HOME SAVINGS AND LOAN ASSOCIATION OF LAWTON, OKLAHOMA, Plaintiff-Appellee, v. Robert P. NIMMO, Administrator of the Veterans Administration, Defendant-Appellant, 695 F.2d 1251

BREITENSTEIN, Circuit Judge. This action was brought in state court against an official of the Veterans Administration, a federal agency, to recover on a loan guaranty certificate. The case was properly removed to federal court. 28 U.S.C. §§ 1346(a)(2) and 1361. After a non-jury trial the district court rejected the government defense of forgery and gave judgment for the plaintiff. We affirm. In April, 1971, Oklahoma Mortgage Company loaned Percy and Zelma Durham $34,-000 on a residential property with the security of a note and mortgage. The loan was guaranteed by the Veterans Administration, VA, pursuant to 38 U.S.C.

Chapter 37. The note, mortgage and guaranty were subsequently assigned to plaintiff-appellee, Home Savings and Loan Association. Because of defaults in payments, Home Savings, the assignee, brought foreclosure proceedings on July 12, 1974. Zelma Durham was personally served with process and made no claim that her signatures on the note and mortgage were forged. At the January 28, 1975, foreclosure sale, Home Savings bid in the property for $30,000, the amount VA had authorized it to bid.

Pursuant to 38 C.F.R. § 36.4320(a)(1), Home Savings exercised its option to convey the property to VA which received a sheriff’s deed on February 24, 1975. On approximately the same date, Oklahoma Mortgage, the original lender, informed VA that Zelma’s signatures on the note and mortgage might be forgeries. VA began an investigation but did not inform Home Savings, the assignee, of the forgery possibility or of the investigation. Home Savings submitted to VA a claim for $6,739.68 under the loan guaranty certificate.

On April 4, 1975, VA paid Home Savings $30,000, the purchase price of the property at the foreclosure sale. On April 16, VA sold the property for $31,-000. On October 16, VA paid Home Savings $6,733.19 under the guaranty. Twelve days later, VA demanded that Home Savings return the payment because the VA investigation had established that Zelma’s signatures were forged. VA also demanded that Home Savings pay it $1,055.44, as its loss because of expenses on the sale of the property.

Home Savings paid VA the $6,733.19 which it had received under the loan guaranty but refused to pay the $1,055.44 claimed as a sale loss. VA then offset the latter amount against other amounts due Home Savings. Home Savings brought this suit to recover both the $6,733.19 and $1,055.44 amounts. The trial court held that VA was estopped from asserting the defense of forgery because it had knowledge of the forgery when it accepted the sheriff’s deed. On this appeal VA contends that the district court improperly applied estoppel against the government.

The VA guaranty is incontestable but the Administrator may assert defenses based on fraud, 38 U.S.C. § 1821, or forgery, 38 C.F.R. § 36.4325(a). The forgeries of Zelma’s signatures were established at the trial and are not contested by Home Savings. VA learned of the possibility of forgeries from Oklahoma Mortgage Co., the original lender. No claim is made that Home Savings had any knowledge of the forgeries until advised by VA in October, 1975, long after the foreclosure sale, the VA reimbursement of Home Savings of the $30,000 paid at the sale, and the VA sale of the property for $31,000.

None of the Supreme Court decisions on estoppel against the government present facts having any similarity to those here. The most recent decision is Schweiker v. Hansen, 450 U.S. 785, 101 S.Ct. 1468, 67 L.Ed.2d 685. The Court rejected the estoppel claim of an applicant for social security benefits. The Court held that an agency’s field representative’s erroneous statement and noncompliance with the agency’s Field Manual did not estop the Secretary’s denial of the claimed retroactive benefits.

In so doing the Court said, Id. at 788,101 S.Ct. at 1470-1471: “This Court has never decided what type of conduct by a Government employee will estop the Government from insisting upon compliance with valid regulations governing the distribution of welfare benefits.” In Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10, the Court rejected an estoppel claim arising out of the acceptance by the corporation’s agent of a crop insurance application which did not comply with an applicable regulation.

The Court said hardship from innocent ignorance does not justify an estoppel claim and that the government’s freedom from estoppel “merely expresses the duty of the courts to observe the conditions defined by Congress for charging the public treasury.” Id. at 385, 68 S.Ct. at 3. INS v. Hibi, 414 U.S. 5, 94 S.Ct. 19, 38 L.Ed.2d 7, a naturalization case, denied an estoppel claim based on administrative failures of a federal agency. In so doing it quoted, Id. at 8, 94 S.Ct. at 21, the statement in Utah Power & Light Co. v.

United States, 243 U.S. 389, 409, 37 S.Ct. 387, 391, 61 L.Ed. 791, that: “As a general rule laches or neglect of duty on the part of officers of the Government is no defense to a suit by it to enforce a public right or protect a public interest .... ” The qualifying phrase “general rule” would seem to leave the door slightly ajar. Montana v. Kennedy, 366 U.S. 308, 81 S.Ct. 1336, 6 L.Ed.2d 313, was a naturalization case where estoppel was based on the erroneous advice given by a consular officer. The Court held that the misconduct fell far short of that needed to estop the government.

The Court recognized that “there may be circumstances in which the United States is estopped to deny citizenship because of the conduct of its officials.” Id. at 315, 81 S.Ct. at 1341. Several Tenth Circuit decisions discuss estoppel against the government. Atlantic Richfield Company v. Hickel, 10 Cir., 432 F.2d 587, 591-592, involved royalties payable to the government under a federal oil and gas lease. Atlantic Richfield claimed estoppel on the basis of representations made by the Acting Director of the Geological Survey and acted on by it as lessee.

The court held that the United States is not “estopped from asserting a lawful claim by the erroneous or unauthorized actions or statements of its agents or employees.” Albrechtsen v. Andrus, 10 Cir., 570 F.2d 906, 909 — 910, rejected a claim of estoppel based on laches and neglect of duty by officials in connection with a coal prospecting permit. United States v. Browning, 10 Cir., 630 F.2d 694, 702, says it is fundamental that the United States is not estopped by representations made without authority by a federal agent. Sweeten v.

United States Department of Agriculture Forest Service, 10 Cir., 684 F.2d 679, says that in a dispute over land boundaries, a private owner must show “affirmative misconduct by the government or its agents to establish estoppel.” Id. at 682. In so holding the court relied on United States v. Ruby Co., 9 Cir., 588 F.2d 697, 703-704, cert. denied, 442 U.S. 917, 99 S.Ct. 2838, 61 L.Ed.2d 284. Ruby relied on Santiago v. Immigration and Naturalization Service, 9 Cir., 526 F.2d 488, 491-493, which in turn relied on INS v. Hibi, supra, 414 U.S. 5, 8, 94 S.Ct. 19, 21, 38 L.Ed.2d 7. In Schweiker v.

Hansen, supra, 450 U.S. at 788-789, n. 4, 101 S.Ct. at 1471 n. 4, the Court referred to cases in which federal courts have applied estoppel against the government and distinguished them on the facts. None of the above mentioned cases rejecting estoppel against the government relate to facts comparable to those presented in the instant case. In the situation before us, the government, through VA, engaged in a commercial transaction pursuant to 38 U.S.C. § 1810, authorizing guaranty of loans to veterans for the purchase of homes. Oklahoma Mortgage made the loan and received the VA guaranty.

It then assigned the loan and the VA guaranty to Home Savings. After default, Home Savings admittedly complied with VA procedures for foreclosure. VA knew of the suspected forgery when it accepted the sheriff’s deed and paid Home Savings $30,000. The parties agree that the district court correctly stated the tests for estoppel.

They are: (1) —The party to be estopped must know the facts. (2) —-He must intend that his conduct will be acted on or must so act that the party asserting the estoppel has the right to believe that it was so intended. (3) —-The latter must be ignorant of the true facts. (4) —He must rely on the former’s conduct to his injury. Before discussing these elements we note that 38 C.F.R. § 36.4325(a), says that there is no liability on a loan guaranty when the loan papers are forged but its subsection (1) excepts a holder in due course without knowledge.

Two decisions have held that forgery is a defense against a holder “even though that person is innocent of any wrong doing.” Century Federal Savings and Loan Association v. Roudebush, 2 Cir., 618 F.2d 969, 972, and Mt. Vernon Cooperative Bank v. Gleason, 1 Cir., 367 F.2d 289, 292. Neither of those cases involved estoppel. At the time of the foreclosure proceedings, the acquisition of the property by VA, and the payment by VA to Home Savings of $30,000 for the property, VA knew, but did not disclose to Home Savings, the possibility of forgery. Failure to disclose is inaction.

The VA acceptance of the sheriff’s deed and its payment of $30,000 to Home Savings are affirmative actions. Home Savings was entitled to rely on and to treat the transaction as an accomplished fact. VA now seeks to take advantage of its discovery, many months later, that Zelma’s signatures were forged. Then, it was too late to unravel the yam. VA had both acquired and sold the property. No harm has occurred to the fiscal policies of the United States. The VA has recourse against the borrowing veteran. See United States v. Shimer, 367 U.S. 374, 386, 81 S.Ct. 1554, 1562, 6 L.Ed.2d 908.

The VA had authority to do what it did and did not deprive the public of any statutory protection. See Semaan v. Mumford, D.C.Cir., 335 F.2d 704, 706, n. 6; Smale & Robinson, Inc. v. United States, S.D.Cal., 123 F.Supp. 457, 464-466. By its affirmative acts, VA acquired and sold the property without disclosure to Home Savings of the forgery possibility. Home Savings complied with the VA regulations and relied on its acts. We are convinced that the first three estoppel tests are satisfied. The question of injury remains for discussion.

Home Savings argues that, if it had known of the forgery possibility and the complications incident thereto, it could have retained the property and sold it at a profit. The only mention of value in the record is the VA appraisal of $32,000. Home Savings presented no evidence of market value. The lost profit claim is speculative. Speculation does not suffice to prove injury. The exact date of VA’s knowledge of the forgery of Zelma’s signatures does not appear in the record.

On March 28, 1975, before the sale of the property by VA, Home Savings submitted its claim for reimbursement under the VA loan guaranty in the amount of $6,739.68, later reduced to $6,733.19. On October 16,1975, VA issued a treasury check to Home Savings for that amount. The government brief says, p. 3: “Shortly before the Guaranty Claim was paid, the Veterans Administration determined that Mrs. Durham’s signature was in fact a forgery.” On October 28, VA demanded that Home Savings return the guaranty payment and it did so. The question then is whether the loss of the loan guaranty is an injury.

By its affirmative acts from the inception of the foreclosure suit and until after the guaranty payment, VA led Home Savings to rely on its compliance with VA regulations. VA does not claim that Home Savings failed to comply with any applicable regulation. The acts of VA were inconsistent with denial of the validity of the original loan transaction. VA is estopped from denying that validity. Home Savings is entitled to payment of the loan guaranty. The situation with regard to the $1,055 sale expense presents another problem.

VA acted in violation of its own regulations in assessing the sale costs against Home Savings. With narrow exceptions, not here applicable, the responsibilities of Home Savings ceased upon acceptance of the property by VA. See 38 C.F.R. § 36.-4320(h)(6), (7), (8), (9), and (10). The collection of the $1,055 from Home Savings by exercise of a set off is a compensable injury. VA is estopped from asserting otherwise. The trial court awarded pre-judgment interest to Home Savings. VA’s opening brief attacks that award. Its reply brief withdraws that attack. Affirmed.