#### JOHN K. JOICE v. THE UNITED STATES

[No. 34690.

Decided December 10, 1923)

*On the Proofs*

*Contract; option to purchase.*— The act of July 9, 1918, 40 Stat. 845, 850, authorizing the President, “ through the head of any executive department, to sell upon such terms as the head of such department shall deem expedient,” certain property belonging to the Government, did not authorize the President to give an option for the purchase of such property.

*Same; -sale.*— A provision in a contract stipulates that “ should there be additional 80-pound A. R. A. type ‘ B ’ rail and accessories declared surplus within five months other than that mentioned in sections 2 and 3, the purchaser shall have the right to accept the same under the general conditions, qualifications, and prices as stated in the contract,” the contracting officer agrees to give a 10-day notice to the purchaser of such material as is available, and the purchaser agrees to give a certified check of 10 per cent of the value of the material, said check to be held as a guaranty, as indicated in section 13 (b), payment for the delivery of this material to be made as called for in section 13 (b), is *held*to be an option and not a sale of such materials.

*The Reporter’s*statement of the case:

*Mr. George T. Farrell*for the plaintiff. *Messrs. T. T. Ansberry, Louis B. Montfort,*and *Walter E. Barton*were on the briefs.

*Mr. Percy M. Cox,*with whom was *Mr. Assistant Attorney General Robert H. Lovett,*for the defendant.

*2The following' are the facts of the case as found by the court:

I. The plaintiff, John K. Joice, is a citizen of the United States and of the State of New York, and has at all times borne true allegiance to the Government of the United States, and has not in any Avay voluntarily aided, abetted, or given encouragement to rebellion aga-inst said Government.

II. On September 22,1919, John K. Joice, plaintiff herein, entered into a contract in writing with the United States for the purchase of certain railroad materials and supplies then owned by the Government, consisting of 80-pound A. E, A. type *“*E ” steel rails and the proportionate amount of angle bars, bolts, and spikes, therefor. The angle bars (sometimes called splice bars), bolts, and spikes are also referred to as “ accessories.” A copy of said contract is attached to the petition, marked *“*Exhibit A,” and is made a part hereof by reference. Said materials and supplies were purchased by the Government through the War Department for use in the prosecution of the war with Germany subsequent to April G, 1917, and before November 11,1918.

At the time said contract was entered into on September 22, 1919, the Government owned a total of approximately 122,869 G. T. of 80-pound A. E. A. Type “ B ” rail, which included the 16,000 tons mentioned in section 3 of said contract, together with a proportionate amount of rail accessories. Said material had all been purchased after the outbreak of the war at a price of $56.33 per G. T., and the market price of the same at the date of the contract was $46.33 per G. T.

III. The total amount of rail of said type owned by the Government was not known by the parties to the contract at the time the contract was entered into,- but an inventory of the rail was then being taken by the Government, which was expected to be completed within five months, and which was completed on or about October 28,1919. This inventory was carefully made by an officer who had purchased a large part of the rail purchased for use of the Government at home and abroach and was based upon an actual physical count of the rails, and showed tonnage of approximately *3119,463 tons. To this amount should be added about 3,300 tons found to be located at Philadelphia early in January, 1920. The plaintiff Aras desirous of purchasing all of such rail that might be sold by the Government, and a lower price per ton at first offered by him for the rail was increased by him to the contract price of $40 per ton in consideration of the inclusion in the contract of the provision giving him the right to accept, as aforesaid, such additional rail as might be declared surplus within five months thereafter.

IY. Several weeks prior to the time said contract was entered into Major General Black, Chief of Engineers, the War Department, in a confidential memorandum addressed to the Chief of "War Plans Division, which for some time had had under its consideration the formulation of plans with respect to certain .contemplated military operations, computed the requirements of railroad track materials necessary for such operations at 400 miles. This mileage in August, 1919, was increased by 25 per cent, or a total of 500 miles, in order to allow for emergency demands. To construct 500 miles of railroad track required 62,855 gross tons of 80-pound rail, and this amount of the said 122,869 tons of rail was reserved for the possible need and use in said contemplated military operations.

Y. On June 13, 1919, the following memorandum order was promulgated by Maj. Gen. George TV. Burr, Assistant Chief of Staff and Director of Purchase, Storage and Traffic, War Department :

“ Memorandum for the Director of Sales.

“Subject: Supervision of all Government owned or controlled railroad transportation equipment.

“1. With reference to your memorandum on the above subject to the Director of Purchase, Storage and Traffic, dated May 21, your attention is invited to copy of memorandum from this office to The Adjutant General of the Army, dated June 5, on the subject of ‘Equipment,’ ‘Railway inventory,’ directing that letters be sent to the Chief of Ordnance, Chief of Engineers, chief of construction division, and Director of Air Service, calling upon them to submit to the Chief of Transportation Service complete inventory of all War Department owned or controlled rail equipment under their authority, and such recommendations as they have made relative to disposition of same.

*4“2. This will operate to centralize all information relative to railroad equipment owned or controlled by the Government in the office of the Chief of Transportation Service in order that he may be responsible for and exercise the control over this equipment, as provided for in General Orders, No. 54, War Department, 1919.

“ 3. Amongst other duties, the Transportation Service is charged with the following:

*“(a)*Determination of amount of railroad equipment on hand and accountability for same.

“(&) Determination of amount of equipment necessary to be continued in the service.

*“(g)*Determination of amount of reserve to be set aside.

*“(d)*Determination as to surplus.

*“(e)*Disposition to be made of surplus.

*“(f)*Distribution of equipment.

“ 4. It is therefore directed that this agency be utilized by you in determining any of the questions set forth above, and that final action with reference to disposal of equipment be not taken until the Chief of Transportation Service has been consulted. Should you disagree with the Chief of Transportation Service relative to final action to be taken, the matter will be referred to this office for decision.”

VI. On August 27, 1919, the President, pursuant to the provisions of section 5 of the act of July 11, 1919, 41 Stat. 35, 67, and in order to carry out the provisions of said act, issued the following order:

“ Whereas section 5 of the act approved July 11, 1919, ‘making appropriations to supply deficiencies, etc.,’ requires — ■

“ That the heads of the several executive departments and other responsible officials, in expending appropriations contained in this or any other act, so far as possible shall purchase material, supplies, and equipment, when needed and funds are available, from other services of the Government possessing material, supplies, and equipment no longer required because of the cessation of war activities. It shall be the duty of the heads of the several executive departments and other officials, before purchasing any of the articles described herein, to ascertain from the other services of the Government whether they have articles of the character described that are serviceable. And articles purchased by one service from another, if the same have not been used, shall be paid for at a reasonable price not to exceed actual cost, and if the same have been used, at a reasonable price based upon length of usage. The various services of the Government are authorized to sell such articles under the conditions *5specified, and the proceeds of such sales shall be covered into the Treasury as a miscellaneous receipt: *Provided,*That this section shall not be construed to amend, alter, or repeal the Executive order of December 3,1918, concerning the transfer of office material, supplies, and equipment in the District of Columbia falling into disuse because of the cessation of war activities.'

“And whereas, in order to carry out properly the provisions of this act. it is necessary to establish a central agency where information relative to the surplus material, supplies, and equipment of the various services of the Government-may be obtained, I hereby designate the General Supply Committee of the Treasury Department as the organization to maintain records of such surplus material, supplies, and equipment as may be reported to it by the heads of the various services of the Government. It shall further be the duty of the General Supply Committee to answer promptly inquiries from the head of any service of the Government or his authorized representative relative to the probable availability of any surplus material, and to inform the person making the inquiry what service, if any, has reported the material about which the inquiry is made as available.

“ It shall be the duty of the head of each of the several executive departments and independent establishments of the Government to designate a central agent for his particular service to whom all surplus supplies of his service, under the act, shall be reported; and it shall be the duty of this central agent to advise the General Supply Committee of the surplus material, supplies, and equipment available from his service, to answer inquiries from other services in regard to such material, supplies, and equipment, and to arrange with the other services the details of any purchase which may be made under the provisions of this act.

“ The provisions -of this order shall be carried into effect in accordance with regulations to be prescribed by the Secretary of the Treasury.

“ Woodeow Wilson.

“ The White House,

“ 27 Aug., 1919.”

Pursuant to this order of the President the director of sales of the War Department was designated as the central agent for said department to carry out said order; and by order of October 21, 1919, it was directed by the said director of sales that the chiefs of supply bureaus in the department should compile and submit to him monthly detailed *6statements of the supplies and equipment which were surplus in their respective bureaus on the last day of the month.

The usual procedure in the War Department with respect to the. sale, of such surplus materials in the department was as follows: The first step in the declaration of surplus was initiated by the local officer controlling the stock of material. He reported to his immediate superior officer such materials as were surplus or excess in the activities under his control. When this report was received by his superior officer said officer deducted from the materials so reported to him any materials which might be needed for the activities under his control, and reported the balance as surplus or excess to his next superior officer. This procedure was continued until it reached the head of the supply" bureau concerned, who in turn reported any balance not required by the activities under his control to the director of sales. The director of sales saw that the laws regarding- the. transfer of such materials to other bureaus of the War Department and other departments of the Government service were complied with; and if any balánce then remained, he declared such balance surplus and cleared it to the proper selling bureau for sale, which was usually the bureau which initiated the declaration or action.

VII. On the 27th of December, 1919, the Chief of the Transportation Service, War Department, in pursuance of said procedure (Finding VI) reported to the director of sales as surplus railroad equipment and material available for sale or other disposition 54,893 tons of said 80-pound rail in storage at Kearney, N. J., 37 tons at Port Newark, N. J., and 207 tons at Old Hickory Plant, in Tennessee, a total of 55,137 tons. In this quantity of rails were included the 12,500 tons and the 16,000 tons mentioned in plaintiff's contract and which had not yet been paid for or delivered to the plaintiff by the Government.

On or about the 24th of January, 1920, the plaintiff was notified of said declaration and there were -subsequently delivered to him approximately 28,600 tons, in addition to-the amounts stated in sections 2 and 3 of the schedule which had been theretofore delivered to him. This last delivery was made, however, at Norfolk, in lieu of at Kearney, as a *7matter of convenience, and was slightly in excess of the amount shown to be at Kearney and other places before mentioned.

Outside of the 28,500 tons of said rail mentioned in sections 2 and 8 of the contract of the plaintiff and the said 28,600 tons referred to in this finding as delivered to him, together with approximately 3,500 tons reserved and used in certain War Department projects, there remained to the Government of the 122,869 tons originally owned by it, as stated in Finding II, substantially only the said 62,855 tons reserved for contemplated military operations. None of this 62,855 tons of reserved rail became available for declaration and sale as surplus until after its release from such reservation, which did not occur until about the middle of March, 1920, and none of it was declared surplus prior to April 16, 1920.

VIII. On or about March 12, 1920, the military situation responsible for the reservation of the said 62,855 tons of rail, as set forth in Finding IV, had become such that it was decided by the War Department to be no longer necessary to continue said reservation of rail; and on March 16, 1920, the Assistant Secretary of War authorized the sale of said rail, with rail accessories therefor. Said rail Avas formally declared surplus by the War Department on or about April 16, 1920, more than free months after the date of the plaintiff’s contract.

IX. The plaintiff has received from the Government under his said contract the 28,500 tons of rail, with accessories, called for by sections' 2 and 3 of the contract, which were delivered to him at Kearney, NeAV Jersey, and the 28,600 tons, with accessories, as set forth in Finding VII. These amounts of rails, totaling 57,100 tons, Avere amounts that Avere declared surplus and Avere available for sale within the free months mentioned in the contract.

X. The 62,490 gross tons of 80-pound rail, Avitlx accessories, referred to in paragraph VI of plaintiff’s petition, constituted a part of the said 62,855 tons held in reserve by the War Department for contemplated military operations.

*8All of the said 80-pound rail, with accessories therefor, owned and not in use by the War Department during the life of plaintiff’s said contract was sold and delivered to plaintiff except the said 62,855 tons reserved for use in contemplated military operations and the said 3,482 tons reserved and used in certain War Department projects.

XI. The price per gross ton of said rail with the accessories therefor amounted, at the contract prices for rail and accessories, to $41.82 per ton. On January 6, 1920, ten days after the said report of surplus material on hand by the Chief of Transportation Service on December 27, 1919, as set forth in Finding VII, the market value of said rail, with accessories, was $49.11 per gross ton, or $7.29 per gross ton more than its value at the contract prices.

Grai-iam, Judge,

delivered the opinion of the court:

This case has been reheard on a motion for a new trial and amendment of findings. The motion for a new trial has been granted, and certain amendments have been made to the findings.

Nothing was presented on the reargument of the case, and there is" nothing in the amended findings of fact to alter the previous conclusions of the court in this case.

This is a suit to recover under a provision of the act of July 9, 1918, 40 Stat. 845, 850. The particular portion of this act relied upon is as follows:

> “ Sale of war supplies. — That the President be, and he hereby is, authorized, through the head of any executive department, to sell, upon such terms as the head of such department shall deem expedient, to any person, partnership, association, corporation, or any other department of the Government, or to any foreign State or Government, engaged in war against any government with which the United States is at war, any war supplies, material, and equipment, and any by-products thereof, and any building, plant, or factory, acquired since April sixth, nineteen hundred and seventeen, including the lands upon which the plant or factory may be situated, for the production of such war supplies, materials, and equipment which, during the present emergency, may have or may hereafter be purchased, acquired, or manufactured by the United States; ” etc.

*9The plaintiff bases his right to recovery upon a portion of section IT of Schedule A attached to the contract and made part of the findings, which is as follows:

> “ Should there be additional 80 *#*A. IT. A. type ‘ B ’ rail and accessories declared surplus within five months other than that mentioned in sections 2 and 3, the purchaser shall have the right to accept the same under the general conditions, qualifications, and prices as stated in this contract.

> “ The contracting officer agrees to give a ten-day notice to the purchaser of such material as is available, and the purchaser agrees to give a certified check of ten (10%) per cent of the value of this material, said check to be held as a guarantee as indicated in section 13 (b). Payment for the delivery of this material' to be made as called for in section 13 (c) ”

This is nothing more than an option of purchase for future delivery. The act conferring, as it does, special power upon the President only authorized the *sale*of material and gave no. authority to give an option of purchase. An option is not a sale. It is a mere right in a possible purchaser where consideration has been paid by him for the option to announce his decision to accept and demand delivery according to the terms of the option.

> “An option is not an actual or existing contract, but merely a right reserved in a subsisting agreement. In a certain sense an option is a mere pollicitation, a promise without mutuality, not yet ripened into a perfect agreement. It is a proposition by one party to a contract, which must be accepted in precise terms by the other in order that it may be binding upon both parties.” *Rivers*v. *Oak Lawn Sugar*Co., 52 La. Ann. 762.

> “An option is nothing more than a continuing offer to sell but until it is accepted it does not become a contract of sale. * * *. It is only when there has been an acceptance of a proposal to sell that the vendee becomes in any sense the equitable, owner of the subject matter of the option.” *Milwaukee Mechanics’ Ins. Co.*v. *Rhea &*Son, 123 Fed. 9, 11.

It seems desirable in that connection to discuss another phase of the matter, namely, whether, assuming that pafa-graph 17 of the contract did not constitute an option, it was binding on the Government as a valid contract of sale. It is to be borne in mind that the officers of the Government, including those who made this contract at the time of its *10execution, knew only that there was a declared surplus of 28,500 tons, named in sections 2 and 3 of the contract, for sale, and were in entire ignorance not only of how much more would be declared a surplus in the future but of what total amount of rails was actually owned and possessed by the Government at the time, ns the inventory then being taken had not been completed and was not completed until more than a month thereafter.

The question is presented as to what authority the contracting officers had to. sell for delivery at some future time an unknown, undetermined amount of material which the Government might- or might not possess, its possible existence being dependent upon facts which were not known to exist at the time of the sale — upon events which might never happen. It is plain that the statute under which this sale was made conferred no such authority, and it is equally plain that these officers had no. such general authority. They had no authority, to use the vernacular, to sell *“*a pig in a poke”; to enter into a purely speculative contract; to create an obligation on the part of the Government without knowing the facts which would determine that obligation; to sell what is was not known at the time the Government possessed and to tie the Government’s hands in dealing with its property in the future. The statute authorized them to sell what it Avas known the Government had for sale, at the time of sale and not what it did not have or was not then known to have.

At the time this contract was entered into it was not definitely known what quantity of rails, how many tons of rails, the Government had on hand. An inventory was being taken at the time and it was thought that it would be completed within five months, and so this period for declaring a surplus was fixed in the contract; that is, the plaintiff had the option of accepting at the price fixed in the contract such surplus as was declared within a period of five months. The inventory taken was completed about the 28th of October, 1919, the contract having been entered into on September 22, 1919. It was a carefully taken inventory by an officer who had purchased a large part of the rails and accessories used by the Government during the war. There *11was an actual physical count of the rails. This inventory showed that the Government had on hand at the time the contract was entered into and at the time the inventory was taken approximately 119,483 tons of rails and approximately 3,300 tons were found located at Philadelphia, making a total of approximately 122,869 tons of rails. Of this amount 62,855 tons had been set aside and reserved for contemplated military operations, about 3,000 tons were reserved and after-wards used in certain War Department projects, and 55,137 tons, of which 54,893 tons were stored at Kearney, N. J., 37 tons at Port Newark, N. J., and 207 tons at Old Hickory Plant, Tennessee, and some at other x>Hces. Of said tonnage of 55,137 tons, 28,500 tons represented the. 12,500 tons and 16,000 tons mentioned in plaintiffs contract.

It seems very clear from the facts that the plaintiff under his contract received' all the material that was declared surplus or that was actually held as surplus by the War Department for sale within the five months named in his contract. It is true that the 62,855 tons reserved for contemplated military operations was sold in April. 1920, as surplus, but this was several months after the expiration of the five months within which the plaintiff was given an option to purchase. There can be no question of the department's right to reserve this latter tonnage and of its right later when it was found that it was not needed to sell it. The plaintiff never at any time under this contract had any rights in connection with this 62,855 tons.

The plaintiff in his petition in this case sued for the recovery of the difference between the contract price of $40 per ton and the alleged market price of $55 on 62,490 tons, being the alleged tonnage reserved by the Government for military operations and sold as surplus, as above stated. -All that the plaintiff can in any event claim of the steel mentioned or referred to in the. contract is that which would have been “ declared surplus within five months.” He recognizes this when he avers that rail, other than that delivered to him, was in fact declared surplus within the stated period. The petition states, and the facts show, that deliveries were made of the 12,500 tons mentioned in section 2 and the 16,000 tons mentioned in section 3 of- the schedule, as well as of' *1228,600 additional tons, making an aggregate of 57,100 tons delivered. It is to- be observed that the 16,000 tons mentioned in section 3 as being “ rail now used as ballast in ships ” was admittedly a part of the rail that was delivered after the contract was made. The findings show that, excepting the 57,100 tons delivered, no other rail was declared surplus within the contract period. The plaintiff does not allege, as above stated, that other rail aggregating 62,490 tons became and was declared surplus within the five months. He not only fails to establish the essential allegation, but the findings negative the existence of the essential facts.

The plaintiff is not entitled to recover and his petition should be dismissed, and it is so ordered.

Hay, *Judge;*Booth, *Judge;*and Campbell, *Glvief Jus*tice, concur.