IN SHAKESPEARIAN times the penal bond was widely used as a means of securing performance of a contractual obligation or prompt payment of a debt.

The bond was a sealed document containing an acknowledgment that a sum of money was due on a specified date, but subject to a condition that the bond would become null and void if a particular obligation had been fulfilled before that date. In the case of a contractual obligation the condition would be the due performance of the contract; in the case of a debt the condition would be the due payment of the debt, and the amount of the bond would usually be considerably larger as an incentive for the debtor to settle the debt before the default date under the bond.

Once the bond had become forfeit the debtor had no defence to a claim for the amount due, unless he could challenge the validity of the bond. He could, of course, escape liability if he could show that the condition had been fulfilled, but in the case of a debt only a formal deed under seal acknowledging payment (an "acquittance") or cancelling the bond would suffice. Without a sealed acquittance the debtor might be compelled to pay twice on the same obligation.

Moneylenders were unscrupulous, and sometimes disappeared when the default date under a bond approached, so that it would be impossible for the debtor to pay the debt, or adopted other techniques to achieve forfeiture of the bond. It was no defence that the debtor had been able and willing to pay but the creditor had been evasive.

In The Merchant of Venice the only variation from an orthodox penal bond is the substitution of a pound of Antonio's flesh as the forfeit, rather than a monetary penalty. A Shakespearian audience would have been well aware that Antonio was putting himself at considerable risk, however confident he might have been of his ability to repay the debt before the bond became forfeit.

The conditional bond remained in use until the 18th century, but already during the 16th century the use of bonds to secure an extortionate advantage was starting to be curtailed, as the courts of equity gave relief against the rigours of the common law. By the time The Merchant of Venice was written it had become established that a creditor could not recover more than his actual losses resulting from the breach of condition, and debtors could obtain relief from purely penal provisions.