OPINION
FROEB, Judge.Appellant, Liberty Mutual Insurance Company (Liberty), brought this action against several defendants, including appellee, Thunderbird Bank (Thunderbird), seeking to recover monies it had paid to its principal, the Charles Bruning Company (Bruning), under a fidelity bond. The trial court granted Thunderbird’s motion for summary judgment, and after a formal written judgment containing the requisite language of Rule 54(b), Rules of Civil Procedure, this appeal was perfected.
The basic facts giving rise to this action are not in dispute. Between June 1, 1964 and March 24, 1967, James L. Coffelt was the Phoenix, Arizona, branch manager of the Charles Bruning Company. During the period from approximately April 1, 1966 to approximately March 20, 1967, Coffelt intercepted over 200 checks payable to his employer in the approximate sum of $179,000, and without authority appropriated the proceeds to himself.
Substantially all of the checks were cashed for Coffelt by Arnold Ong, owner of Gene’s Modern Market in Glendale, Arizona, on the endorsement: “Charles Bruning Co. by J. L. Coffelt.” Ong, in turn, endorsed the checks for deposit to his account at Thunderbird. The checks were then presented to the drawee banks in the normal course of banking business and charged to the accounts of the various customers of Bruning.
During the period involved, Liberty had a surety contract (sometimes referred to as a fidelity bond) with Bruning, insuring it against pecuniary loss sustained by reason of fraud, dishonesty, forgery, theft or embezzlement of its employees. Upon being notified by Bruning of the defalcation of Coffelt, Liberty paid Bruning the sum of $175,197.13, and received an assignment from Bruning of its claims against all of the defendants, including Thunderbird. In addition, under the terms of the fidelity bond, Liberty became subrogated to any claims Bruning had against the defendants.
Liberty then brought this action against Coffelt, Ong and Thunderbird. Cross-claims were filed by Thunderbird against Ong, and Ong against Coffelt. In addition, Thunderbird and Ong filed third-party complaints against Bruning. As previously indicated, the only issue before us on appeal is the granting of summary judgment to Thunderbird on Liberty’s complaint.
For its defense to the suit by Liberty, Thunderbird contends that Liberty’s claim and hence its remedy is equitable in nature. It argues that the claim is based upon the equitable doctrine of subrogation and that subrogation is only called into play to bring about an equitable adjustment between the parties. The theory holds that as between two innocent parties (the sure*203ty and the collecting bank), the equities do not balance in favor of the surety since it received compensation for undertaking the risk and the bank did not participate in the wrongful act of the employee.
The fundamental question which is to be decided in this case is whether, as a matter of law, Liberty has stated a claim against Thunderbird for which the law will allow recovery. This depends upon whether Liberty’s claim is identical to that which Bruning could have asserted against Thunderbird, or whether it is a substituted claim based on equitable principles and brought into existence by the doctrine of subrogation. The issue is brought squarely into focus by reason of the “assignment” made by Bruning to Liberty which Liberty contends makes it unnecessary for Liberty to demonstrate “equities” superior to those of Thunderbird. In one sense, the ultimate question is whether the rights claimed here are legal or equitable in nature.
Our analysis must inevitably take us to the law of subrogation, but first it is necessary to examine the cause of action originally accruing to Bruning when it discovered that its checks had been misappropriated.
For the purpose only of this appeal, the parties do not dispute that Bruning could have recovered the stolen funds from Thunderbird. While it is recognized as a harsh rule, the payee of a check may recover the proceeds from an intermediate collecting bank when at the outset it was cashed elsewhere by means of a forged or unauthorized endorsement and payment has been procured from the drawee bank. See Merchants and Manufacturers Association v. First National Bank, 40 Ariz. 531, 14 P. 2d 717 (1932), where the court held:
A check made payable to an individual or corporation is an order on the drawee to pay the amount of such check out of the drawer’s funds to the payee, and can be paid to no one else without the payee’s consent or authority. If the drawee of the check pays it, or anyone else, bank or individual, in the course of business takes it with an unauthorized or forged indorsement, it is at the risk of having to make it good to the payee. [40 Ariz. at 536, 14 P.2d at 718.]
The theory of recovery in the Merchants and Manufacturers Association case was that the cashing bank was required to account to the payee for money had and received. Decisions in other jurisdictions have permitted recovery on theories of conversion and negligence. Whatever may be the nature of the cause of action, we need not dwell upon it in this case as it would be collateral to the issues before us. In general, see cases collected at 100 A.L. R.2d 670, “Right of check owner to recover against one cashing it on forged or unauthorized indorsement and procuring payment by drawee.” See also 10 Am.Jur. 2d, Banks, § 632.
Turning to the facts of this case, we see that Bruning elected to sue neither the original drawers of the checks nor Thunderbird, but chose instead to recover the lost funds from Liberty under the fidelity bond protecting it against dishonest employees. Upon payment of the claim in full, Bruning assigned to Liberty its rights against all parties responsible for the loss. Although Thunderbird contends that recovery should be barred by reason of an election of remedies by Bruning, we have decided this case on other grounds and thus do not deal with this issue.
Having paid Bruning for the loss, does Liberty now stand squarely in the shoes of Bruning for the purpose of recovering against Thunderbird ? Liberty contends that it does by reason of the assignment. Thunderbird contends that it does not, because the original claim has been discharged by Liberty’s payment to Bruning and its rights are now equitable in nature as they arise by reason of subrogation. Thunderbird argues that the assignment can add nothing to these rights as they are created by operation of law.
*204A fidelity bond is a contract whereby, for a consideration, one agrees to indemnify another against loss arising from the want of honesty, integrity, or fidelity of an employee or other person holding a position of trust. Upon payment to an employer of a loss, the surety on a fidelity bond is subrogated pro tanto to any right of action which the employer may have against the defaulting employee. The surety’s right to subrogation has also been held to extend to any right of action existing in favor of the employer against a third person who may have been involved with the defaulting employee or who was chargeable with notice of his wrongful acts, particularly where the third person benefited from the transaction. See 35 Am.Jur.2d, Fidelity Bonds and Insurance, §§ 1, ioi.
The right to recover based on subrogation arises by operation of law under principles of equity, not by reason of con- . tract. D. W. Jaquays & Co. v. First Security Bank, 101 Ariz. 301, 419 P.2d 85 (1966). It has been described by the Arizona Supreme Court as follows:
. Subrogation is the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the rights of the creditor in relation to the debt. It is a creature of equity, and was adopted from the Roman and not from the common law. Its purpose is the prevention of injustice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay it. It rests upon the principle that substantial justice should be attained, regardless of form. While the nature and grounds of subrogation are very clear, the difficulty arises in its application to the innumerable complications of business, and no general rule can be stated which will afford a test in all cases for its application. Whether it is applicable or not depends upon the particular facts and circumstances of each case as it arises. [Mosher v. Conway, 45 Ariz. 463, 468, 46 P.2d 110, 112 (1935).]
We must first determine then whether the undisputed facts of this case give rise to recovery by way of subrogation against Thunderbird. We hold they do not.
A crucial factor leading to this conclusion is that Thunderbird, the collecting bank, did not deal with Coffelt, the dishonest employee. As is seen from the facts, Coffelt wrongfully endorsed the checks which were then, in each instance, cashed by Arnold Ong, doing business as Gene’s Modern Market. Thereafter, Ong deposited the checks to his account at Thunderbird for collection. There is nothing in the record to show that Thunderbird had any connection with these transactions other than to handle the checks for collection upon Ong’s direction and endorsement in the normal course of its banking business. While it is conceded that Thunderbird might have been liable to Bruning had the latter brought its claim against it, there is no basis in equity for Liberty to recover against Thunderbird on rights it derived by reason of subrogation. The right to subrogation does not exist in favor of a surety on a fidelity bond except against a person who participated in the wrongful act against the surety’s principal.
We are aided in our analysis of this problem by several cases from other jurisdictions. A decision squarely in point and one relied on by Thunderbird is Meyers v. Bank of America National Trust & Savings Assn., 11 Cal.2d 92, 77 P.2d 1084 (1938). The facts are strikingly similar to this case. A dishonest employee received checks payable to his employer and forged his endorsement. They were then negotiated to a person named Wascher who paid their face value to the dishonest employee and then placed them on deposit to his account with the defendant bank. The bank thereafter presented them to the respective drawees and received their face value which was credited to the account of Wascher. Discovering the loss, the employer recovered the full amount from the *205surety on the fidelity bond. As in this case, the employer assigned all of its rights to recovery to the surety and a lawsuit followed against the collecting bank. Judgment in favor of the surety was reversed on appeal by the California Supreme Court on the ground that recovery depended upon a showing of superior equities which in this situation the surety was unable, as a matter of law, to demonstrate as against the bank. The court held:
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 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. [77 P.2d at 1089.]
This view of the respective rights of the parties has received general acceptance. See, for example, Mill v. Lawyers Title Insurance Corp., 268 F.2d 313 (4th Cir. 1959); American Surety Co. v. Bank of California, 133 F.2d 160 (9th Cir. 1943); Washington Mechanics’ Sav. Bank v. District Title Ins. Co., 62 U.S.App.D.C. 194, 65 F.2d 827 (1933); American Surety Co. of New York v. Lewis State Bank, 58 F.2d 559 (5th Cir. 1932) ; Fidelity & Casualty of New York v. National Bank of Tulsa, 388 P.2d 497 (Okl.1963); Oxford Production Credit Ass’n. v. Bank of Oxford, 196 Miss. 50, 16 So.2d 384 (1944); National Surety Corporation v. Edwards House Co., 191 Miss. 884, 4 So.2d 340 (1941).
Liberty contends that equitable principles underlying subrogation do not apply because Bruning’s right to recover against Thunderbird was transferred to it intact by reason of the written assignment. In support of this, Liberty relies upon Aetna Casualty and Surety Co. v. Lindell Trust Company, 348 S.W.2d 558 (Mo.Ct.App.1961). This case is not persuasive, however, for a number of reasons. First, the fact situation in Aetna involved company checks cashed for the dishonest employee directly by the defendant bank. Second, in finding the assignment of significance, the Aetna court stated that the effect of the assignment was to bottom the surety’s claim upon a theory of “conventional subrogation” rather than “equitable subrogation,” that is, subrogation based upon contract rather than that which arises by operation of law. The distinction is of little value, however, because recovery on a theory of “conventional subrogation” is nonetheless based upon equitable principles and the relative equities of the parties are still to be balanced. See 73 Am.Jur.2d, Subrogation, § 9.
Liberty, therefore, cannot recover on a theory that its rights were assigned to it by Bruning and thus avoid the necessity of showing that its equities are superior to those of Thunderbird. This is because the original claim belonging to Bruning has been paid and discharged by Liberty under the fidelity bond. The assignment adds nothing to the rights which Liberty acquired by reason of subrogation. The point is explained in the Meyers case, supra, as follows:
Under these cases the conclusion seems inevitable that one who asserts a *206right 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 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. [77 P.2d at 1086.]
Likewise, in Louisville Trust Co. v. Royal Indemnity Co., 230 Ky. 482, 20 S.W.2d 71 (1929), 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, 215 Ky. 465, 284 S.W. 1094, 51 A.L.R. 925. In the circumstances, its case depends altogether on the doctrine of subrogation, which is essentially a creature of equity, and is called into play only when it is necessary to bring about an equitable adjustment between the parties. * * * [20 S.W. 2d at 71.]
The principle is also set forth in Bank of Fort Mill v. Lawyers Title Ins. Corp., 268 F.2d 313 (4th Cir. 1959) where the court held:
In the instant case, Lawyers contend that it is entitled to be subrogated to the right of Perpetual. By the overwhelming weight of authority, the right of subrogation is an equitable, rather than an absolute, right, applicable only where the equities of the party seeking subrogation are superior to those of the party against whom the right is asserted. See Note 1942, 137 A.L.R. 700. Also, it is the general view that a paid surety has fewer equities than an innocent bank, since the surety company is paid to assume the specific risk. [Citations omitted.]
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It will be remembered that Lawyers took an assignment from Perpetual of all claims or causes of action arising out of the fraudulent transaction. There are several cases, from jurisdictions other than South Carolina, where a decision has been based on such an assignment, rather than on the right of subrogation. [Citations omitted.] These decisions were premised on the conception that the assignment converted the right to a legal right and prevented the Court from applying equitable principles. The fallacy in this reasoning is made clear in American Surety Co. v. Bank of California, supra, and in United States Fid. & Guaranty Co. v. First Nat. Bank, 5 Cir., 1949, 172 F.2d 258. As stated in American Surety Co. v. Bank of California, 133 F.2d at page 164: “If insurers have no right to subrogation, their position is not improved by the assignments to them of insured’s claim against Bank.”
Applying the holding of the court in that case to the facts of the instant case, when Lawyers paid Perpetual, the right of Perpetual to pursue its claim against the Bank was destroyed, as Perpetual would not be permitted a dual recovery; and, therefore, there was in existence no enforceable claim against the Bank which Perpetual could assign to lawyers, and which would support recovery in favor of Lawyers. Assignment of a legal claim necessarily contemplates the continued existence of the claim assigned. The equitable doctrine of subrogation, on the other hand, presupposes a destruction of the claim by an actual payment and satisfaction of the claim by the party seeking subrogation. That Court cites as in accord: [citations omitted]. See also 6 C.J.S. Assignments § 3, setting forth the distinction between subrogation and assignment. There ap*207parently being no South Carolina decision on this particular point, we adopt what we believe to be the more reasonable and logical view that assignment creates no right greater than the equitable right of subrogation. [268 F.2d at 315-317.]
In conclusion, Thunderbird was neither a participant in the transaction bringing about the loss, nor a wrongdoer. Moreover, Liberty contracted with Bruning to indemnify it against the loss. It received a premium to take this risk, which, together with other premiums, provided the funds to cover it. It is a loss which is thus distributed among all policyholders as a contemplated risk. Liberty’s contention that the loss should be shifted in equity to Thunderbird is without merit as the equities do not balance in its favor.