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An indenture is a legal
contract A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of thos ...
that reflects an agreement between two parties. Although the term is most familiarly used to refer to a labor contract between an employer and a laborer with 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 a prepaid lump sum, as paymen ...
status, historically indentures were used for a variety of contracts, including transfers and rents of land and even peace agreements between rulers.


Historical usage

An indenture is a legal
contract A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of thos ...
between two parties, whether for indentured labour or a term of
apprenticeship Apprenticeship is a system for training a potential new practitioners of a trade or profession with on-the-job training and often some accompanying study. Apprenticeships may also enable practitioners to gain a license to practice in a regulat ...
or for certain
land Land, also known as dry land, ground, or earth, is the solid terrestrial surface of Earth not submerged by the ocean or another body of water. It makes up 29.2% of Earth's surface and includes all continents and islands. Earth's land sur ...
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 A chirograph is a medieval document, which has been written in duplicate, triplicate or very occasionally quadruplicate (four copies) on a single piece of parchment, with the Latin word ''chirographum'' (occasionally replaced by some other term ...
). 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 A deed is a legal document that is signed and delivered, especially concerning the ownership of property or legal rights. Specifically, in common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right ...
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 Th ...
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 Countries of the United Kingdom, country that is part of the United Kingdom. It is located on the island of Great Britain, of which it covers about 62%, and List of islands of England, more than 100 smaller adjacent islands. It ...
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 (United Kingdom), 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 ''Transaction account, current account'' (i.e., mon ...
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 (–1227) * Henry V, Count of Luxembourg (1216–1281 ...
's French campaign of 1415, which culminated in the
Battle of Agincourt The Battle of Agincourt ( ; ) 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 victory of the vastly outnumbered English troops agains ...
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 National archives are the archives of a country. The concept evolved in various nations at the dawn of modernity based on the impact of nationalism upon bureaucratic processes of paperwork retention. Conceptual development From the Middle Ages i ...
, where an indenture, from about 1401, recording the transfer of the manor of Pinley,
Warwickshire Warwickshire (; abbreviated Warks) is a Ceremonial counties of England, ceremonial county in the West Midlands (region), West Midlands of England. It is bordered by Staffordshire and Leicestershire to the north, Northamptonshire to the east, Ox ...
, 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, o ...
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, ...
,
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 * Developme ...
,
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 must ...
, 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 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 deb ...
).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 (legal person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, ...
, 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
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 ...
s and principal payments to dealing with the issuer's default, if any occurs.


See also

*
Corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...
*
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, or whe ...
*
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 a prepaid lump sum, as paymen ...
*
Indian indenture system The Indian indenture system was a system of indentured servitude, by which more than 1.6million workers from British India were transported to labour in European colonies as a substitute for Atlantic slave trade, slave labour, following the Abol ...
* 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 agencie ...
*
Slavery Slavery is the ownership of a person as property, especially in regards to their labour. Slavery typically involves compulsory work, with the slave's location of work and residence dictated by the party that holds them in bondage. Enslavemen ...
*
Blackbirding Blackbirding was the trade in indentured labourers from the Pacific in the 19th and early 20th centuries. It is often described as a form of slavery, despite the British Slavery Abolition Act 1833 banning slavery throughout the British Empire, ...


References

{{Authority control Contract law Legal documents Bond market