Indenture
Encyclopedia
An indenture is a legal contract
reflecting a debt or purchase obligation, specifically referring to two types of practices: in historical usage, an indentured servant
status, and in modern usage, an instrument used for commercial debt or real estate transaction.
between two parties, particularly for indentured labour
or a term of apprenticeship
but also for certain land
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. 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
executed by more than one party, in contrast to a deed poll
which is made by one individual. In the case of bonds
, the indenture shows the pledge, promises, representations and covenants of the issuing party.
In England
the earliest surviving examples are from the thirteenth century. These are agreements for military service, proving that a paid, contract army was then in existence, although other evidence indicates that the method had already been in use for at least two hundred years. Exchequer
records of Henry V
's French campaign of 1415 (the Agincourt
campaign), 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
, 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.
, 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 takes place (like that which occurs during bankruptcy
).
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
reflecting a debt or purchase obligation, specifically referring to two types of practices: in historical usage, an indentured servant
Indentured servant
Indentured servitude refers to the historical practice of contracting to work for a fixed period of time, typically three to seven years, in exchange for transportation, food, clothing, lodging and other necessities during the term of indenture. Usually the father made the arrangements and signed...
status, and in modern usage, an instrument used for commercial debt or real estate transaction.
Historical usage
An indenture is a legal contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
between two parties, particularly for indentured labour
Indentured servant
Indentured servitude refers to the historical practice of contracting to work for a fixed period of time, typically three to seven years, in exchange for transportation, food, clothing, lodging and other necessities during the term of indenture. Usually the father made the arrangements and signed...
or a term of apprenticeship
Apprenticeship
Apprenticeship is a system of training a new generation of practitioners of a skill. Apprentices or protégés build their careers from apprenticeships...
but also for certain land
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
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. 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
Deed
A deed is any legal instrument in writing which passes, or affirms or confirms something which passes, an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions sealed...
executed by more than one party, in contrast to a deed poll
Deed poll
A deed poll is a legal document binding only to a single person or several persons acting jointly to express an active intention...
which is made by one individual. In the case of bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, the indenture shows the pledge, promises, representations and covenants of the issuing party.
In England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
the earliest surviving examples are from the thirteenth century. These are agreements for military service, proving that a paid, contract army was then in existence, although other evidence indicates that the method had already been in use for at least two hundred years. Exchequer
Exchequer
The Exchequer is a government department of the United Kingdom responsible for the management and collection of taxation and other government revenues. The historical Exchequer developed judicial roles...
records of Henry V
Henry V of England
Henry V was King of England from 1413 until his death at the age of 35 in 1422. He was the second monarch belonging to the House of Lancaster....
's French campaign of 1415 (the Agincourt
Battle of Agincourt
The Battle of Agincourt was a major English victory against a numerically superior French army in the Hundred Years' War. The battle occurred on Friday, 25 October 1415 , near modern-day Azincourt, in northern France...
campaign), 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
Manorialism
Manorialism, an essential element of feudal society, was the organizing principle of rural economy that originated in the villa system of the Late Roman Empire, was widely practiced in medieval western and parts of central Europe, and was slowly replaced by the advent of a money-based market...
of Pinley, Warwickshire
Warwickshire
Warwickshire is a landlocked non-metropolitan county in the West Midlands region of England. The county town is Warwick, although the largest town is Nuneaton. The county is famous for being the birthplace of William Shakespeare...
, 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 issued to lenders and describes key terms such as the interest rateInterest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
, maturity date, convertibility
Convertible bond
In finance, a convertible note is a type of bond that the holder can convert into shares of common stock in the issuing company or cash of equal value, at an agreed-upon price. It is a hybrid security with debt- and equity-like features...
, pledge, promises, representations, covenants, and other terms of the bond offering. When the Offering Memorandum
Prospectus (finance)
In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements,...
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
Trust Indenture Act of 1939
The United States Trust Indenture Act of 1939 , codified at through , supplements the Securities Act of 1933 in the case of the distribution of debt securities...
. 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
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
).
See also
- SlaverySlaverySlavery is a system under which people are treated as property to be bought and sold, and are forced to work. Slaves can be held against their will from the time of their capture, purchase or birth, and deprived of the right to leave, to refuse to work, or to demand compensation...
- Debt security
- DebentureDebentureA debenture is a document that either creates a debt or acknowledges it. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note...
- Corporate financeCorporate financeCorporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value while managing the firm's financial risks...
- ProspectusProspectus (finance)In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements,...
- Securities law
- Indentured servantIndentured servantIndentured servitude refers to the historical practice of contracting to work for a fixed period of time, typically three to seven years, in exchange for transportation, food, clothing, lodging and other necessities during the term of indenture. Usually the father made the arrangements and signed...