An indenture is a legal
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to ...
that reflects or covers a debt or purchase obligation. It specifically refers to two types of practices: in historical usage, an
indentured servant
Indentured servitude is a form of labor in which a person is contracted to work without salary for a specific number of years. The contract, called an " indenture", may be entered "voluntarily" for purported eventual compensation or debt repaymen ...
status, and in modern usage, it is an instrument used for commercial debt or real estate transaction.
Historical usage
An indenture is a legal
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to ...
between two parties, particularly for
indentured labour or a term of
apprenticeship
Apprenticeship is a system for training a new generation of practitioners of a trade or profession with on-the-job training and often some accompanying study (classroom work and reading). Apprenticeships can also enable practitioners to gain a ...
but also for certain
land
Land, also known as dry land, ground, or earth, is the solid terrestrial surface of the planet Earth that is not submerged by the ocean or other bodies of water. It makes up 29% of Earth's surface and includes the continents and various isl ...
transactions. The term comes from the medieval English "indenture of retainer"
—a legal contract written in duplicate on the same sheet, with the copies separated by cutting along a jagged (toothed, hence the term "indenture") line so that the teeth of the two parts could later be refitted to confirm authenticity (
chirograph). Each party to the deed would then retain a part. When the agreement was made before a court of law a ''tripartite'' indenture was made, with the third piece kept at the court. The term is used for any kind of
deed
In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferrin ...
executed by more than one party, in contrast to a
deed poll
A deed poll (plural: deeds poll) is a legal document binding on a single person or several persons acting jointly to express an intention or create an obligation. It is a deed, and not a contract because it binds only one party
A party ...
which is made by one individual. In the case of
bonds, the indenture shows the pledge, promises, representations and covenants of the issuing party.
Although other evidence indicates that the method has been in use from around the year 1000, the earliest surviving examples in
England
England is a country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest and the Celtic Sea to the southwest. It is separated from continental Europe ...
are from the thirteenth century. These are agreements for military service, proving that a paid contract army was then in existence.
Exchequer
In the civil service of the United Kingdom, His Majesty’s Exchequer, or just the Exchequer, is the accounting process of central government and the government's '' current account'' (i.e., money held from taxation and other government rev ...
records of
Henry V's French campaign of 1415, which culminated in the
Battle of Agincourt on 25 October 1415, including the indentures of all the captains of the army agreeing to provide specified numbers of men and at what cost, may still be read. An indenture was commonly used as a form of sealed contract or agreement for land and buildings. An example of such a use can be found in the
National Archives, where an indenture, from about 1401, recording the transfer of the
manor
Manor may refer to:
Land ownership
*Manorialism or "manor system", the method of land ownership (or "tenure") in parts of medieval Europe, notably England
*Lord of the manor, the owner of an agreed area of land (or "manor") under manorialism
*Man ...
of
Pinley,
Warwickshire
Warwickshire (; abbreviated Warks) is a county in the West Midlands region of England. The county town is Warwick, and the largest town is Nuneaton. The county is famous for being the birthplace of William Shakespeare at Stratford-upon-Avon an ...
, is held.
In the early history of the United States, many European immigrants served a period of indentured labour in order to pay the cost of their transportation. This practice was common during the 17th and 18th centuries, where over half of immigrants worked off an average of three years' servitude.
Modern usage
''Bond indenture'' (also ''trust indenture'' or ''deed of trust'') is a
legal document
Legal instrument is a legal term of art that is used for any formally executed written document that can be formally attributed to its author, records and formally expresses a legally enforceable act, process, or contractual duty, obligation, or ...
issued to lenders and describes key terms such as the
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, t ...
,
maturity date,
convertibility, pledge, promises, representations, covenants, and other terms of the bond offering. When the
offering memorandum is prepared in advance of marketing a bond, the indenture will typically be summarised in the "description of notes" section.
In the United States, public debt offerings in excess of $10 million require the use of an indenture of trust under the
Trust Indenture Act of 1939. The rationale for this is that it is necessary to establish a collective action mechanism under which creditors can collect in a fair, orderly manner if
default
Default may refer to:
Law
* Default (law), the failure to do something required by law
** Default (finance), failure to satisfy the terms of a loan obligation or failure to pay back a loan
** Default judgment, a binding judgment in favor of ei ...
takes place (like that which occurs during
bankruptcy).
[William J. Carney. ''Corporate Finance: Principles and Practice (University Casebook Series)''. Thomson-West. 2004. .] No trust relationship exists between the bondholder and the issuing corporation. These two are in a regular contractual,
arm's length, non-
fiduciary
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exa ...
, non-
equity relationship. Rather, the trustee in a "trust indenture" is a third party, usually a specialist company, who is appointed by the issuer to handle and safeguard the interests of the numerous public bondholders, in events ranging from the usual distribution of
coupons and
principal payments to dealing with the issuer's default, if any occurs.
See also
*
Corporate finance
*
Debt security
*
Debt bondage
Debt bondage, also known as debt slavery, bonded labour, or peonage, is the pledge of a person's services as security for the repayment for a debt or other obligation. Where the terms of the repayment are not clearly or reasonably stated, the pe ...
*
Debenture
In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowl ...
*
Indentured servant
Indentured servitude is a form of labor in which a person is contracted to work without salary for a specific number of years. The contract, called an " indenture", may be entered "voluntarily" for purported eventual compensation or debt repaymen ...
*
Indian indenture system
*
Irish slaves myth
The Irish slaves myth is a fringe Pseudohistory, pseudohistorical narrative that conflates the penal transportation and indentured servitude of Irish people during the 17th and 18th centuries, with the hereditary chattel slavery experienced b ...
*
Prospectus
*
Securities law
*
Slavery
Slavery and enslavement are both the state and the condition of being a slave—someone forbidden to quit one's service for an enslaver, and who is treated by the enslaver as property. Slavery typically involves slaves being made to perf ...
*
Blackbirding
Blackbirding involves the coercion of people through deception or kidnapping to work as slaves or poorly paid labourers in countries distant from their native land. The term has been most commonly applied to the large-scale taking of people i ...
References
External links
English property indenture from 1804Wisconsin Health and Educational Facilities Authorities Revenue bonds* First international Festival of indenture : http://www.potomitan.info/ki_nov/coolitude_2018.php
{{Authority control
Contract law
Legal documents
Bond market