The Payment Guarantee Agreement is a crucial financial instrument in Nigerian commercial practice, commonly used to secure payment obligations in various business transactions. It is particularly relevant when there is a need to provide additional security for payment obligations, such as in large commercial contracts, international trade, or significant financial transactions. The agreement must comply with Nigerian banking regulations, including the Banks and Other Financial Institutions Act (BOFIA) 2020 and Central Bank of Nigeria guidelines. It typically includes detailed provisions on the scope of the guarantee, demand mechanisms, enforcement procedures, and expiry conditions. This document is essential for risk management and facilitating business transactions where parties seek additional payment security.
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1. Parties: Identification of the Guarantor, Principal Debtor, and Beneficiary with their full legal names and addresses
2. Background: Context of the underlying transaction and purpose of the guarantee
3. Definitions: Definitions of key terms used throughout the agreement
4. Guarantee: Core guarantee provisions, including the scope and nature of the guaranteed obligations
5. Payment Terms: Specific terms regarding when and how payments under the guarantee must be made
6. Demand Requirements: Process and requirements for making a valid demand under the guarantee
7. Duration and Expiry: Term of the guarantee and conditions for expiry
8. Representations and Warranties: Key statements of fact and assurances given by the Guarantor
9. Independent Obligation: Confirmation that the guarantee is independent of the underlying obligation
10. Enforcement: Rights and mechanisms for enforcing the guarantee
11. Governing Law and Jurisdiction: Specification of Nigerian law as governing law and jurisdiction for disputes
12. Notices: Process for giving formal notices under the agreement
13. Execution: Signature blocks and execution formalities
1. Counter-Indemnity: Optional section where the Principal Debtor agrees to indemnify the Guarantor - used when the Principal Debtor is a party to the agreement
2. Multiple Guarantors: Additional provisions for cases where there is more than one guarantor, addressing joint and several liability
3. Security: Provisions regarding any security provided to support the guarantee obligations
4. Assignment: Provisions regarding the ability to assign rights under the guarantee - used when assignment needs to be specifically permitted or prohibited
5. Step-In Rights: Provisions allowing the Guarantor to step into the position of the Principal Debtor - used in complex commercial transactions
6. Currency Provisions: Specific provisions for guarantees involving multiple currencies or currency conversion
7. Tax Gross-Up: Provisions dealing with tax deductions from guarantee payments - used when tax implications need to be addressed
1. Form of Demand: Template for making a valid demand under the guarantee
2. Guaranteed Obligations: Detailed description of the obligations being guaranteed
3. Payment Details: Bank account and payment processing details
4. Security Details: Details of any security provided (if applicable)
5. Corporate Authorizations: Copies of relevant corporate approvals and authorizations
6. Underlying Agreement: Copy or summary of the agreement giving rise to the guaranteed obligations
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