Old Swords are dropped by Golems (type not confirmed). They can be handed in to three different NPC's in different quantities for different rewards. Sandra, the Mirith guard in the castle celler, has a reward for 11 old swords. Everett, the Marali guard, has a reward for 10 old swords. Terry, the trader at Foehan, has a reward for 9 old swords. The rewards are as yet unconfirmed (Sep 2016).