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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 tr ...
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 Work (human activity), 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 compensa ...
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 tr ...
between two parties, particularly for
indentured labour 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 repayment, ...
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 isla ...
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. Etymology The ...
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 revenu ...
records of
Henry V Henry V may refer to: People * Henry V, Duke of Bavaria (died 1026) * Henry V, Holy Roman Emperor (1081/86–1125) * Henry V, Duke of Carinthia (died 1161) * Henry V, Count Palatine of the Rhine (c. 1173–1227) * Henry V, Count of Luxembourg (121 ...
's French campaign of 1415, which culminated in the
Battle of Agincourt The Battle of Agincourt ( ; french: Azincourt ) was an English victory in the Hundred Years' War. It took place on 25 October 1415 ( Saint Crispin's Day) near Azincourt, in northern France. The unexpected English victory against the numeric ...
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 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-Avo ...
, 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 Maturity or immaturity may refer to: * Adulthood or age of majority * Maturity model ** Capability Maturity Model, in software engineering, a model representing the degree of formality and optimization of processes in an organization * Developmen ...
,
convertibility Convertibility is the quality that allows money or other financial instruments to be converted into other liquid stores of value. Convertibility is an important factor in international trade, where instruments valued in different currencies mus ...
, pledge, promises, representations, covenants, and other terms of the bond offering. When the
offering memorandum An offering memorandum (OM) or offering circular (OC) is a type of prospectus (finance) for a bond or other security. Sometimes, this is also referred to as a prospectus, offering memorandum, or short OC. The terms "offering memorandum", "OM", or "o ...
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 Trust Indenture Act of 1939 (TIA), codified at , supplements the Securities Act of 1933 in the case of the distribution of debt securities in the United States. Generally speaking, the TIA requires the appointment of a suitably independent and ...
. 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 takes place (like that which occurs during
bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...
).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 The arm's length principle (ALP) is the condition or the fact that the parties of a transaction are independent and on an equal footing. Such a transaction is known as an "arm's-length transaction". It is used specifically in contract law to ar ...
, 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 Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...
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
coupon In marketing, a coupon is a ticket or document that can be redeemed for a financial discount or rebate when purchasing a product. Customarily, coupons are issued by manufacturers of consumer packaged goods or by retailers, to be used in r ...
s and principal payments to dealing with the issuer's default, if any occurs.


See also

*
Corporate finance Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to all ...
*
Debt security A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
*
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 acknowle ...
*
Indentured servant Indentured servitude is a form of Work (human activity), 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 compensa ...
*
Indian indenture system The Indian indenture system was a system of indentured servitude, by which more than one million Indians were transported to labour in European colonies, as a substitute for slave labor, following the abolition of the trade in the early 19th c ...
* Irish slaves myth * Prospectus *
Securities law Securities regulation in the United States is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal and state-level regulation by governmental regulatory agencies ...
*
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 in ...


References


External links


English property indenture from 1804

Wisconsin 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