From the record herein it appears that in the course of the conduct of the business in which plaintiff was engaged, on each of numerous occasions his office manager received certain checks which theretofore had been made payable to plaintiff; that thereupon plaintiff’s said office manager forged upon them the name of the payee and negotiated them with defendant Wascher, who paid full value therefor; that plaintiff’s said manager wrongfully converted the value of said checks to his own use; that upon such receipt of said»checks, in the ordinary course of his business, defendant Wascher deposited them in his bank account with the defendant bank, which thereafter presented them to the respective drawees thereof, and received full payment therefor. It also appears that at and during all the times in question plaintiff was indemnified against damage *94 which might result from the wrongful acts of his office manager by a bond which theretofore had been executed by United States Guarantee Company, and that following the discovery of said manager’s dishonesty in the premises, the bond company reimbursed plaintiff for the loss which thus had been sustained by him. At the same time plaintiff assigned to the bond company any cause of action of which he then was the owner as against the defendant bank, together with the right to maintain an action at law thereon in the name of plaintiff. Acting in behalf of the assignee, plaintiff brought this action. In pursuance of the commencement and prosecution of such action, a judgment was rendered in favor of plaintiff, and it is from such judgment that the instant appeal is presented to this court.
On the part of appellant bank, in effect, it is contended that whatever right plaintiff’s assignee may have had to maintain an action against the defendants, ultimately, if at all, its success must have depended upon an application of the doctrine of subrogation. On the other hand, respondent insistently urges the point that since originally he was the owner of an assignable cause of action against the defendant bank, he also had the legal right to assign it to his indemnitor; furthermore, that because both the right of action and its assignment were legal in their nature, the action was one at law, with the necessary consequence that the equitable doctrine of subrogation was inapplicable.
In that regard, at the outset, it should be noted that assignment of an assignable cause of action is but one of the recognized forms of subrogation, and that when one is entitled to substitution in the place of one entitled to institute and to maintain an action, neither a written, nor an oral contract, is necessary to effect a transfer of such right; consequently, with reference thereto, repeatedly it has been ruled not only that a formal, written assignment of a claim of the nature of that here involved adds nothing to the enforceability by the assignee of the cause of action, but also, that it is subject to the same defenses as though no assignment thereof of any sort had been made. Notwithstanding that principle of law, with respect to the factual situation hereinbefore set forth, great reliance is placed by respondent in the ruling announced 'in the analogous case of
Grubnau
v.
Centennial Nat. Bank,
Nor, in that regard, may it be said that the legal principle there declared is out of harmony with other precedents of like nature, as may be noted on consideration of the following authorities cited by respondent:
Metropolitan Casualty Ins. Co.
v.
First Nat. Bank in Detroit,
But in appellants’ behalf, especially with reference to the foundation upon which in an action of this character, a right of a substituted plaintiff to maintain a suit for the recovery of damages originally suffered by another must rest, appellants have directed the attention of this court to a line of cases which in their legal effect is wholly at variance with those to which reference hereinbefore has been had.
However, before proceeding to a consideration of the pertinent authorities, a statement that occurs in 60 C. J., page 749, with reference thereto should be noted, to wit: “While the creditor may properly make an assignment of his rights and remedies to the surety where the surety is entitled to be subrogated, the completion of the surety’s subrogation, and his right to pursue the rights and remedies of the creditor, is not dependent on the willingness of the latter to make an assignment, for in equity the surety’s payment causes an assignment by operation of law and no formal assignment or transfer is necessary. On the other hand, it seems that, if the surety is not entitled to subrogation, an assignment by the creditor will be ineffectual to give the surety a right of subrogation he would not otherwise have.” (Italics added.)
Illustrative of that rule, is the case of American Surety Co. of N. Y. v. Lewis State Bank, 58 Fed. (2d) 559, wherein *96 suit was brought against the bank by the surety on a state game commissioner’s bond, to recover by right of subrogation for the payment of warrants fraudulently drawn by its principal to fictitious payees. After the surety had paid the state the amounts of the moneys thus converted, it took an assignment, or “subrogation agreement”, to all actions which the state had against the defaulter or any third person answerable to the former or to the state. The contention was made that the suit was one in the right of its assignor, the state of Florida, which could not have maintained the suit in the federal court. In holding this contention to be without merit the court said: “The cause of action asserted here is one in equity for subrogation, not at law upon the assignment. ... It (subrogation) is properly applied in favor of a surety on a fidelity bond only against persons who have participated in the wrong of its principal. ... It is never applied against an innocent person wronged by the principal’s fraud.” (Italics added.)
In the case of
American Bonding Co. of Baltimore
v.
State Sav. Bank,
Likewise, in the case of
Louisville Trust Co.
v.
Royal Indemnity Co.,
Under these cases the conclusion seems inevitable that one who asserts a right of subrogation, whether by virtue of an assignment or otherwise, must first show a right in equity to be entitled to such subrogation, or substitution, and *97 that where such right is clearly shown by the application of equitable principles, an assignment adds nothing to his right thereto. Otherwise stated, where by the application of equitable principles, a surety has been found not to be entitled to subrogation, an assignment will not confer upon him the right to be so substituted in an action at law upon the assignment. His rights must be measured by the application of equitable principles in the first instance, his recovery being dependable upon a right in equity, and not by virtue of an asserted legal right under an assignment. With these conclusions as a premise, we shall proceed to an examination of the line of cases relied upon by appellant bank as authority for its contention that in equity respondent has no right of subrogation under the facts of this case.
In the case of
New York Title & Mortgage Co.
v.
First Nat. Bank,
51 Fed. (2d) 485 [77 A. L. R. 1052], a loan broker, through forgeries and misrepresentations procured title insurance policies, by which a loan association was guaranteed against loss by reason of defects in the mortgagor’s title to realty described in mortgages or deeds of trust by which certain loans- were secured. In each case, the purported borrower was a fictitious person. In that connection, upon his receipt of a check from the loan association, the broker forged the name of the payee thereof, deposited it in the drawee bank and converted the proceeds to his own use. The bank, after paying such check, charged the amount thereof to the account of the loan company. The title insurer paid the loss to the loan company and brought suit against the bank for the total amount so paid. In that case the court pointed out that there were two independent contracts involved, the one being that the bank would not pay the checks of its depositor upon forged indorsements, and the other, that existing between the loan company and the plaintiff indemnitor. The court said: “Plaintiff’s payment to the loan company was a discharge of its primary contract liability. . . . Plaintiff paid the loan company only what it contracted primarily to do, but now, retaining the premiums or benefit of its contract, it seeks reimbursement from the bank, on the theory that the bank, under a wholly separate and independent contract, was liable to the loan company for having paid checks on forged indorsements. ... If we assume that neither the plaintiff nor the bank was the wrongdoer, but, by independent contract obligation, each was liable to the loan company, then
*98
the satisfaction of such primary liability by the plaintiff would not give rise to a right to recover against the bank under the doctrine of subrogation, the bank not being a wrongdoer (citing cases). But if there were any doubt as to the soundness of this position, we think it clear that plaintiff is not entitled to invoke the remedy
of
subrogation, because that right is an equitable one, and is applicable in cases in which one party is required to pay a debt for which another is primarily answerable, and which, in equity and good conscience, ought to be discharged by the latter. It is the method which equity employs to require the payment of the debt by him who in good conscience ought to pay it, and to relieve him whom none but the creditor could ask to pay. It cannot, as a matter of right, be invoked in all eases without regard to circumstances, but only in eases in which
justice demands its application,
and the rights of one asking subrogation must have a greater equity than those who oppose him. As said by this court in
American Surety Co.
v.
Citizens’ Nat. Bank,
In the ease of
Louisville Trust Co.
v.
Royal Indemnity Co., supra,
an employer recovered on a fidelity bond because of an employee’s misappropriation of checks of the former by depositing them to his own credit in a trust company. The employer assigned its claim against the trust company to its surety. There the court said:
“We do not regard the assignment taken some time after the indemnity company had discharged its obligation as adding anything to the surety’s right of action against the trust company. (Godfrey
v.
Alcorn,
In
Northern Trust Co.
v.
Consolidated Elevator Co.,
In the case of
American Bonding Co.
v.
State Sav. Bank,
In case of Washington Mechanics’ Sav. Bank v. District Title Ins. Co., 65 Fed. (2d) 827 [62 App. D. C. 194], wherein the facts were analogous to those here presented, except that there the check was stolen by the employee of the drawer before delivery and deposited by the employee to his own account with the defendant bank, who in turn paid out money for the deposit thereof, it was held that the bonding company could not be subrogated. The court in that case said: “We are unable to see any particular in which, the equities of the bonding company are superior to those of the appellant bank. Neither one was guilty of culpable negligence in the transaction. The bonding company, being in the business of guaranteeing for a consideration the faithful conduct of employees, enabled the defaulting employee to hold the position of trust which he occupied. The appellant bank was acting consistently with the ordinary course of banking-business in accepting a check, whose genuineness it had no reason to doubt. It cannot be said that either one of these parties, as compared with the other, was primarily liable for the default. It follows that the equities of neither are superior to the equities of the other in the transaction.”
*101
Also in
Estate of Whitney,
To like effect is the case of American Surety Co. of N. Y. v. Waggoner Nat. Bank, 13 Fed. Supp. 295, wherein a tax collector deposited tax receipts in the defendant bank to his own credit, from which he made withdrawals. Thereafter a shortage was discovered in his accounts, and suit was brought by his surety, who had paid the loss, against the defendant bank. It was held that the surety could not recover. The court in that case likewise recognized the weight of authority to be with the view that in the circumstances, there could be no subrogation of a surety.
And in the case of
First & Tri State Nat. Bank
v.
Massachusetts Bonding & Ins. Co., supra,
cited by respondent, the statement is made: “The doctrine of (subrogation) has
*102
been applied most frequently in the courts to certain types of insurance cases. It has with almost unanimity been held not to apply
in favor of a surety on a fidelity bond,
except only against persons who participated in the wrongful act of the wrongdoer.” (See, also,
National Surety Co.
v.
Arosin,
Thus, it may be observed that there are two lines of cases governing the questions here presented, each wholly at variance with the other. We think the great weight of authority rests with the group last referred to, and that the principles there announced, in good conscience ought to be applied to the circumstances of this case. As stated hereinbefore, the right to maintain an action of this kind and to a recovery thereunder involves a consideration of, and must necessarily depend upon the respective equities of the parties. Here, the indemnitor has discharged its primary contract liability. It has paid what it contracted to pay, and has retained to its own use the premiums and benefits of such contract. It now seeks to recover from the bank the amount thus paid. It must be conceded that the bank is an innocent third party, whose duty to the employer was based upon an entirely different theory of contract, with which the indemnitor was not in privity. Neither the indemnitor nor the bank was the wrongdoer, but by independent contract obligation each was liable to the employer. In equity, it cannot be said that the satisfaction by the bonding company of its primary liability should entitle it to recover against the bank upon a totally different liability. The bank, not being a wrongdoer, but in the ordinary course of banking business, paid money upon these checks, the genuineness of which it had no reason to doubt, and from which it received no benefits. The primary cause of the loss was the
*103
forgeries committed by the employee, whose integrity was at least impliedly vouched for by his employer to the bank. We cannot say that as between the bank and the paid indemnitor, the bank should stand the loss. Under the facts of this case, as is stated in
Northern Trust Co.
v.
Consolidated Elevator Co.,
Our conclusion, as hereinbefore has appeared, is that since the bonding company had no superior equities, it was not entitled to be subrogated to any claim plaintiff might have had against the bank.
The judgment is reversed.
Rehearing denied.