Question: Was the establishment of the Kirtland Safety Society "anti-bank" illegal?

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Question: Was the establishment of the Kirtland Safety Society "anti-bank" illegal?

Starting operations without a charter was unwise, however the documents creating the KSS clearly bear the marks of being drafted by legal counsel

Starting operations without a charter was clearly an unwise decision. It is doubtful that Joseph and associates had time to receive detailed legal advice between the time their first charter application was denied and the beginning of banking operations,[1] but the documents creating the KSS clearly bear the marks of being drafted by legal counsel.[2] There are also marked differences between the documents prepared for a bank with a charter, and for the subsequent "anti-banking society," suggesting that Church leaders did not simply "rewrite" the original legal documents:

Joseph Smith, Sidney Rigdon and others directly involved were closely counseled by lawyers on the creation of the bank. The two organizing documents, of 2 November 1836, and 2 January 1837, respectively, are unlikely products of a lay hand. Quite plainly, they were drawn by counsel. Moreover, the differences between the two documents indicate legal craftsmanship, even more strongly than the style and content of the documents themselves. The organization of the Society, its form and legality, were matters upon which Joseph Smith obviously had close legal counsel and assistance. It is our conclusion that the legal advice he received was incorrect, or at best poor. It seems likely that Benjamin Bissell was the lawyer who counseled Joseph Smith concerning the bank, and who drew the organizing documents in both versions. It was Bissell who had been implicitly repealed by the Ohio legislature in 1824, and who unsuccessfully defended Joseph Smith and Sidney Rigdon in the litigation contesting the legality of the bank.[3]

While the legal advice they received was probably poor, this is a professional failing on the lawyer's part

Furthermore, there was considerable debate as to whether the anti-banking laws were even constitutional.

A second charter application was made with the support of Joseph Smith’s non-LDS lawyer, Benjamin Bissell, and other non-Mormons. The bank’s supporters probably hoped that they could eventually get a charter when the political circumstances were more favorable, and the support of legal and political personalities probably encouraged them in their course of action.

Clearly, Joseph and his supporters did not simply set out to be reckless; they had both political and legal perspectives which gave them cause for optimism.

Even with a charter, the bank would not have survived the financial crisis of 1837

Even with a charter the Kirtland bank likely would have failed during the economic turmoil of 1837. At best a charter would have allowed the bank to survive a few months longer to close without raising a flurry of law suits and apostasy and to be known by posterity as a simple business failure rather than as a shady venture. It is also clear that with or without the bank the economic turmoil that began in 1837 would have wrecked the Mormon community in Kirtland because of its highly levered position and the extremely short term nature of its debts…painful as it was the bank affair probably did little to alter the course of Mormon history.[4]

The Kirtland Safety Society was found by a jury to be an illegal bank, however, there does not seem to have been a willful effort to deceive or extort

In short, the KSS was found by a jury to be an illegal bank. The leaders of the Church made a sincere effort to solve the pressing financial problems which beset them, and were probably hasty and somewhat naïve about the undertaking. There does not seem to have been a willful effort to deceive or extort. And, the legal issues are not entirely clear, even in retrospect:

The question whether the activities of the Society in 1837 were indeed unlawful under Ohio law requires considerable and fairly sophisticated legal analysis. Although we are now satisfied that the activities of the Society did indeed violate the proscriptions of the 1816 Ohio Statute, that conclusion is not entirely free from doubt, even with the benefit of hindsight. It must have been much less clear in 1837, when Joseph Smith was faced with a decision as to how to proceed in the face of the refusal of the Ohio Legislature to grant a charter.[5]

In any case, the financial crisis of 1837 likely could not have been averted even if all the legalities had been observed.


Notes

  1. Adams, 475.
  2. Hill, Rooker, & Wimmer, 457.
  3. Hill, Rooker, & Wimmer, 457.
  4. Adams, 480.
  5. Hill, Rooker, & Wimmer, 441.