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The Performance Guarantee Agreement serves as a risk management tool widely used in commercial transactions across Canada. It is particularly crucial in scenarios where one party seeks assurance of another party's performance of contractual obligations. This document becomes relevant when there's a need for additional security in major commercial transactions, construction projects, or service contracts. The agreement must comply with both federal Canadian legislation and relevant provincial laws, particularly regarding contract formation, security interests, and enforcement mechanisms. The guarantee can be either conditional (requiring specific conditions to be met before enforcement) or unconditional (payable on demand), and typically includes specific provisions about the scope of guaranteed obligations, enforcement procedures, and the guarantor's rights and obligations. This type of agreement is especially common in construction projects, government contracts, and large-scale commercial transactions where performance risk needs to be managed effectively.

1. Parties: Identification of the Guarantor, Principal (the party whose performance is being guaranteed), and Beneficiary

2. Background: Context of the underlying agreement and reason for the guarantee

3. Definitions: Key terms used throughout the agreement, including 'Guaranteed Obligations', 'Principal Agreement', 'Event of Default'

4. Guarantee and Indemnity: Core guarantee obligations and indemnification provisions

5. Scope of Guarantee: Extent and limitations of the guaranteed obligations

6. Duration: Term of the guarantee and conditions for termination

7. Enforceability: Conditions under which the guarantee can be enforced

8. Guarantor's Representations and Warranties: Statements about the Guarantor's capacity and authority to provide the guarantee

9. Payment Terms: Timing and method of payments under the guarantee

10. Preservation of Rights: Beneficiary's rights in various scenarios including Principal's insolvency

11. Notices: Communication requirements and contact details

12. Governing Law and Jurisdiction: Applicable law and courts having jurisdiction

13. Execution: Signature blocks and execution requirements