Let's add a new wrinkle.

Sometimes the non-breaching party will have to incur some out-of-pocket costs in performing. We have to take that into account in determining the damages.

For instance, suppose Homeowner and Painter enter into a contract for the painting of Homeowner's house. The contract price is $3,000 and it is anticipated that Painter will spend $500 on paint and other materials in the course of performing the contract.

How do we calculate Painter's damages if Homeowner breaches the contract before Painter has done anything? The answer is that we just use the same method we have been using all along. (1) We determine the position the non-breaching party (Painter) would have been in if the contract had been performed (i.e., how much better off would he have been than he was before he entered into the contract). (2) Then we determine the position the non-breaching party is in after the breach (i.e., how much better off, or worse off, is he than he was when he entered into the contract). Then (3) we determine how much money it would take to get him from point (2) to point (1).

(1) If the contract had been performed, Painter would have been $2,500 better off. He would have received $3,000, but he would have had to spend $500.

(2) As it is now, he is in the same position he was in before the contract was entered into.

(3) It will take $2,500 to get him from point (2) to point (1).