Per Curiam.
Upon the rendition of the interlocutory decree in this cause the same was sent to the master for the .purpose of ascertaining what number of the bonds described in the mortgage known as the “Income and Equipment Mortgage” were held by parties entitled to prove up the same as valid claims under said mortgage, and also of ascertaining and stating the amount necessary to be paid in order to redeem the property from the lien of the first deeds of trust thereon, represented by Frederick Taylor, trustee. The master has returned an exhaustive report upon these matters, and counsel for the parties in interest having respectively excepted to portions of the report of the master ,o the case is before the court upon these exceptions.
Upon the issue of the amount of bonds entitled to be proved up as valid in the hands of the present holders several questions arise, and will be considered in their order. Fourteen hundred of the bonds áre presented by Lawrence Turnure, who claims to be the owner thereof by purchase from the Lackawanna Iron & Coal Company. The master finds that these bonds were never issued on behalf of or for the benefit of the Burlington, Cedar Rapids & Minnesota Railway Company; that when they passed into the hands of the Lackawanna Company they had not been signed by the trustee, and that the subsequent indorsement thereof did not impart validity thereto. The evidence fails to show that the present holder is an innocent purchaser for value, and there is no ground, therefore, for holding these bonds to be valid or enforceable.
The master further reports that there was a series of these bonds, 428 in number, delivered to Henry Clews & Co. under such circumstances that, as between Clews &.Co. and the railway company, they are not enforceable, being without consideration. Of these bonds 81 are now presented for allowance by Henry Clews, and the master finds that they are entitled to recognition on the ground that the Burlington, Cedar Rapids & Northern Railway Company is not in a position to question the validity of these bonds; and this upon the theory that the present company is but a purchaser at the foreclosure sale, and is not interested in the question of the amount due upon the income mortgage, which stands as a second mortgage upon the property. In support of this view the case of Graham v. Railroad Co., 102 U. S. 148, is cited. In that cause Graham, having a judgment against the La Crosse & Milwaukee Railway Company, sought to set aside a conveyance made of certain realty by the corporation to some of its officers, on the ground that the transfer was for an inadequate sum, and made in fraud of the rights of stockholders and creditors of the company. The evidence showed that Graham was not a creditor of the company when the transfer was made, nor had he any title to or interest in the realty itself. The court held that he was not in a position to assail the transfer. He had no title in the realty. He was not a creditor when the transfer was made, and could not, therefore, claim' that it had been made to defraud him. It appeared that the officers of the company to whom the property had been conveyed had paid its then fair value. The company had acquiesced' in the conveyance, and was not then questioning it. Under these circumstances the court held [685]*685that Graham, as a subsequent creditor, could not attack the previous conveyance. The different* between that caso and the one at bar is marked. The present railway company derives its title from the sale had upon the foreclosure of the first mortgage. It not only has a title in the property in question, but the source, thereof was in existence when the transaction with Clows & Co. took place. Moreover, this court has already held that, under the peculiar facts of this case, the present company must be held to have succeeded to the redemption right of the original mortgagor, and is entitled to perfect its title to the property by paying off the amount due upon the income and equipment mortgage. It has a direct interest in the question of the amount due upon the latter mortgage; and, having such interest, it is entitled to present and be heard upon all objections that can be fairly made to the validity of the bonds sought to be recovered upon, under tlie provisions of the income mortgage.
But, aside from these considerations, there is another and sufficient ground upon which the court may hear and determine the question of the validity or invalidity of the bonds sought to be recovered upon in this proceeding. The holders thereof are invoking the aid of a court of equity to grant them relief. On the ground that the holders of the bonds are buna fide creditors of the Burlington, Cedar Bapids & Minnesota Railroad Company, and that there is justly due them certain sums evidenced by the bonds held by them, the court is asked to grant a decree compelling the present company.to come to an accounting, and either to pay what is due upon the second mortgage, or to submit to a redemption of the property; the effect of which will be a tearing up of the present system, and a separation of the main line and the branches thereof, to the manifest detriment of many parlies whoso interests were created in the belief that the ownership of the present company was absolute. To successfully invoke the aid of the court after the lapse of so many years, and when so many other interests bave become attached to the property, the parties seeking the equitable aid of the court must have substantial merit in tbeir cause, and must come before the court with clean hands. The complainants in the present cross-bill are asserting the right to redeem the property notwithstanding the sale had under the foreclosure of the prior mortgages, on the ground that the income mortgage was, when such sale took place, a second lien on the property, and that the decree did not cut off the lien then existing, and the consequent right of redemption. If, as has been already held in the interlocutory decree, the right of redemption still exists, it is the right that was in existence when the decree foreclosing the prior mortgages was entered. Whatever bonds were then valid claims under the income and equipment mortgage had reserved to them the right of redemption; that is to say, being then claims enforceable under the income mortgage, the lien of that mortgage protected them. That mortgage, however, was a lien only to the amount of the bonds then valid and enforceable thereunder; and, when the present company took the title of the property under the foreclosure sale, it was subject to a right of redemption in favor only of such bonds as were then, through the income mortgage, liens uj>on the property. For these [686]*686reasons it must be held that the question of the validity of the bonds sought to be proved up as existing liens under the income mortgage is open to investigation in this proceeding. In determining the fact of the validity of the several bonds sought to be proved up, the well-established rule is applicable that, “if fraud or illegality in the inception of negotiable paper is shown, an indorsee, before he can recover, must prove that he is an holder for value. The mere possession of the paper, under such circumstances, is not enough.” Smith v. Sac Co., 11 Wall. 139; Stewart v. Lansing, 104 U. S. 505. A large portion of the bonds now presented were purchased by the present holders in the years 1881, 1884, 1885, and 1886.
It seems that the question had, arisen whether the decree of October 30, 1875, and the .sale had thereon, had cut off the lien of the income mortgage, and barred the right of redemption thereunder. An examination of the record was had, and the conclusion was reached that the decree did not foreclose the income mortgage, but reserved for future adjudication the question of the rights and priorities of the holders of the securities covered by such mortgage. Acting upon this conclusion, inquiry was made for the purpose of finding the whereabouts of such bonds, and purchasing the same at as low rates as possible. Quite a number were bought from the then holders at figures ranging from 3 to 20 per cent, of the amount apparently due thereon. There can be no question made, under the evidence, of the fact that these purchases were made with the sole view to enforcing'the rights supposed to be conferred by the income and equipment mortgage, and the lien created thereby. The Burlington, Cedar Rapids & Minnesota Railroad Company was then wholly insolvent, and had, to the knowledge of these parties, been out of the possession of the railroad for years. Nothing could be realized from that company. The only possibility of enforcing payment of the bonds was through the supposed lien of the income mortgage and the resulting equity of redemption. The parties purchasing these bonds bought the same, as they had a right to do, as a matter of speculation, and for the purpose of enforcing the rights created by the income mortgage. Under such circumstances, they are chargeable with knowledge of the provisions of the mortgage which they now rely upon as the foundation of their rights. They also knew what w;as disclosed upon the record of the foreclosure proceedings. By the terms of the mortgage it was provided that if the interest remained in default for six months after the demand of payment, the principal of the debt became due and de-mandable, and the cross-bill then upon the record, and filed by the trustee representing the bondholders, averred that the principal of the bonds had been declared due by reason of the failure to pay the interest according to the terms of the mortgage. , The bonds, when purchased, had attached thereto unpaid coupons in amounts nearly equal to the face of the bond, and the price paid therefor was very small. As between the mortgagor and the trustee, long before these purchases were made, the bonds, principal and interest, had been declared due, and there was then pending a cross-bill, brought by the trustee, seeking a decree for the [687]*687principal sum as well as the interest due upon the bonds. When the parties, having knowledge of Such facts,' for purposes of speculation sought out these bonds, and bought them at nominal-rates, they cannot successfully assert that they are holders of commercial paper, bought before maturity, for value, and entitled to the protection accorded to bona fide holders of negotiable securities. ' The facts bring the case within the rule laid down by the supreme court in Parsons v. Jackson, 99 U. S. 434, and it must be hold that the purchases made under the circumstances indicated did not constitute the parties bona fide purchasers for value. If any of the bonds bought by these parties were then valid and enforceable in the hands of the parties from whom the same were purchased, they are enforceable by the present holders for the full amount due thereon, regardless of the sum paid therefor. If, however, the bonds, or any of them, so purchased wore invalid and void in the hands of the then holders, validity was not imparted to them by the purchases made thereof under the facts shown upon the record.
The master finds that the 1,400 bonds claimed to be owned by Lawrence Turnure, the428 bonds issued to Henry Clews & Co., and the 100 issued to the Muscatine Western Construction Company, were illegal and void when issued; the facts regarding each issue being fully set forth in his report. There has been nothing adduced in the argument on the exceptions justifying us in setting aside these findings. Unless, therefore, it appear that these bonds, or some of them, have passed into the hands of bona fide holders under circumstances defeating the right to plead such invalidity, it follows that no recovery can be had thereon. As already stated, the master finds that the bonds presented by Lawrence Turnure were void. It not appearing that he is a bona fide holder thereof, nor that he bought from one occupying that position, the bonds must be hold invalid in his hands. The evidence justifies the holding that Henry Clews, Walker, Ely, Martelle, and William Green, administrator of George Green’s estate, are not bona fide holders of the bonds presented by them, and are not entitled to relief in this action. The master also reports that, touching the bonds hold by W. B. Tucker, S. L. Dows, W. G. and L. W. McAllister, administrators, and O. S. Dawson, no evidence was adduced showing that these parties had paid value for the bonds held by them. This being so, no recovery can be had thereon. Touching the 50 bonds owned by Newell D. Clark of Ohio, and the 50 bonds owned by the First National Bank of Garretsville, Ohio, the master finds that the bonds were purchased by these parties from Clews & Co. in good faith, and that they passed to the purchasers unaffected by any defense existing against them in the hands of Clews & Co. In this finding we concur.
It further appears that in 1878 these parties joined as complainants in a proceeding brought by one M. C. McArthur to enforce the right of redemption of the Pacific Division. This proceeding was originally brought in the state court, but was removed to the United States court. The complainants therein set up that they were the owners of certain of the bonds covered by the so-called “income and Equipment Mortgage,” [688]*688and as such asked to be allowed to redeem the Pacific Division from the sale made thereof. A settlement of this proceeding was subsequently had, whereby, in consideration of $14,000, the complainants dismissed the redemption proceedings, waiving such right to redeem as they might have, but expressly reserving the right of action against the Burlington, Cedar Rapids & Minnesota Railway Company or its members. In the receipt given, upon the payment of this sum it is stated to be in full satisfaction of the claim in suit, and also of all' claims and demands against the Burlington, Cedar Rapids & Northern Railway Company, or against any of its railway or other property, by reason of the execution and delivery of said income and equipment bonds. We are satisfied that this' settlement released to the Burlington, Cedar Rapids & Northern Railway Company any and all right or equity which the parties might have had to enforce a redemption of the property passing to that company under the foreclosure sale previously had. It is urged that it was only sought in the petition filed to redeem the Pacific Division, but the right thus asserted was based upon the income and equipment mortgage, which was a lien on all the lines. What was in fact asserted was the right of redemption arising under that mortgage, and, although the petitioners may have chosen to ask only a redemption of part of the property, it -was open to them to ask a redemption of the entire property. With the record in this shape, a settlement was had, and in consideration of the payment of $14,000 the parties released all claim against the Burlington, Cedar Rapids & Northern Railway Company, reserving only the right to proceed against the Burlington, Cedar Rapids & Minnesota Company, or its members, and this, 'we think, is the only remedy left to them.
The Union Bank of Cedar Rapids holds sixty-six of the bonds, invalid in their inception, as collateral security to a judgment obtained against the Burlington, Cedar Rapids & Minnesota Railway Company in name of S. M. Nickerson, and also holds one bond as collateral security on debt due from C. B. Rowley, and four bonds as owner by purchase from one W; H. Clark. As to the judgment held by the bank, it is found by the master that it is based upon notes executed from time to time to the bank by the Burlington, Cedar Rapids & Minnesota Railroad Company, which! were usurious, and that the payments already made would far more than-extinguish the indebtedness for the sums actually loaned, with 6 per cent, interest thereon. The master, however, holds that the right to plead usury is personal to the original debtor, and that, as the railroad company did not interpose the defense when sued upon the notes, it is.not now open to the present defendant to assert that the debt due the bank has been paid. There is no question that, under the decisions of the supreme court of Iowa, the general rule is well settled that the right to plead ustiry as a defense to a suit upon a contract is confined to the party to the contract, or one in privity with him. Thus, in Hollingsworth v. Swickard, 10 Iowa, 385, it was held that where A. had entered into a usurious contract for the loan of money with B., and had executed his note therefor, secured by a mortgage on realty, and had then sold the realty, subject to the mortgage, to C., the latter could notset up the [689]*689plea as a defense to the mortgage, and this principle is adhered to in anum-ber of cases since decided in that court. In the case at bar, however, the question presented is not of this character. The Union Bank is asserting its right to obtain a decree in its favor upon the 66 bonds held by it on the ground that it holds them as collateral to a debt justly due it. It seeks to impart validity to these bonds by showing that it holds them as collateral to a debt due it from the Burlington, Cedar Bapids & Minnesota Bail-road Company. On this issue the present company has the right to demand proof of the existence of a valid claim on part of the bank, and it is not debarred from investigating the facts by the existence of the judgment, as it was not a party nor privy thereto. The Union Bank is invoking the aid of the court of equity on the ground that there is a debt justly due it, to which it holds the bonds as collateral; and when it seeks relief on this ground it cannot refuse a hearing to the present defendant on the question whether there is a just debt now due it. The evidence shows that its claim is based upon loans made to the Burlington, Cedar Bapids & Minnesota Bailroad Company of certain suras of money, upon which it has received payment of amounts sufficient to discharge the debt, with interest at the legal rate. To sustain its claim to a balance due it avers that it contracted with the railroad company to receive interest at rates running as high as 18 per cent. Under the facts developed in the record regarding these transactions, we hold that the evidence fails to sustain the claim of the bank that there is a debt due it for the payment of which it has the right to enforce the collection of the bonds presented in its behalf. The five bonds held by the bank as collateral security were received by it in the ordinary way of business, and under circumstances justifying the conclusion that the same are enforceable by the bank as valid bonds.
Six bonds are presented by A. B. Cummins, who purchased them from the assignee in bankruptcy of one B. F. Flenneker. The latter had taken the bonds as security from Henry Clews & Co., and it does not appear that he was then chargeable with notice of the invalidity of the bonds. As Flenneker could, under these circumstances, have enforced payment from the Burlington, Cedar Bapids & Minnesota Bailroad Company, the present holder can enforce the same, having succeeded to such right.
Twelve of the bonds now held by J. F. Dillon were purchased of Bos-coe Conkling, who received them as security from Henry Clews & Co. Conkling’s title has not been successfully impeached, and it inures to the benefit of the present holder. The other bonds held by Dillon were invalid in the hands of the prior holders, and must be held to remain so, notwithstanding the transfer to the present owner.
The 56 bonds presented by Hubbard & Clark were originally held by Henry Clews & Co., and passed into the hands of the assignees in bankruptcy. In their hands the bonds were invalid. Through a broker, whose name is not disclosed, these bonds were transferred to the parties now holding them. It does not appear that such broker held the bonds by good title, and therefore it does not appear that these bonds were ever held by any one entitled to enforce payment thereof.
[690]*690Of the bonds presented by T. M. Davis, 11 were purchased from Roscoe Conkling, who held them by good title. None of the others are shown to have been held free from the defenses existing against them in the hands of the original holders, and the purchase thereof by the present owner did not impart validity thereto.
The bonds presented by R. E. Sears were received by him from D. W. C. Rowley, in whose hands they were not enforceable, after the amended cross-bill was filed, and long after the bonds had been declared due and dishonored. They were received as collateral security, and the evidence fails to disclose any ground upon which Sears can be held to be an innocent holder for value thereof.
The bond presented by H. W. Morse was received by him as a stockholder in the Muscatine Western Construction Company, and the bond in his hands is liable to all defenses existing on behalf of the Burlington, Cedar Rapids & Minnesota Company; and the same is true as regards the two bonds presented by L. G. Stein.
The 10 bonds held by S. Jones & Co., and the 15 held by the National Bank of Pulaski, Tenn., were received by these parties in 1874 from Henry Clews & Co. for value, and they stand as innocent holders thereof, and are entitled to enforce the same.
We find, therefore, of the bonds presented for recognition as enforceable under the income and equipment mortgage, that there are in all 59 that are sustainable as valid bonds under the evidences adduced in this case, of which the Union Bank holds 5, J, F. Dillon 12, T. M. Davis 11, A. B. Cummins 6, Jones & Co. 10, and the National Bank of Pulaski, Tenn., 15.
The record shows that the trustee representing the bondholders had, as authorized by the terms of the mortgage, declared the principal of the debt evidenced by the bonds to be due, and had filed a cross-bill for the collection thereof, the same being filed October 30, 1875, and the amended cross-bill now before the court is a continuation of the proceeding then begun. Having elected to declare the entire debt then due, the rule of computation to be followed in ascertaining the amount now due is to ascertain the total sum due upon the bonds and the coupons that had matured up to the date named, to-wit, October 30, 1875, the overdue coupons bearing the legal rate of interest from their maturity. Having thus found the total sum due upon each bond at that date, this sum bears interest at the contract rate from that date up to the time of the entry of the final decree.
A number of exceptions have been taken to the finding of the master on the question of the amount to be paid in case redemption is made from the lien of the prior mortgages. It is naturally to be expected that any method of stating the account can be excepted to, and serious difficulties be pointed out. From the very nature of the case, and the utter impossibility of separating by any exact rule the earnings and expenditures strictly belonging to the main line, as distinguished from the several branches or extensions, any method of stating the account must be more or less arbitrary, and the best that can be done is to adopt [691]*691such a general rule as seems to more nearly cover the equities of the respective parties, and state the account accordingly. While there is doubtless much to be said in support of many of the special objections urged against the method of stating the account followed by the master, we do not find any more equitable method suggested. We do not purpose considering the exceptions in detail, as it would servo no good purpose, but content ourselves with saying that the same are overruled. According to the report of the master, the sum necessary to be paid for the redemption of the property was, on the 31st of December, 1887, $11,112,777.65. The computation should, upon the same basis, be carried down to the date of the final decree, and the amount thus ascertained will be the sum to be paid in case redemption of the property is made, interest at the contract rate being added up to the date that the redemption money is paid into court. In the interlocutory decree it was indicated that if the Burlington, Cedar Rapids & Northern Railway Company did not elect to pay off the sum found due on-the income and equipment mortgage, and the parties in interest in the latter mortgage did not redeem from the prior mortgages, that in such case the property should be sold, and the proceeds applied as indicated in the sixth paragraph of such decree. Upon further consideration of the case, we are satisfied that the parties are not entitled to thus force a sale of the property by refusing on their part to make proper redemption from the sale already had. The utmost right that can be asserted on behalf of the bondholders under the income and equipment mortgage is that they have left to them the right of redemption, and by exercising this right they can set aside the title based upon the sale following the decree of October 30, 1875. Unless they are willing to redeem, they cannot question the title under which the present company holds the property. The decree, therefore, will state the amount due upon the 59 bonds held valid as hereinbefore set forth, and provide that upon the payment into court of the sum found due thereon by the Burlington, Cedar Rapids & Northern Railway Company, all further claim, right, title, or equity under said income and equipment mortgage against the property of the present company shall be forever barred and foreclosed, the payment of the sum due to be made within 90 days from the entry of the decree; that if said sum is not thus paid within the time fixed, then, redemption of said main line of railway, together with the property, appurtenances, rolling stock, and franchises belonging thereto, may be made, by the payment into court by the parties holding bonds secured by said income and equipment mortgage of the sum necessary to redeem the same as hereinbefore stated, such payment to bo made within six months from the entry of the decree; the decree further providing for the foreclosure of said income and equipment mortgage, and for a sale of the property thereunder in case of its redemption. Should, however, redemption of the property not be made within the time limited, then the equity of redemption under said income and equipment mortgage becomes, by reason of such failure to redeem, forever barred and foreclosed; and the decree should so provide.