Stewart & Stevenson Services Inc v The M/V “Chris Way MacMillan” - US District Court (ND Mississippi) (Orlansky US Magistrate Judge) - 20 June 1995

Ship mortgage - Whether invalid for lack of contemporaneous consideration - Whether ship mortgage applied to propellers and tail shafts which had been removed from vessel at date of mortgage

The river towing vessel Chris Way MacMillan sank at New Orleans. She was raised and placed in drydock. Her propellers and tail shafts were removed by her owners and stored. The shipowners later decided to repower and refurbish the vessel, and entered into a written agreement with the plaintiff for that purpose. The work involved the removal of the main engines, gears and other items and the provision of two new main engines and other equipment. The contract price for the work was $2,698,622. Pursuant to the refurbishing agreement, the shipowners also executed a First Preferred Ship Mortgage on the vessel in the plaintiff’s favour securing a maximum indebtedness of $3,000,000. The refurbishing agreement required the shipowners, as progress payments were due, to execute a series of promissory notes naming the plaintiff as payee, the notes to be secured by the ship mortgage. The shipowners executed and delivered to the plaintiff notes totalling $513,785. The plaintiff said that it had advanced in excess of $613,000 under the terms of the refurbishing agreement. Prior to the execution of the refurbishing agreement the vessel had been delivered to the plaintiff for the purpose of obtaining a bid on the contemplated work. After the refurbishing agreement had been executed the propellers and one of the tail shafts which had previously been removed from the vessel by the shipowners were moved to the plaintiff’s premises (the other tail shaft having been determined unusable), and a spare identical tail shaft owned by the shipowners was also moved to the plaintiff’s premises.