What follows is a continuation of my earlier thoughts on church legal histroy (see Part I). Despite the absence of comments, I hope someone is reading this stuff. If not who cares. I have access to the Moveable Type software, therefore I get to post what I want to.
In Nauvoo the absence of a corporate form once again plagued Church efforts. Nauvoo was a tremendously expensive affair. It required the purchase of huge amounts of land for the Saints to settle on. Since there was no Church corporation to purchase these lands, here is how the financing worked. Joseph personally went to a group of rich speculators in Connecticut. These guys put up a whole lot of money as a personal loan to Joseph, secured by a mortgage on the land that he personally purchased in Illinois and Iowa. The idea was that Joseph would then sell the land to incoming Latter-day Saints and take the proceeds to pay off the bankers, who would then give up their mortgage on the land, which would be held free and clear by the new settler. It was understood that the loan was to “the Church,” even though strictly speaking there was no such legal entity. This was important, because the investors looked to tithing revenue to repay the loan if Joseph couldn’t sell the land fast enough. In theory this scheme should have worked, but there were two problems. First, Joseph couldn’t sell the land fast enough or at high enough prices to pay off the loans. In large part this was because he wanted to avoid the accusation that he was profiting at the expense of the Saints through land speculations. Worse still, it turns out that about half of the land that he purchased was worthless. This was because the person from whom he bought the real estate in Iowa did not really own the land. In fact, the title to the land in Iowa was so hopelessly confused that eventually Congress had to step in to sort out the mess, but that was not until long after the Saints left the region. In the mean time, it meant that about half of the security on the massive loan that floated the city of Nauvoo was essentially worthless because if the Connecticut “venture capital” money tried to foreclose on its mortgage, it would face years of litigation with rival claimants to the land.
At the same time, Joseph was extending his “personal” guarantee to a variety of economic schemes in Nauvoo in an effort to spur development. Again, because the Church did not exist as a separate legal entity, creditors assumed that they were extending credit guaranteed by “the Church” by which they meant tithing revenue. Eventually this whole house of cards came falling down around Joseph’s head. The accumulated weight of litigation over the United Order, the Kirtland Safety Society, the loans financing Nauvoo real estate, and various debts contracted to spur economic enterprises, became too much, and Joseph had to file for personal bankruptcy. (The bankruptcy was not actually concluded until after his death.)
In an attempt to solve some of these problems, in 1841 the Church finally organized itself as a legal corporation. On January 30 of that year, a conference of the Saints elected Joseph as “Trustee in Trust for the Church of Jesus Christ of Latter-day Saints,” and the next day a notarized affidavit of this action was filed with the county recorder. Under an 1835, Illinois law any religious society that chose a trustee and filed an affidavit with the county recorder could become a corporate entity. As far as I know, this was the first time the Church ever existed as a formal legal person.
The problem was that the Illinois law reflected standard protestant (especially English) biases about church corporations. The great fear was that corporations, which in theory can live forever, would amass huge amounts of wealth. The boogey man were the pre-Reformation religious orders in England, which owned huge amounts of real estate. Henry VIII had gleefully dismembered these entities and distributed their property to himself and his cronies. Thereafter, “mortmain” laws became a standard feature of Anglo-American laws. These placed restrictions on the amount of wealth that could be held by a religious corporation. The Illinois law under which the Church was incorporated contained a mortmain provision limiting religious corporations to holding no more than five acres of real estate, which could only be used for houses of worship. The model was clear that of decentralized, congregational protestantism. Despite the preamble of the law, which asserted that it was passed so that “every denomination should receive equal protection and encouragement,” it was clearly not a very good corporate mechanism for a centralized and expansive organization like the Church.
The law did not contain a restriction on holding personal property, so in theory the Church could have created subsidiary corporations to hold its other real estate and then the Church corporation could have held the stock of those subsidiary corporations. This is a tactic that the Church would later adopt in Utah, but it was not available in Joseph Smith’s time for the simple reason that it was not possible at that time to easily incorporate a business company. Any such incorporation would require a special act of the legislature. The year that Joseph died ? 1844 ? saw the passage in England of the first general business incorporation act, and no state in America would pass such a law until 1866.
In short, at the death of Joseph Smith, the legal and commercial affairs of the Church were an absolute mess. Much of this was because the law of the time simply didn’t have any legal forms that could accommodate the activities of the Church. The response was a series of ad hoc arrangements centered personally on the Prophet.
Next up, trying to solve the problem in Utah…