Indenture

Indenture is a formal written contract that creates a binding obligation between two or more parties. The term covers a range of legal instruments, including employment or apprenticeship agreements, deeds affecting property, and financial agreements such as bond contracts.

Historically, indentures are best known from the era of indentured servitude in the colonial world. Individuals would sign an indenture agreeing to work for a master for a defined number of years in exchange for passage to a colony, room and board, and eventual freedom. Similar documents enclosed apprenticeship arrangements, whereby an apprentice bound themselves to a master to learn a specific trade for a set period.

In finance and real property, the term remains in use. A bond indenture sets forth the terms of a debt issue—principal, interest, maturity date, covenants, and events of default—and is typically administered by an indenture trustee who represents bondholders. In property lending, indentures can appear as deeds of mortgage or deeds of trust bound to obligations to repay and comply with specified conditions.

Origin and usage: The word indenture derives from the practice of indenting the edges of a document to create two matching copies that could be exchanged and preserved as evidence of the agreement.