The courts have gradually evolved certain rules or principles for the proper assessment of damages, although extreme difficulty is found in their application to concrete cases. A distinction is drawn between _general_ and _special_ damages. (1) General damage is that _implied by law_ as necessarily flowing from the breach of right, and requiring no proof. (2) Special damage is that _in fact_ caused by the wrong. Under existing practice this form of damage cannot be recovered unless it has been specifically claimed and proved, or unless the best available particulars or details have been before trial communicated to the party against whom it is claimed.
_Contracts._--"The law imposes or implies a term that upon breach of contract damages must be paid." The general tendency of legal decisions in cases of contract is (i.) to make the amount of damages which may be awarded a matter of legal certainty, (ii.) to leave to a jury or like tribunal little more to do than find the facts, (iii.) and to revise the assessment if it is clear that it has been made in disregard of the terms of the contract or of the natural and direct consequences of the breach. The measure of damage, general speaking, is the sum necessary to place the aggrieved party in the same position so far as money will do it as if the contract had been performed. If the breach is proved, but the person complaining has suffered no real damage, he is entitled to have his legal right recognized by an award of what are called _nominal damages_, i.e. a sum just sufficient to carry a judgment in his favour on the infraction of his rights. Nominal damages, it will therefore be seen, are not the same as "small damages." He is, however, also entitled to prove and recover the special or particular damage lawfully attributable to the breach. Where the contract is to pay a fixed sum of money or liquidated amount, the measure of damages for non-payment is the sum agreed to be paid and interest thereon at the rate stipulated in the contract or recognized by law.
The law is the same in Scotland and in France (Civil Code, art. 1153). In some contracts the parties themselves fix the sum to be paid as damages if the contract is not fulfilled. These damages are described as _liquidated_, in Scots law _stipulated_ or _estimated_. It would be supposed that the sum thus fixed would be the proper damages to be awarded. And under the French Civil Code (arts. 1152, 1153, 1780) the stipulation of the parties as to the damages to be paid for breach of a stipulation other than for paying a sum of money is binding on the courts. But in England, Scotland and the United States, courts disregard the words used, and inquire into the real nature of the transaction in order to see whether the sum fixed is to be treated as ascertained damage or as a penalty to be held _in terrorem_ over the defaulter, and in the latter case, notwithstanding the stipulation, will require proof of the actual loss. In _Kemble_ v. _Farren_ (1829, 6 Bingham, 141), a contract between a manager and an actor provided that for a breach of any of the stipulations therein, the sum of £1000 should be payable by the defaulter, not as a penalty, but as liquidated and ascertained damages. Yet, the court, observing that under the stipulations of the contract the sum of £1000, if it were taken to be liquidated damages, might become payable for mere non-payment of a trifling sum, held that it was not fixed as damages, but as a penalty only. The case in which an agreed sum is most usually treated as a penalty is a bond to pay a fixed sum containing a condition that it shall be void if certain acts are done or a certain smaller sum paid. Another case is where a single lump sum is fixed as the liquidated amount of damage to be paid for doing or failing to do a number of different things of very varying degrees of importance (_Elphinstone_ v. _Monkland Iron Co._, 1887, 11 A.C. 333). But the courts have accepted as creating a contractual measure of damage a stipulation to finish sewerage works by a given day (_Law_ v. _Redditch Local Board_, 1892, 1 Q.B. 127); or to complete torpedo boats within a limited time for a foreign government (_Clydebank Engineering Co._ v. _Yzquierda_, 1905, A.C. 6). In this last case the law lords indicated that the provision of an agreed sum was peculiarly appropriate in view of the difficulty of showing the exact damage which a state sustains by non-delivery of a warship. Where the damage is not liquidated or agreed it is assessed to upon evidence as to the actual loss naturally and directly flowing from the breach of contract.