Tbe fact tbat plaintiff, F. L. Gladstone, was a stockholder, and plaintiff, James A. Everett, was a stockholder and director of tbe Peoples Bank at tbe time they loaned tbeir Liberty Bonds to said bank, to be hypothecated with tbe Coal and Iron Bank, a creditor of tbe Peoples Bank, as security, upon tbe facts on tbis record, does not affect tbeir rights, if any, to relief, under tbe equitable principle of subrogation invoked by them in tbis action. Tbe transaction was not for tbeir benefit, but for tbe benefit of tbe bank. Tbe good faith, which tbe law requires in transactions between stockholders and directors and tbe corporation, is apparent on tbe admitted facts; indeed, it is not questioned on'the record. Plaintiffs took no advantage of tbeir relations to tbe bank, to secure personal benefits; rather it must be said tbat tbe bank, by reason of such relations, induced plaintiffs to loan tbeir Liberty Bonds to it for its benefit. Tbe mere fact tbat tbis bank, in August, 1920, desired to borrow Liberty Bonds to be used as collateral security for its indebtedness held by a New York bank did not indicate tbat tbe bank was then insolvent; tbe bank continued business until June, 1922; it was then declared insolvent.
*224“There is nothing to hinder a director from loaning money and taking liens on the corporate property to secure him. If he can do that, he can lend his credit by indorsing its paper in order to obtain needed cash, and secure himself upon the corporation’s property. Such transactions are looked upon with suspicion, and strict proof of their bona fides is required.” Caldwell v. Robinson, 179 N. C., 518; Wall v. Rothrock, 171 N. C., 388. We can perceive no reason why this principle should not be applied to enable a stockholder or director, who, in good faith, loans his securities to the corporation, to be hypothecated by the corporation as additional security for its then existing indebtedness, secured by collaterals owned by the corporation, and then in the hands of the creditor, to call to his aid the equitable principle of subrogation, with respect to the collaterals, owned by the corporation and not exhausted by the creditor, who has however applied the securities of the stockholder or director to the payment, in full or pro tanto, of the corporation’s debt, thus releasing the collaterals of the corporation. By means of the loan of plaintiffs’ bonds, the bank secured what it desired, to wit, an extension of the date on which its indebtedness became due.
The Coal and Iron Bank held as security for the indebtedness due to it by the Peoples Bank, first, securities owned by said Peoples Bank; second, Liberty Bonds, owned by plaintiffs, but loaned to the Peoples Bank, to be hypothecated with the Coal and Iron Bank, as additional security for said indebtedness; the Coal and Iron Bank, upon default in the payment of the indebtedness, applied, first, the proceeds of the sale of the Liberty Bonds, as a payment on the indebtedness; next, a sufficient sum derived from the collaterals owned by the Peoples Bank, to discharge the debt, leaving a large amount of said collaterals, unexhausted. This resulted from the application of the Liberty Bonds to said indebtedness. It is clear that plaintiffs are entitled to the unexhausted collaterals, returned to the receiver, upon the just and well-settled principle of legal subrogation, which has been defined as “an equity called into existence for the purpose of enabling a party, secondarily liable, but who has paid the debt, to reap the benefit of any securities or remedies which the creditors may hold as against the principal debtor and by the use of which the party paying may thus be made whole.” Bispham’s Equity (6 ed.), secs. 335 and 336; Whitford v. Lane, 190 N. C., 343; Joyner v. Reflector Co., 176 N. C., 274; Brown v. Harding, 170 N. C., 253. There is no error upon defendant’s appeal.
Nor is there error upon plaintiffs’ appeal. It is true that the bank agreed to return the Liberty Bonds to plaintiffs; but it was also agreed by plaintiffs that these bonds should be hypothecated with the Coal and Iron Bank, and that said Coal and Iron Bank should have the power to sell them, upon default in the payment of the amount due it by the *225Peoples Bank. ¥e are unable to perceive .upon wbat principle it can be successfully contended that plaintiffs are entitled to priority in the payment of their claims out of the general assets of the bank. "With respect to said claims, the relation between plaintiffs and the bank was that of creditor and debtor, and plaintiffs can only share in the assets of the bank pro rata with general creditors, after they have received the proceeds of the sale or collection of the specific securities to which they are entitled, by subrogation, in accordance with the judgment rendered. The principle upheld and applied in Corporation Commission v. Bank, 137 N. C., 697, is not for the benefit of the bank,' but for the protection of general creditors, upon the principle that equality is equity. Plaintiffs’ assignment of error cannot be sustained. The judgment is affirmed. There is
No error.