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.
If the debtor and creditor are domiciled in the respective belligerent countries, interest upon the debt is suspended during the continuance of the war.1 The reason which is given for this rule is that payment is forbidden during the war, and that since the debtor is forbidden from making payment, he ought not to be compelled to pay interest during that time.2 With one exception, the results which are reached on this question are in harmony with this reason. The rule that interest is suspended during war has been applied where the creditor has left the country before the outbreak of the war,3 and also where the debtor has left the country prior to the outbreak of the war.4 It has been held, however, that the rule that war suspended interest did not apply during the Civil War to cases in which the debtor was domiciled in the lines of the Confederacy, and the creditor was domiciled in a state which adhered to the Union.5
1 Grinnan v. Edwards, 21 W. Va. 347.
2 See Sec. 2751.
3 Cruden v. Neale, 2 N. Car. (1 Hayw.) 338.
1 England. Du Belloix v. Waterpark,
1 Dowl. & R. 16.
United States. Foxcraft v. Nagle,
2 U. 8. (2 Dall.) 132, 1 L. ed. 319; Brown v. Hiatt, 82 U. S. (15 Wall.) 177, 21 L. ed. 128
Alabama. Bean v. Chapman, 62 Ala. 58 (obiter).
Kentucky. Selden v. Preston, 74 Ky. (11 Bush.) 101.
Maryland. Bordley v. Eden, 3 Harr. & McH. (Md.) 167.
West Virginia. Hutchinson v. Land-craft, 4 W. Va. 312.
2 Brown v. Hiatt, 82 U. S. (15 Wall.) 177, 21 L. ed. 128; Tracey v. Shumate, 22 W. Va. 474.
"As the enforcement of contracts between enemies made before the war is suspended during the war, the running of interest thereon during such suspension ceases. Interest is the compensation allowed by law, or fixed by the parties, for the use or forbearance of money, or as damages for its detention, and it would be manifestly unjust to exact such compensation, or damages, when the payment of the principal debt was interdicted. The question whether interest should be allowed on such contracts during the period of war was much considered soon after the Revolution. In the case of Hoare v. Allen (2 Dall. 102), decided in 1789 by the supreme court of Pennsylvania, it was held that interest did not run during the war on a debt owing to an enemy, contracted previously. 'Where a person,' said the court, 'is prevented by law from paying the principal, he shall not be compelled to pay interest during the prohibition.' The legislation of congress after the commencement of the War of the Revolution, like the legislation of 1861, prohibited commercial intercourse with the inhabitants of the enemies' country, and the court observed that the defendant could not have paid the debt to the plaintiff, who was an alien enemy, without a violation of the positive law of the country and of the law of nations, and that parties ought not to suffer for their moral conduct and their submission to the laws. The decision was followed by the same court in Fox-craft v. Nagle (2 Dall. 132, 1 L. ed. 310), 1791. Similar decisions were rendered by the court of appeals of Virginia and the court of appeals of Maryland." Brown v. Hiatt, 82 U. S. (15 Wall.) 177, 21 L. ed. 128.
The treaty of peace between the United States and England at the end of the Revolutionary War, which secured debts due from American debtors to English creditors, was usually held not to impose upon the debtor the duty of paying interest during the period of the war,6 although in South Carolina, it was suggested that the terms of the treaty which secured the debts were broad enough to secure the interest as well.7 In this case, however, it was not necessary to invoke the treaty, since it was shown that the creditor had a resident agent "on the spot" to whom the debt might have been paid.8
A statute which forbids recovery of interest for the period of the war, from resident debtors, in favor of creditors, resident in the country of the enemy, is therefore constitutional.9