This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
A contract which is entered into during war, by which one who owes permanent allegiance, and probably by one who owes temporary allegiance, to a country which tends to aid the enemy in prosecuting the war, amounts to an act of treason; and accordingly such contract is illegal and unenforceable.1 If goods are sold, services performed, and the like, knowing that they are intended to aid a treasonable plan, such knowledge is of itself sufficient to render the contract illegal, and it is not necessary that such illegal purpose shall be a term of the contract in question.2
18 "It must also be conceded, as a general rule, to be one of the immediate consequences of a declaration of war and the effect of a state of war, even when not declared, that all commercial intercourse and dealing between the subjects or adherents of the contending powers is unlawful, and is interdicted. The reasons for this rule are obvious. They are, that, in a state of war, all the members of each belligerent are respectively enemies of all the members of the other belligerent; and, were commercial intercourse allowed, it would tend to strengthen the enemy, and afford facilities for conveying intelligence, and even for traitorous correspondence. Hence it has become an established doctrine, that war puts an end to all commercial dealing between the citizens or subjects of the nations or powers at war, and 'places every individual of the respective governments, as well as the governments themselves, in a state of hostility;' and it dissolves commercial partnerships existing between the subjects or citizens of the two contending parties prior to the war, for their continued existence would involve community of interest and mutual dealing between enemies." Matthews v. McStea, 91 U. S. 7, 23 L. ed. 188.
1 Hanauer v. Doane, 70 U. S. (12 Wall.) 342, 20 L. ed. 430; Hanauer v. Woodruff, 82 U. S. (15 Wall.) 439, 21 L. ed. 224; Shepherd v. Reese, 42 Ala. 329; Patton v. Gilmer, 42 Ala. 548; Oxford Iron Co. v. Quinchett, 44 Ala. 487; Oxford Iron Co. v. Spradley, 46 Ala 98; Milner v. Patton, 49 Ala. 423; Ware v. Jones, 61 Ala. 288; Clements v. Yturria, 14 Hun (N. Y.) 151; Isaacs v. Richmond, 00 Va. 30.
2 Hanauer v. Doane, 79 U. S. (12 Wall.) 3:2, 20 L. ed 439.
"He who, being bound by his allegiance to a government, sells poods to the agent of an armed combination to overthrow that government, knowing that the purchaser buys them for that treasonable purpose, is himself guilty of treason or a misprision thereof. He voluntarily aids the treason, He can not be permitted to stand on the nice metaphysical distinction that, although he knows that the purchaser buys the goods for the purpose of aiding the rebellion, he does not sell them for that purpose. The consequences of his acts are too serious and enormous to admit of such a plea. He must be taken to intend the consequences .of his own voluntary act." Hanauer v. Doane, 79 U. S. (12 Wall.) 342, 20 L. ed. 439.
The illegality of such contract is, perhaps, most clear when it is entered into across the lines of war by a subject of the nation whose enemies he is aiding by making such contract.3 A contract by which a citizen of a state which adhered to the Union, agreed knowingly to furnish military stores, including weapons, to the Confederate government during the Civil War, and to take cotton in compensation for such supplies, is illegal.4
On the other hand, the fact that such contract is not made through the lines of war, and that the parties thereto are both domiciled in the insurgent territory, and that they both claim allegiance to the insurgent government, does not render such contract valid.5 No recovery can be had upon a bond to secure the performance of a contract to make weapons for a seceding state, which are to be used in resisting the authority of the United States.6 A contract for the sale of a plant which the buyer intended, to the knowledge of the seller, to use in making iron for the Confederate government, to assist it in prosecuting war against the United States, is illegal and no recovery can be had thereon.7 No recovery can be had upon a note which is given for a horse which by the terms of the contract was to be used in a "mounted company" in the service of the Confederacy, and which was to be paid for as the purchaser "draws his money," that is, his pay from the Confederacy.8 If A sold goods to B, knowing that B intended to use such goods for the purpose of clothing soldiers of the Confederate army, it was held that A could not recover therefor.9 If A lent money to B, knowing that B intended to use such money to erect iron works and to make iron for the Confederate government, A can not recover upon such loan.10 No recovery can be had upon a contract by which A hires mules from B, intending, to B's knowledge, to use them in assisting in the manufacture of iron for the Confederate government.11 No recovery can be had for supplies and commissary stores sold to a supply contractor of the Federal government, if the seller knew when he made such sale that such goods were to be used for the Confederate army.12 No recovery can be had upon a promissory note which was given for bonds of a seceding state which were issued by such state for the purpose of carrying on war against the United States.13 A city is not liable upon its notes which were issued for the purpose of aiding in the prosecution of war against the United States.14
"When a contract is thus connected by its consideration with an illegal transaction a court of justice will not aid its enforcement. It is sometimes said that the test whether a demand connected with an illegal transaction is capable of being enforced at law is, whether the plaintiff requires any aid from the illegal transaction to establish his case. This test was given in Simpson v. Bloss (7 Taunt. 246), by the courts of Common Pleas, in England. But it is too narrow in its terms and excludes many cases where the plaintiff might establish his case independently of the illegal transaction, and yet would find his demand tainted by that transaction. He might, in some instances, establish his case by showing a simple loan of money, or a simple sale of goods, yet the court would hold the contract of loan or sale to be invalid if at the time the money was loaned or the goods were sold he knew they were to be used for an illegal and criminal transaction, and the contract was made to further its execution." Hanauer v. Woodruff, 79 U. S. (15 Wall.) 439, 20 L. ed. 439.
3 Clements v. Yturria, 14 Hun (N. Y.) 151.
4 Clements v. Yturria, 14 Hun (N. Y.) 161.
5 Hanauer v. Doane, 79 U. S. (12 Wall.) 342, 20 L. ed. 439; Hanauer v. Woodruff, 82 U. S. (15 Wall.) 439, 21 L. ed. 224; Shepherd v. Reese, 42 Ala. 329; Patton v. Gilmer, 42 Ala. 548; Oxford Iron Co. v. Quinchett, 44 Ala. 487; Oxford Iron Co. v. Spradley, 46 Ala. 98; Milner v. Patton, 49 Ala. 423; Ware v. Jones, 61 Ala. 288; Isaacs v. Richmond, 90 Va. 30.
6 Patton v. Gilmer, 42 Ala. 648.