Gallardo

Defendant obtained a loan from the Bank of America, National Trust and Savings Association, fifty per cent of which was guaranteed by the Veterans Administration pursuant to Title III of the Servicemen’s Readjustment Act of 1944, 58 Stat. 291 , as amended, 38 U.S. C.A. § 694 (1952). Defendant defaulted in payment of the loan, and the Veterans Administration thereupon paid the guaranteed portion of the outstanding loan.

*374 The Bank of America, through an assignee, later brought suit in the state court for recovery of the entire amount in which defendant was in default. This suit was settled and a dismissal with prejudice was entered. The United States then instituted the present action for recovery of the amount paid by the Veterans Administration pursuant to its guarantee.

Defendant has moved for summary judgment on two grounds: (1) that settlement of the principal creditor’s claim in the state court operated to extinguish the claim of the United States for the amount it had paid as guarantor of the loan; and (2) equitable estoppel. A third ground, res judicata, has been withdrawn by defendant.

The case of United States v Henderson, D.C.S.D.Iowa 1953, 121 F.Supp. 343 is…