The fundamental principle underlying the award of damages for a breach of contract, as articulated in the statement, is 'restitutio in integrum' – to restore the injured party to the position they would have been in had the contract been performed. This principle, enshrined in Section 73 of the Indian Contract Act, 1872, aims to compensate the aggrieved party for their loss, not to punish the party in breach. Damages are primarily compensatory, not punitive.

I. Kinds of Damages that the Court Can Award:

1. General/Ordinary Damages: These are damages that arise naturally and directly in the usual course of things from the breach of contract. They are presumed to be within the contemplation of the parties at the time of contracting. For example, if a seller fails to deliver goods, the buyer can claim the difference between the contract price and the market price of the goods on the date of breach.

2. Special Damages: These are damages that arise due to some special or unusual circumstances attending the contract, which were known to both parties at the time of contracting. For these to be awarded, the special circumstances and the potential loss must have been communicated to and understood by the breaching party. For instance, if a supplier knows that a delay in delivery will cause a factory to shut down, the loss of profits from the shutdown could be claimed as special damages.

3. Nominal Damages: These are awarded when there has been a breach of contract, but the injured party has not suffered any actual loss or is unable to prove the loss. The court awards a small, symbolic amount (e.g., Re. 1) to acknowledge that a legal right has been violated.

4. Exemplary/Punitive Damages: These are generally not awarded in contract law, as the purpose of contract damages is compensation, not punishment. However, in rare exceptions, such as a breach of promise to marry or wrongful dishonour of a cheque by a banker (where it affects the customer's reputation), courts might award exemplary damages to punish the wrongdoer and deter similar conduct.

5. Liquidated Damages and Penalty (Section 74): Parties may, at the time of forming the contract, agree upon a sum payable in case of breach. If this sum is a genuine pre-estimate of the likely loss, it is called 'liquidated damages' and is generally enforceable. If the sum is extravagant and disproportionate to the likely loss, intended to terrorize the other party into performance, it is considered a 'penalty' and is not fully enforceable. The court will award only reasonable compensation, not exceeding the stipulated amount, regardless of whether it is termed liquidated damages or penalty.

6. Damages for Mental Pain and Suffering: Generally, damages for mental distress, anguish, or loss of reputation are not awarded in contract cases, as they are considered too remote. However, exceptions exist, particularly in contracts where the object is to provide pleasure, peace of mind, or freedom from molestation (e.g., a contract for a holiday, or a contract for a wedding photographer).

II. Rules Relating to Assessment of Damages:

1. Causation: The loss for which damages are claimed must have been caused by the breach of contract. There must be a direct causal link between the breach and the injury suffered.

2. Remoteness of Damage (Rule in Hadley v. Baxendale): This is the cornerstone of damage assessment. Damages are recoverable only for losses that are not too remote. The rule has two limbs:

   • First Limb: Damages that naturally arose in the usual course of things from such breach of contract. These are general damages.
   • Second Limb: Damages that the parties knew, when they made the contract, to be likely to result from the breach of it. These are special damages, requiring prior knowledge or contemplation by both parties.

3. Duty to Mitigate Damages: The injured party has a duty to take all reasonable steps to mitigate (minimize) the loss consequent upon the breach. They cannot recover damages for losses that could have been avoided by taking reasonable action. For example, if a buyer refuses to accept goods, the seller should try to resell them to minimize loss.

4. Difficulty of Assessment: The mere fact that it is difficult to assess the exact amount of damages does not disentitle the injured party from claiming them. The court will do its best to estimate the loss based on available evidence.

5. Time of Assessment: Damages are generally assessed at the date of the breach of contract. However, courts may depart from this rule if another date is more appropriate to achieve the compensatory objective.

6. No Double Compensation: The injured party cannot claim damages for the same loss under different heads or from different sources if it leads to double compensation.

By applying these principles and rules, courts aim to provide fair and adequate compensation to the injured party, ensuring that they are, as far as money can achieve, placed in the position they would have occupied had the contract been duly performed.