The court held that the government acted within its authority in selling the yacht to someone who was not actually the highest bidder, and was therefore bound by the sale even after the higher bid was discovered.

When Johnson refused, the United States government brought an action in interpleader in the Southern District of New York to resolve the ownership dispute.

The Navy also supported Johnson's claim and argued that the transfer of the bill of sale to Levinson should be set aside on grounds of mutual mistake.

The court dismissed the government's appeal, on the ground that it was not a party to the controversy, and also held that the Secretary of the Navy had acted outside his statutory authority in transferring the yacht to someone who was not the highest bidder.

The Supreme Court disagreed and held that the word "unless" in the statutory provision that "no vessel of the Navy shall hereafter be sold in any other manner than herein provided, or for less than such appraised value unless the President of the United States shall otherwise direct in writing" applied to the entire preceding sentence, thus allowing the president and his agents to vary both the amount of sale and the manner of sale.