What term refers to a provision in a contract that specifies the amount of damages payable in the event of a breach?

The term that refers to a provision in a contract specifying the amount of damages payable in the event of a breach is liquidated damages. This type of clause is included in contracts to provide clarity and certainty regarding the financial penalties that a party will incur if they do not fulfill their contractual obligations.

Liquidated damages are particularly important because they are predetermined and agreed upon by both parties at the time the contract is formed, avoiding disputes over the amount due in the occasion of a breach. This can help streamline the process if a breach occurs, as it saves time and resources that would otherwise be spent determining the actual damages.

In contrast, compensatory damages are intended to compensate the injured party for losses incurred from a breach but do not necessarily involve a predetermined amount. Punitive damages, on the other hand, are designed to punish the breaching party and deter future misconduct, rather than to simply compensate the other party. Lastly, consequential damages refer to losses that occur as a result of the breach but are not directly caused by it, often requiring proof of the specific losses that resulted from the breach. Therefore, liquidated damages uniquely provide a clear framework for financial penalties within a contract.