APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE DISTRICT OF INDIANA.
MR. JUSTICE LAMAR delivered the opinion of the court.
This case is one of a large number involving litigation growing out of the foreclosure of a mortgage upon the Toledo, Cincinnati and St. Louis Railroad of Ohio, Indiana and Illinois.
The facts necessary to an understanding of the question at issue, briefly stated, are as follows: The Frankfort and Kokomo Railroad was a road of about twenty-five miles in length, running
from Frankfort to Kokomo, Indiana. On the 1st of January, 1879, the company owning the road issued two hundred bonds of $1000 each, bearing seven per cent interest, payable semi-annually and due in thirty years, and, to secure the payment thereof, executed a mortgage upon its property to the Farmers' Loan and Trust Company. Subsequently, by consolidation, that road became a part of the road of the Toledo, Cincinnati and St. Louis Railroad Company of Indiana and Illinois. On the 23d of July, 1881, the latter company issued 3000 bonds of $1000 each, bearing six per cent semiannual interest, and due July 1, 1921, and, to secure their payment, executed to the Central Trust Company of New York and Thomas A. Hendricks a mortgage on that portion of its road running from Kokomo, Indiana, to East St. Louis, Illinois. Two hundred of these bonds were set aside to trustees, to be exchanged at par value for the original Frankfort and Kokomo bonds. One hundred and thirty of those bonds were so exchanged, the holders of the other seventy of them refusing to make the exchange.
Default having been made in the payment of interest upon the new bonds, the mortgage was foreclosed, the foreclosure decree being entered November 12, 1885. By this decree it was found that seventy of the Frankfort and Kokomo bonds were outstanding, and that there was due thereon the sum of $85,108.12; and it was decreed that that sum should be paid out of the proceeds of the foreclosure sale, next after the payment of the court costs and master's fees. The foreclosure sale took place December 30, 1885, and the appellant herein, Sylvester H. Kneeland, became the purchaser of the entire line of road from Kokomo to East St. Louis. The sale was confirmed on the 5th of February, 1886, and on the 10th of March following a deed was executed and delivered to the purchaser.
Under an order of court of December 30, 1885, it was provided that all claims which should be filed in court against the railway, or the fund arising from the sale thereof, should be referred to W. P. Fishback, a master of the court. On the 23d of July, 1886, the master reported that the appellees herein,
Lawrence Brothers & Co., had produced six Frankfort and Kokomo bonds (numbers given) with coupons attached; that said bonds were owned by S. Newton Smith, but were held by Lawrence Brothers & Co., as collateral security for advances made by them to Smith; and that there was due on said bonds the sum of $8883.16, to which should be added $1.26 per day from July 22, 1886, until they should be paid.
Exceptions were filed to the master's report by the appellant, but they were overruled, the report was confirmed and a decree was rendered in accordance therewith. An appeal from that decree brings the case here.
The ground upon which payment of these bonds was resisted, and, therefore, the ground upon which this appeal is based, is, that they are not part of the seventy bonds that were not exchanged for Toledo, Cincinnati and St. Louis bonds, but are part of the one hundred and thirty bonds that were so exchanged, and have been, therefore, fully paid and satisfied.
The evidence before the master, and which is set out in this record, shows that the appellees, as brokers, purchased these six bonds for Smith from George William Ballou & Co. Ballou & Co. had obtained possession of three of the bonds from Edward Le Conte, giving him in exchange three Toledo, Cincinnati and St. Louis bonds, two income bonds, one of $1000 and the other of $500, and thirty shares of stock in ...