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.
The rule that interest is suspended during war is based on the theory that the principal can not be paid lawfully. If the circumstances are such that the principal can be paid lawfully, interest will not be suspended by reason of the war.1 In accordance with this theory, interest is not suspended as against a resident debtor,2 such as a surety,3 although his joint debtors are domiciled in the territory of the enemy.4 If the obligation is payable in the country of the debtor, interest is not suspended by reason of the fact that the payee is an alien enemy,5 since the debtor can make such payment in accordance with the terms of the contract without violating the rules against holding commercial intercourse with the enemy. If an obligation which was due to one who, by the outbreak of war, has become an alien enemy, is transferred for value to one who is domiciled in the country of the debtor, interest is not suspended;6 and if such debt is transferred in good faith to the original holder after the war, he may recover during such period.7 If the debtor and the creditor reside in the same country, interest is not suspended by reason of the fact that the debt is made payable in the territory of the enemy.8 If some of the debtors were domiciled within the limits of the Confederacy, and others were domiciled in states which adhered to the Union, and the note was made payable within the limits of a state which adhered to the Union, while the creditor was domiciled within the limits of the Confederacy, each of the debtors could have paid the debt either to the creditor or at the place of payment without dealing with the enemy; and accordingly interest was not suspended by the Civil War.9 For the same reason interest is not suspended if the creditor has an agent who is domiciled in the same country as the debtor to whom the debt in question could be paid lawfully.10 If the creditor has in fact been allowed to maintain an action during the war for the enforcement of the debt, and such debt could therefore have been paid, interest will not be suspended by the war.11
1 Ward v. Smith, 74 U. 8. (7 Wall.) 447, 19 L. ed. 207; Bean v Chapman, 62 Ala. 58; Williams v. State, 37 Ark. 463; Yeaton v. Berney, 62 III. 61; Thomas v. Hunter, 20 Md. 406.
2 Paul v. Christie, 4 Harr. & McH. (Md) 161.
Interest runs if the parties are domiciled in the same country, although by reason of the war the Statute of Limitations may not run. Williams v. State, 37 Ark. 463
See, however, when interest was apparently not exacted, Kirby v. Goody-koontz, 67 Va. (26 Gratt) 208.
3 Bean v. Chapman, 62 Ala. 58. 4 Bean v Chapman, 62 Ala. 58.
5 Yeaton v. Berney, 62 III. 61.
6 Thomas v. Hunter, 29 Md 206. 7 Thomas v. Hunter, 20 Md. 206.
8 Yeaton v. Berney, 62 III. 61.
The fact that the debtor could have paid the debt as a matter of fact, if he had been willing to violate the rules which forbid dealing with the enemy, does not render him liable to pay interest.12 It was held that the fact that a debtor who resided within the lines held by the United States troops, during the Revolutionary War, could readily have gone into the British lines and paid his debt to his creditor, does not charge him with the duty of paying interest as a penalty for obeying the rules which prevented him from dealing with the enemy.13