Which term describes damages that are predetermined by a contract in the event of non-performance?

The term that describes damages predetermined by a contract in the event of non-performance is liquidated damages. These are specific amounts agreed upon by the parties at the time the contract is formed, intended to provide a clear understanding of the compensation due for a breach. This provision serves to avoid uncertainty and lengthy litigation over damages, as the parties have already established what these damages will be.

Liquidated damages are particularly useful in cases where actual damages might be difficult to quantify. For example, in real estate transactions, if a buyer breaches a contract, the seller may have certain expenses or losses that are difficult to measure, so they might agree to a set amount to simplify the resolution.

The other terms refer to different types of damages: general damages relate to the actual loss suffered from a breach that is not quantified in the contract, incidental damages are costs incurred directly due to the breach, and nominal damages represent a small amount awarded when a breach has occurred but there is no significant loss to claim. Therefore, while these other types of damages serve various purposes within law, it is liquidated damages that specifically focus on the predetermined aspect agreed upon by both parties in the contract.