonable value of the silo as shipped, which the jury found to be $115. [1] The plaintiff complains of the ruling of the court permitting an amendment of the defendant's answer and cross-petition in respect to the damages resulting from the delay in the delivery of the silo. After the jury had been impaneled a question arose as to whether the defendant might offer evidence to prove damage to the ensilage after it had been placed in the silo, and the court held that such evidence was not admissible. Application was then made by the defendant for permission to amend his pleading as to the damage to his crop resulting from the delay in the arrival of the silo. It was already alleged in his pleading that at the time of ordering the silo he informed the plaintiff's agent making the sale that he had planted a crop especially for ensilage purposes, and must have the silo about August 1st, and, further, that the crop was greatly damaged because it was not delivered at the agreed time, but he had not stated the amount of the damage to his crop because of this delay. The amendment was made by interlineation and it only added: "That said crop had deteriorated in value, in that at the time said silo should have arrived if shipped within a reasonable time under said order, it would have been worth $700, while at the time said silo actually arrived, said crop was worth not to exceed $360." The allowance of the amendment was well within the discretion of the trial court. To protect the rights of the plaintiff in case it was not prepared to meet the evidence as to the extent of the damage resulting from the delay, the court offered to continue the case, but the plaintiff refused this offer, and time. Manifestly the plaintiff has no cause to complain of the amendment. [2, 3] The principal contention in the appeal is that the defendant was not entitled to a reduction in the price of the silo because of the defects in it, nor to any damages which resulted from the delay in the delivery of the silo. It is first contended that the defendant failed to give the plaintiff notice of the defects promptly upon discovering them as he had agreed to do, and that therefore he could not rely on the defects as a defense. In the order for the silo the defendant stated that if upon its receipt he found parts of it to be defective or missing, he would at once notify the plaintiff in writing, and give it a reasonable time to replace such parts. The plaintiff's agent had notice of the defects and missing parts, and tried to help the defendant to overcome them. On account of the lateness of the season and the rapid drying up and deterioration of the corn, staves were obtained in the vicinity. The lapse of time necessary to have sent to Des Moines where the plaintiff's factory was located to obtain staves would have greatly lessened the value of the crop planted for ensilage, and correspondingly increased the resulting damages. ing upon the suggestion of the agent, the defendant undertook to make the best out of the material received, and to reduce the constantly accruing damages. Where a thing sold does not meet the conditions of the contract between the parties and the defect is one that it is practicable to repair, it is the duty of the purchaser to take reasonable steps to have the repairs made and do what he reasonably can to diminish the damages to which the seller will be liable. Lumber Co. v. Sutton, 46 Kan. 192, 26 Pac. 444; Town Co. v. Leonard, 46 Kan. 354, 26 Pac. 717, 26 Am. St. Rep. 101; Frick Co. v. Falk, 50 Kan. 644, 32 Pac. 360; 63 Kan. 584, 66 Pac. 639. Act Brown v. Cairns, |