Filed 4/7/16 Mulitz v. L.A. Stucco, Inc. CA2/4

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

LAURA MULITZ et al.,

 Plaintiffs and Respondents,

 v.

L.A. STUCCO, INC., 

 Defendant;

UNITED SPECIALTY INSURANCE 

CO.,

 Intervener and Appellant.

 B260314 c/w B262387

 (Los Angeles County Super.

 Ct. No. BC485588)

APPEAL from a judgment and orders of the Superior Court of Los Angeles 

County. Barbara A. Meiers, Judge. Affirmed.

Archer Norris, W. Eric Blumhardt and Namvar A. Mokri for Intervener and 

Appellant.

Weintraub Tobin Chediak Coleman Grodin, Marvin Gelfand and Brittany J. 

Shugart for Plaintiffs and Respondents.

Gaglione, Dolan & Kaplan and Jeffrey S. Kaplan for Defendant.
2

In the underlying action, respondents Laura and Tom Mulitz asserted claims 

against L.A. Stucco, Inc. (L.A. Stucco) and respondent Building Dreams 

Construction, Inc. (Building Dreams), alleging that they renovated a home in a 

defective manner.1 Appellant United Specialty Insurance Company (United) 

intervened in the action as L.A. Stucco’s insurer. After initiating a cross-action 

against L.A. Stucco for indemnity and breach of contract, Building Dreams 

entered into a settlement with the Mulitzes stating Building Dream’s intention to 

assign its cross-claims to them. Following a jury trial, the court entered a 

judgment in favor of the Mulitzes against L.A. Stucco, issued contract-based 

attorney fee awards to the Mulitzes, and denied United’s request for a contractbased award of attorney fees as the prevailing party on Building Dreams’s crosscomplaint. 

United has appealed from the judgment and fee award rulings, contending 

the trial court erred in finding the Mulitzes to be third party beneficiaries of 

Building Dreams’s contract with L.A. Stucco, declining to apply the economic 

loss rule to the Mulitzes’ negligence claim, limiting the testimony of United’s 

expert, and denying United’s attorney fee request. We reject United’s contentions, 

and affirm the judgment and fee award rulings. 

1 Because the Mulitzes share a surname, we generally refer to them by their 

first names.
3

RELEVANT FACTUAL AND PROCEDURAL

BACKGROUND

A. Events Preceding Action

The underlying action concerns a house located on Hercules Drive in Los 

Angeles. Laura lives in the house, which is owned by the S.A.G.M. Trust. Laura 

is the trust’s grantor and beneficiary, and her mother Shelley Mulitz is its trustee. 

The trust bought the house with funds provided by Laura. 

In April 2010, Laura’s stepfather Tom entered into a construction contract 

with Building Dreams to repair and remodel the house. Building Dreams, acting 

as general contractor, engaged L.A. Stucco as a subcontractor to apply new stucco 

to the house. 

B. Complaints and Settlement

In May 2012, Laura and Tom initiated the underlying action against 

Building Dreams and L.A. Stucco.2 Their complaint alleged that the stucco work 

performed on the house was defective, and contained claims for negligence and 

breach of contract. Among those claims was a cause of action predicated on 

allegations that L.A. Stucco violated its contract with Building Dreams, which had 

been made “for the benefit of” Laura and Tom. Building Dreams filed a crosscomplaint against L.A. Stucco, asserting claims for declaratory relief, equitable 

contribution, and indemnity. 

2 The complaint also named as defendants Daniel Batres and Daniel

Fitzgerald, who were identified as “principal[s]” of, respectively, Building Dreams 

and L.A. Stucco. 
4

In September 2012, United sought to intervene in the action on the ground 

that it had issued commercial general liability policies to L.A. Stucco, which was 

then a dissolved corporation. The trial court granted United leave to intervene on 

behalf of L.A. Stucco as defendant and cross-defendant. 

In March 2013, Shelley Mulitz, as trustee of the S.A.G.M. Trust, assigned to 

Laura and Tom “all of the claims and rights that . . . the [t]rust[] . . . would and 

does otherwise have against any party with respect to the construction, 

remodeling, and any other work performed at [the house].” 

In July 2013, Building Dreams filed a first amended cross-complaint against 

L.A. Stucco, to which United filed an answer. The complaint asserted a claim for 

breach of contract, along with claims for declaratory relief, equitable contribution, 

and indemnity. 

Shortly before trial, Laura and Tom entered into a settlement with Building 

Dreams.3 Under the terms of the settlement, Building Dreams stated that it “will 

assign” to Laura and Tom all its claims against L.A. Stucco and United, including 

those asserted in the first amended cross-complaint. On July 18, 2014, the trial 

court found that the settlement had been made in good faith (Code Civ. Proc., 

§ 877.6). 

 

C. Trial

During his opening statement, United’s counsel informed the jury: “L.A 

Stucco doesn’t dispute that it did a really bad job . . . , and we don’t dispute that 

[the Mulitzes] are in fact entitled to damages for our poor work. . . . [¶] So the 

issue that’s going to be before you . . . is what are [the Mulitzes] entitled to . . . .”

3 Daniel Batres was also a party to the settlement.
5

1. Laura and Tom’s Evidence

Laura pursues a career as a professional entertainer under a stage name. 

Tom, who has worked as a building contractor, assisted her in finding a suitable 

house to purchase. Laura provided the funds used to buy the house, and 

established the trust to hold it in order to enhance her safety and security. 

Before Laura moved into the house, Tom noticed that it needed repairs. In 

February 2010, shortly after the house was purchased, Tom discussed renovations 

to the house with Building Dreams, including redoing the stucco, which exhibited 

cracking. According to Laura, in working with Building Dreams, Tom “basically 

did everything for her” because she knew nothing regarding construction. When 

Tom entered into an oral agreement with Building Dreams to perform the 

renovations, Laura funded the project. 

Daniel Batres, a project manager for Building Dreams, testified that after he 

agreed to renovate Laura’s house, L.A. Stucco submitted a $44,000 bid to 

Building Dreams to perform the stucco work on the house. Building Dreams and 

L.A. Stucco executed a written contract dated April 15, 2010 regarding the work. 

According to Batres, L.A. Stucco’s scope of work required it to sandblast existing 

stucco down to the house’s original stucco, apply new stucco, and install moldings 

around windows in order to “tie in” the new stucco. In addition, L.A. Stucco was 

to repair water stains under a balcony. 

Tom testified that a few months after the completion of work, significant 

cracking and “ballooning” appeared in the new stucco, and pieces of stucco began 

falling off the house. Tom asked Building Dreams and L.A. Stucco to resolve the 

problems, but was dissatisfied with their proposals to cure the defects in the new

stucco. He hired Michael Roberts to examine L.A. Stucco’s work, and later 

engaged McCormick Construction to replace it. The repairs required Laura to 
6

move out of the house into a rented residence and store her furniture and 

belongings. Her rent and moving expenses totaled approximately $131,000. 

Roberts, a plastering and stucco expert, testified regarding the features of 

properly applied stucco and the defects in L.A. Stucco’s work. According to 

Roberts, the term “stucco” refers to a system involving three bonded layers of 

plaster: a foundational “‘scratch coat’” on lath wire affixed to a wall, an 

intermediate “‘brown coat,’” and a “‘finish coat.’” Underlying the scratch coat is a 

layer of building paper, which renders the system water-resistant. Water 

penetrates the plaster but is blocked by the building paper, which forces it to flow 

down and exit the system through a “weep screed.”

At Tom’s invitation, Roberts investigated L.A. Stucco’s work on the house. 

According to Roberts, L.A. Stucco applied the new stucco in a manner that was 

never “advisable.” He discovered that L.A. Stucco had sandblasted away only the 

existing finish coat, and applied an excessively thick three-layer stucco system to 

the original brown coat. That coat could not bear the weight of the new stucco, 

which “delaminat[ed],” cracked, and fell off the house. In addition, L.A. Stucco 

had conducted the sandblasting in an inadequate manner, resulting in “huge divots 

and pockets” in the original brown coat. 

Roberts also found water intrusion inside the house at least partially 

attributable to L.A. Stucco’s work. That intrusion was located at a sliding door, 

around some windows, and near a balcony. Regarding the sliding door, Roberts

concluded that L.A. Stucco had improperly attached lath wire to the original 

stucco with concrete nails, which penetrated the original stucco and caused water 

intrusion. According to Roberts, the nails “went through the stucco system and 

through the black building paper, which was the weather-resistant barrier . . . .” 

Regarding the windows, he determined that L.A. Stucco had not remediated 
7

excessive cracking in the original stucco, and instead applied new stucco over 

those cracks. Roberts stated: “If you’re doing a system correctly, water should 

not be penetrating it . . . .” Regarding the balcony, Roberts stated that although the 

water intrusion probably predated L.A. Stucco’s work, its system ought to have 

resolved the problem. 

Roberts opined that it was necessary to “remove[] and replace[] the entire 

stucco system” due to the holes in the building paper below the stucco. He 

rejected an alternative method of repair called the “omega system,” which involves 

the application of special materials over the existing stucco. According to 

Roberts, the omega system is intended solely to remediate cracking, and is “not 

designed to weatherproof a house.” He asserted that using the omega system 

would have violated the applicable building code, which requires exterior 

openings exposed to the weather to be weatherproofed. 

Roberts further testified that he recommended to Tom that Laura vacate the 

house until repairs could be completed. According to Roberts, the potential for 

falling stucco then rendered the house unsafe, and the necessary repairs would 

render it uninhabitable. 

Steven McCormick, a principal of McCormick Construction, described the 

repairs McCormick Construction performed on the house, and provided expert 

testimony regarding the damage to the house from L.A. Stucco’s work.

McCormick found that L.A. Stucco had driven concrete nails through the 

“flashing” around windows and doors -- which provides waterproofing in those 

areas -- and thus had put holes in the house’s “waterproof membrane.” According 

to McCormick, absent that membrane’s “solid integrity,” application of the omega 

method to the house would not stop water leaks. The scope of the repair work 

undertaken by McCormick Construction included removing and replacing the 
8

house’s stucco system, as well as the flashing surrounding 28 windows and 5 

sliding doors. McCormick Construction was paid $364,359 to remediate L.A. 

Stucco’s work. 

2. United’s Evidence

West Harrington, a stucco expert, opined that the cracking in L.A. Stucco’s 

work was due to its failure to prepare the underlying surface and use a bonding 

agent. He further opined that those defects caused no damage to other parts of the 

house, asserting that L.A. Stucco appropriately used concrete nails around the 

windows and doors. According to Harrington, such nails would not create water 

intrusion, even though they penetrated the house’s water-resistant barrier. 

Harrington further testified that the scope of L.A. Stucco’s work did not include 

repairs to existing water leaks, and that its application of a new stucco system was 

not intended to eliminate any such leaks. He maintained that the defects in L.A. 

Stucco’s work would have been appropriately remediated by the application of an 

omega system, at an estimated cost of $116,547. 

3. Verdict

Following the presentation of evidence at trial, the court dismissed Building 

Dreams’s first amended cross-complaint. The jury returned special verdicts in 

favor of Laura and Tom on their claims for negligence and breach of contract, and 

found that they had suffered $403,827 in damages. 

D. Judgment and Post-Judgment Rulings

On September 16, 2014, the trial court entered a judgment in favor of Laura 

and Tom and against L.A. Stucco awarding $403,827, less a setoff of $110,000 
9

reflecting prior settlements. Laura and Tom sought an award of contractual 

attorney fees pursuant to a fee provision in the contract between Building Dreams 

and L.A. Stucco, and United filed a motion for a new trial. After denying the new 

trial motion, the court granted Laura and Tom a fee award of $516,725, and a 

supplemental $49,100 award reflecting fees incurred in litigating the postjudgment matters. The court also denied United’s request for an award of 

contractual attorney fees as the prevailing party with respect to Buildings 

Dreams’s cross-complaint against L.A. Stucco. United noticed appeals from the 

judgment and post-judgment rulings, which were consolidated. 

DISCUSSION

United contends (1) that Laura and Tom’s breach of contract claim and fee 

request were fatally defective because they were not third party beneficiaries of 

the contract between Building Dreams and L.A. Stucco, (2) that the economic loss 

rule barred the recovery of damages under their negligence claim, (3) that the trial 

court erroneously limited its expert Harrington’s testimony, and (4) that L.A. 

Stucco was entitled to a fee award as the prevailing party on Building Dreams’s 

cross-complaint. For the reasons discussed below, we reject those contentions.

A. Third Party Beneficiaries

United asserts several contentions linked to a common theme, namely, that 

Laura and Tom were not third party beneficiaries of the contract between Building 

Dreams and L.A. Stucco. As Laura and Tom entered into a pre-trial settlement 

with Building Dreams, the breach of contract claim they litigated at trial was 

predicated on the contract between Building Dreams and L.A. Stucco, to which the

Mulitzes were not signatories. United challenges that claim, arguing that Laura 
10

and Tom were neither third party beneficiaries of the pertinent contract nor 

assignees of a tenable breach of contract claim possessed by the S.A.G.M. Trust. 

On similar grounds, United argues that the attorney fee provision in the contract 

supported no fee award to Laura and Tom. 

1. Governing Principles

United’s contentions implicate the principles applicable to third party 

beneficiaries, the ownership interests in a trust, and the assignment of claims. 

Civil Code section 1559 provides: “A contract, made expressly for the benefit of a 

third person, may be enforced by him [or her] at any time before the parties thereto 

rescind it.” Here, “‘“‘[e]xpressly,’ . . . means “in an express manner; in direct or 

unmistakable terms; explicitly; definitely; directly.’” [Citations.] “[A]n intent to 

make the obligation inure to the benefit of the third party must have been clearly 

manifested by the contracting parties.”’ [Citation.] Although this means persons 

only incidentally or remotely benefited by the contract are not entitled to enforce 

it, it does not mean both of the contracting parties must intend to benefit the third 

party: Rather, it means the promisor . . . ‘must have understood that the promisee 

. . . had such intent. [Citations.] No specific manifestation by the promisor of an 

intent to benefit the third person is required.’ [Citations.]” (Schauer v. Mandarin 

Gems of Cal. Inc. (2005) 125 Cal.App.4th 949, 957-958.) 

Determination of that intent “is a question of ordinary contract 

interpretation,” (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524), the primary 

goal of which “is to give effect to the parties’ intent as it existed at the time of 

contracting” (Spinks v. Equity Residential Briarwood Apartments (2009) 171 

Cal.App.4th 1004, 1023 (Spinks)). “Intent is to be inferred, if possible, solely 

from the language of the written contract.” (Ibid.) Nonetheless, other factors may 
11

be relevant to whether a contract was intended to benefit a third party. (Ibid.) “In 

determining the meaning of a written contract allegedly made, in part, for the 

benefit of a third party, evidence of the circumstances and negotiations of the 

parties in making the contract is both relevant and admissible.” (Garcia v. Truck 

Ins. Exchange (1984) 36 Cal.3d 426, 437.) Although the determination regarding 

the existence of a third party beneficiary ordinarily presents a question of fact, the 

issue can be resolved when the contract and the circumstances surrounding its 

negotiation are not in dispute. (Prouty v. Gores Technology Group (2004) 121 

Cal.App.4th 1225, 1233.) 

As discussed below (see pt. A.3. of the Discussion, post), the question of 

contractual interpretation presented here hinges in part on the ownership interests 

relating to a trust. “Under general principles of trust law, trust beneficiaries hold 

‘an equitable estate or beneficial interest in’ property held in trust and are 

‘“regarded as the real owner[s] of [that] property.”’ [Citation.] The trustee is 

‘“merely the depositary of the legal title”’ to the property (ibid.); ‘“the legal 

estate”’ the trustee holds ‘“is . . . no more than the shadow . . . following the 

equitable estate . . . .”’ [Citation.]” (Steinhart v. County of Los Angeles (2010) 47 

Cal.4th 1298, 1319, quoting Title Ins. & Trust Co. v. Duffill (1923) 191 Cal. 629, 

647-648.) 

The issues presented here also involve principles governing the assignment 

of claims. “An assignment carries with it all the rights of the assignor.

[Citations.] ‘The assignment merely transfers the interest of the assignor. The 

assignee ‘stands in the shoes’ of the assignor, taking his rights and remedies, 

subject to any defenses which the obligor has against the assignor prior to notice 

of the assignment.’ [Citation.] Once a claim has been assigned, the assignee is the 

owner and has the right to sue on it. [Citations.]” (Johnson v. County of Fresno
12

(2003) 111 Cal.App.4th 1087, 1096 (Johnson), italics omitted; 1 Witkin, Summary 

of Cal. Law (10th ed. 2005) Contracts, § 735, pp. 819-820.) 

Generally, Civil Code section 954 “permits an owner of a chose in action to 

assign it to another person where it arises ‘out of the violation of a right of 

property, or out of an obligation.’ Such types of choses in action include, for 

example, breach of contract or damage to personal or real property. [Citations.] 

Exceptions to the general rule of assignability . . . are choses in action for wrongs 

done to the person, the reputation or the feelings of the injured party, and to 

contracts of a purely personal nature, like promises of marriage. [Citation.]” 

(Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024, 1032.) 

2. Underlying Proceedings

Laura and Tom’s complaint asserts two claims against L.A. Stucco, namely, 

a negligence claim and a breach of contract claim predicated on the allegation that 

L.A. Stucco’s contract with Building Dreams was “for the benefit of” Laura and 

Tom. Later, Shelley Mulitz, as trustee of the S.A.G.M. Trust, assigned to them 

“all of the claims and rights” owned by the trust “against any party with respect to 

the construction, remodeling, and any other work performed at [the house].” 

Prior to trial, United filed a motion in limine seeking to exclude all evidence 

relating to any breach of contract claim “based on a third party beneficiary 

theory,” arguing that Laura and Tom were merely incidental beneficiaries of the 

contract between L.A. Stucco and Building Dreams. In support of that contention, 

United pointed to deposition testimony from Ruben Sabata and Daniel Batres of 

Building Dreams. Both stated that they did not understand the contract to be for 

the benefit of Laura and Tom, and Sabata also asserted that he never discussed that 

issue with them. United also observed that when deposed, Tom denied that he 
13

intended to be “part” of the contract, and Laura stated that she was unaware of that 

contract. 

During the hearing on the motions in limine, the trial court questioned 

whether Laura and Tom had standing to assert their claims, as the parties’ joint 

factual statement indicated that they did not own the house. After Laura and 

Tom’s counsel described the assignment of the trustee’s claims, the court 

remarked, “So . . . I’m going to assume then that we don’t have a standing issue 

and we need not amend?” When Laura and Tom’s counsel affirmed his 

willingness to amend the complaint to reflect the assignment, United’s counsel 

directed the court’s attention to the pending motion in limine regarding Laura and 

Tom’s status as third party beneficiaries of L.A. Stucco’s contract with Building 

Dreams. The court denied the motion in limine, and asked the parties to discuss 

whether any amendment to the complaint was required to reflect the assignment. 

When United’s counsel sought a continuance in order to submit briefing regarding 

whether the complaint required an amendment, the court denied that request, 

stating that United had long known that the trust owned the house. 

Although United never subsequently challenged the adequacy of the 

complaint’s allegations, the parties attempted to elicit testimony from Daniel 

Batres bearing on Laura and Tom’s status as third party beneficiaries. On direct 

examination, Batres testified that Building Dreams and L.A. Stucco executed a 

written contract “designed to benefit Laura.” When cross-examined, Batres 

acknowledged that during his deposition, he denied that he had any understanding 

that the contract was for the benefit of Laura and Tom. 

Following the close of presentation of evidence, the trial court concluded 

that Laura and Tom were third party beneficiaries, relying primarily on Gilbert 

Financial Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65 (Gilbert 
14

Financial). Later, United sought a directed verdict on Tom’s claims, arguing that 

there was no evidence he paid for the repairs to L.A. Stucco’s work or Laura’s rent 

and moving expenses during those repairs. After hearing argument regarding the 

scope and effects of the trustee’s assignment, the court denied the motion. The 

parties then stipulated that “the assignment from the trust . . . is valid as to all 

claims in issue, tort or contract.” 

Following the jury’s verdict, United sought a new trial, arguing that Laura 

and Tom were not third party beneficiaries of L.A. Stucco’s contract with Building 

Dreams, and that the trust had no viable breach of contract claim to assign to them. 

In addition, United opposed Laura and Tom’s fee requests on the ground that they 

were not third party beneficiaries with respect to the fee provision in the contract. 

The trial court denied the new trial motion and issued fee awards to Laura and 

Tom. 

3. The Mulitzes’ Breach of Contract Claim 

We begin with United’s contention that the breach of contract claim was 

fatally defective because neither Laura nor Tom is a third party beneficiary of L.A. 

Stucco’s contract with Building Dreams. As explained below, that contention fails 

for two reasons: first, Laura is a third party beneficiary of that contract; second, as 

assignees of the trust’s claims, both Laura and Tom were entitled to assert a breach 

of contract claim because they stood in the shoes of the trustee, who also was a 

third party beneficiary of the contract.

Here, ascertaining the existence of third party beneficiaries under the 

contract is properly resolved as a question of law by reference to the contract’s 

terms themselves, as there is no relevant extrinsic evidence bearing on the 

expressed intentions of the parties to the contract. (Parsons v. Bristol 
15

Development Co. (1965) 62 Cal.2d 861, 865.) Generally, the circumstances 

surrounding the negotiation of a contract may be relevant to its interpretation 

(1 Witkin, Summary of Cal. Law, supra, § 748, pp. 836-838), but not the private 

and unexpressed views of participants in the negotiations (Edwards v. Comstock 

Insurance Co. (1988) 205 Cal.App.3d 1164, 1169). Although the record discloses 

potential evidence regarding several persons’ subjective understanding of the 

contract, none suggested that he or she expressed that understanding to anyone 

else when the contract was executed. That evidence is thus immaterial to the 

question before us.4 

Our focus is therefore on the terms of the contract. To be an express third 

party beneficiary, a person “‘need not be named or identified individually,’” as it 

is sufficient that the contract shows he or she “‘is a member of a class of persons

for whose benefit it was made.’” (Spinks, supra, 171 Cal.App.4th at p. 1023.) 

Here, the contract designates Building Dreams as the “GC” and L.A. Stucco as the 

“[s]ub-[c]ontractor,” and sets forth their duties regarding the “[p]roject,” which is 

identified by the address of the house. The contract also imposes duties on L.A. 

Stucco directed toward “the owner,” stating: “The [s]ub-contractor warrants to the 

owner that materials and equipment furnished . . . will be of good quality and new 

unless otherwise required or permitted by the GC; that the work will be free from 

defects not inherent in the quality required or permitted[;] and that the work will 

conform to the requirements of the GC.” Those terms establish that the “owner” is 

a third party beneficiary. (Gilbert Financial, supra, 82 Cal.App.3d at pp. 65, 69-

4 For that reason, we reject United’s contention that the trial court was 

obliged to submit the third party beneficiary issue to the jury. 
16

71 [owner of building to be erected pursuant to a construction contract was third 

party beneficiary of agreement between general contractor and subcontractor].)

Under the circumstances of this case, Shelley Mulitz, as trustee of the trust, 

and Laura, as the trust’s beneficiary, are members of the class of persons -- namely 

the “owner” -- identified as the contract’s third party beneficiary, as the contract 

identifies the project with the house. As explained above (see pt. A.1. of the 

Discussion, ante), under the trust, Laura is the house’s “‘real owner,’” although 

Shelley Mulitz holds its legal title and -- absent an assignment -- has exclusive 

authority to litigate claims regarding it against strangers. Accordingly, Shelley

Mulitz and Laura were the contract’s third party beneficiaries. 

In view of the assignment of the trust’s claims to Laura and Tom, each 

acquired standing to assert a breach of contract claim, as they stood in the shoes of 

Shelley Mulitz. Although the complaint was not amended to reflect the 

assignment as the basis for Laura and Tom’s standing, United never asked the 

them to do so, despite repeated offers from their counsel, and instead entered into 

a stipulation regarding the assignment’s validity. Any technical defect in the 

complaint was therefore forfeited, as “the matter of pleading becomes unimportant 

when a case is fairly tried upon . . . under circumstances which indicate that 

nothing in the pleadings misled the unsuccessful litigant to his injury.” (Buxbom 

v. Smith (1944) 23 Cal.2d 535, 543.) United’s challenge to the breach of contract 

claim thus fails, insofar as it attacks Laura and Tom’s entitlement to assert the 

rights of third party beneficiaries.

United’s reliance on The H.N. & Frances C. Berger Foundation v. Perez

(2013) 218 Cal.App.4th 37 is misplaced. There, the plaintiff brought an action 

against a county and other defendants to enforce the performance of agreements 

and related instruments concerning the construction of a road. (Id. at pp. 41-42.) 
17

The trial court sustained a demurrer to the complaint without leave to amend, 

concluding that the plaintiff was neither a party to the agreements and related 

instruments, nor a third party beneficiary of them. (Id. at pp. 42-43.) On appeal, 

the plaintiff contended that it was a member of a class for whose benefit the 

agreements and other instruments were made, namely, the owners of property 

adjoining the proposed road. (Id. at p. 44.) Rejecting that contention, the 

appellate court emphasized that the agreements and other instruments contained no

provision referring to that class. (Id. at p. 45.) In contrast, the contract here 

expressly set forth L.A. Stucco’s duties to the “owner.” In sum, Laura and Tom

were entitled to assert the breach of contract claim. 

4. Trust’s Breach of Contract Claim

United contends the trust had no viable breach of contract claim to assign to 

Laura and Tom, arguing that the trust suffered no damages because Laura -- not 

the trust -- paid for the remediation of L.A. Stucco’s work, as well as for her rent 

and moving expenses during the remediation. We disagree. Although the owner 

of property is ordinarily the person entitled to assert claims for damages relating to 

the property, in some instances the right to recover those damages may be vested 

in a person other than the property owner. (See Vaughn v. Dame Construction Co.

(1990) 223 Cal.App.3d 144, 146-149 [in construction defects action, plaintiff who 

asserted claims for breach of warranty, strict liability, and negligence retained 

right to recover damages, even though she sold the property after initiating 

lawsuit].) That is the case here. As explained above (see pt. A.3, of the 

Discussion, ante), Laura was effectively the house’s real owner, and thus her 

remediation-related payments reflected her interest in the house. However, 

because the trustee had sole authority to assert claims relating to the house against 
18

strangers, damages to Laura’s interest in the house could be recovered only by the 

trustee, absent an assignment. Accordingly, the trust had a viable breach of 

contract claim to assign to Laura and Tom.

5. Right to Contractual Attorney Fees 

United maintains that Laura and Tom were not entitled to enforce the 

contract’s attorney fee provision under a third party beneficiary theory. As 

explained below, we reject that contention.

Nonsignatories to a contract may be third party beneficiaries of certain 

contract provisions, but not the contract as a whole. (Whiteside v. Tenet 

Healthcare Corp. (2002) 101 Cal.App.4th 693, 709 (Whiteside).) Thus, third 

party beneficiary plaintiffs seeking a contract-based fee award against a signatory 

defendant must establish that they have the right to enforce the contract’s fee 

provision. (Loduca v. Polyzos (2007) 153 Cal.App.4th 334, 341 (Loduca).) That 

showing is ordinarily subject to the principles of contract interpretation. (Ibid.)

We find guidance regarding United’s contention from Loduca and Real 

Property Services Corp. v. City of Pasadena (1994) 25 Cal.App.4th 375, 380-383

(Real Property Services). In Loduca, the owner of a house sued a general 

contractor and subcontractor as a third party beneficiary of their contract, and 

prevailed on his breach of contract claim. (Loduca, supra, 153 Cal.App.4th at 

pp. 337-338.) The trial court issued a fee award to the plaintiff under the 

contract’s fee provision, which stated: “‘If a court action is brought, prevailing 

party to be awarded attorneys fees . . . .’” (Id. at p. 337.) Affirming the award, the 

appellate court concluded that the plaintiff was entitled to enforce the broad fee 

provision, as it did not restrict awards to specific individuals, and the contract 
19

otherwise clearly identified the plaintiff as a third party beneficiary. (Id. at 

pp. 343-344.)

In Real Property Services, after a sublessee of commercial property 

unsuccessfully sued the lessor for breach of the lease, the trial court denied the 

lessor’s request for a fee award under the lease’s fee provision, which stated: 

“‘[I]n the event of any action or proceeding brought by either party against the 

other under this Lease, the prevailing party shall be entitled to recover for the fees 

of its attorneys in such action or proceeding . . . in such amount as the court may 

adjudge reasonable.’” (Real Property Services, supra, 25 Cal.App.4th at pp. 377-

378.) As the action was subject to Civil Code section 1717, which mandates 

reciprocity with respect to fee awards in “any action on a contract” (Civ. Code, § 

1717, subd. (a)), the appellate court focused its analysis of the ruling on whether 

the sublessee, as a nonsignatory to the lease, would have been entitled to a fee 

award had it prevailed against the lessor. (Real Property Services, supra, at pp. 

382-383.) The court determined that the sublessee possessed that right, as the 

lease expressly noted the sublessee’s occupation of the property, and it was

otherwise well established that any sublessee so recognized may sue the lessor for 

breach of the lease as a third party beneficiary of the lease. (Ibid.) Because there 

was “a sufficient nexus” between the lessor and sublessee to support a fee award 

in favor of the sublessee had it prevailed, the court reversed the denial of the 

lessor’s request. (Id. at pp. 383-384.)

In view of the assignment of the trustee’s rights, we conclude that Laura and 

Tom were entitled to enforce the contract’s fee provision under a third party 

beneficiary theory. That provision states: “In the event of any arbitration or 

litigation relating to the project, project performance or this contract, the 

prevailing party shall be entitled to reasonable attorney fees . . . .” (Italics added.) 
20

As explained above (see pt. A.3. of the Discussion, ante), the contract otherwise 

clearly designated the “owner” -- that is, the trustee and Laura -- as a third party 

beneficiary with respect to L.A. Stucco’s performance under the contract. The 

trustee’s and Laura’s status as third party beneficiaries, coupled with the broad 

language of the fee provision, thus established their right to seek a fee award. 

Furthermore, as the trustee assigned to Laura and Tom “all of the claims and 

rights” owned by the trust “against any party with respect to the construction, 

remodeling, and any other work performed at [the house],” the trust’s right to a fee 

award was transferred to them. (Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 

1265, 1290-1291.) 

The decisions upon which United relies are distinguishable. In Sessions 

Payroll Management, Inc. v. Noble Construction Co. (2000) 84 Cal.App.4th 671, 

675-677, a general contractor entered into a written contract with a subcontractor, 

which in turn employed a payroll services provider. Later, the payroll services 

provider sued the general contractor for breach of its contract with the 

subcontractor, alleging that it was a third party beneficiary of that contract. (Ibid.) 

The trial court sustained a demurrer without leave to amend to the complaint 

because the contract contained express exclusions regarding the existence of third 

party beneficiaries, but nonetheless awarded attorney fees to the general contractor 

pursuant the contract’s fee provision, which stated: “‘In the event it becomes 

necessary for either party to enforce the provisions of this Agreement or to obtain 

redress for the violation of any provision hereof, . . . , the prevailing party shall be 

entitled to recover from the other party . . . reasonable attorney fees.’” (Id. at 

p. 676.) Relying on the reciprocity requirement in Civil Code section 1717, the 

appellate court reversed the award, concluding that the payroll services provider 

would not have been entitled to an award had it prevailed, in view of the contract’s 
21

express exclusions regarding third party beneficiaries and the narrowly tailored fee 

provision. (Sessions Payroll Management, Inc., supra, 84 Cal.App.4th at pp. 680-

681.) In contrast, the contract here establishes the trustee’s and Laura’s status as 

third party beneficiaries, and contains a broad fee provision.

In Whiteside, the plaintiff’s medical insurer executed a contract with a 

hospital that regulated the hospital’s authority to bill the insurer’s customers for 

medical services. (Whiteside, supra, 101 Cal.App.4th at pp. 698-700.) Although 

the contract required the insurer and hospital to attempt to resolve disputes by 

arbitration before engaging in litigation, it stated: “‘Nothing contained in this 

Agreement requires [the] Hospital to arbitrate or otherwise handle in any 

particular manner or dispose of any claim or action (malpractice or otherwise) by a 

patient against Hospital arising out of services performed by Hospital.’” (Id. at 

pp. 707-709.) After the patient unsuccessfully asserted claims against the hospital 

as an alleged third party beneficiary of his insurer’s contract with the hospital, the 

trial court awarded attorney fees to the hospital under the contract’s fee provision, 

which stated: “‘If proceedings are necessary to enforce this Agreement, the 

prevailing party shall be entitled to reasonable attorneys’ fees in addition to any 

other relief it may obtain.’” Pointing to the reciprocity requirement in Civil Code 

section 1717, the appellate court reversed the award, finding no “nexus” between 

the patient and hospital sufficient to support a fee award in the patient’s favor as a 

third party beneficiary of the provision. (Whiteside, supra, at pp. 706-710.) In so 

concluding, the court determined that the fee provision fell within the contract 

terms specifying the procedure for resolving disputes between the insurer and 

hospital, from which the patient was expressly exempt. (Ibid.) Here, the contract 

does not exempt the “owner” from the benefits of the fee provision.
22

In Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 544-545, a 

buyer of real property initiated a fraud action against the seller and broker 

involved in the sale. After the broker prevailed on the claims against him, he 

obtained a contractual fee award against the buyer under a fee provision found in 

the sales agreement between the buyer and seller. (Id. at pp. 547-548.) The 

appellate court reversed the award, concluding that nothing in the sales agreement 

rendered him a third party beneficiary of any of its provisions. (Ibid.) As 

explained above, that is not the case here. In sum, Laura and Tom were entitled to 

enforce the fee provision of Building Dreams’s contract with L.A. Stucco.

B. Economic Loss Rule

United asserts two contentions regarding the potential application of the 

economic loss rule to Laura and Tom’s negligence claim, arguing that the rule 

barred their recovery of tort damages, and that the jury instructions failed to reflect 

the rule. For the reasons discussed below, those contentions fail. 

1. Governing Principles 

As our Supreme Court has explained, “the economic loss rule provides: 

‘“‘[W]here a purchaser’s expectations in a sale are frustrated because the product 

he bought is not working properly, his remedy is said to be in contract alone, for 

he has suffered only “economic” losses.”’ . . . The economic loss rule requires a 

purchaser to recover in contract for purely economic loss due to disappointed 

expectations, unless he can demonstrate harm above and beyond a broken 

contractual promise. [Citation.] Quite simply, the economic loss rule ‘prevent[s] 

the law of contract and the law of tort from dissolving one into the other.’

[Citation.]” (Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) 
23

The application of the economic loss rule in construction defect actions is 

examined in Aas v. Superior Court (2000) 24 Cal.4th 627 (Aas) and Jimenez v. 

Superior Court (2002) 29 Cal.4th 473, 477-481 (Jimenez). In Aas, a group of 

homeowners asserted causes of action for negligence and related claims against 

the builders of their homes, alleging that the homes suffered from multiple 

construction defects. (Aas, supra, 24 Cal.4th at pp. 632-635.) After the trial court 

granted the builders’ motions in limine to exclude evidence of any defect that had 

not resulted in bodily injury or physical damage, the homeowners sought relief 

through writ proceedings. (Id. at pp. 632-633.) In affirming the trial court’s 

ruling, our Supreme Court explained that “appreciable, nonspeculative, present 

injury is an essential element of a tort cause of action.” (Id. at p. 646.) The court 

concluded: “Construction defects that have not ripened into property damage, or 

at least into involuntary out-of-pocket losses, do not comfortably fit the definition 

of ‘“appreciable harm ”’ -- an essential element of a negligence claim.” (Ibid.)

In Jimenez, two window manufacturers supplied windows for massproduced homes in housing developments. (Jimenez, supra, 29 Cal.4th at pp. 476-

477, 479.) The trial court granted their motion for summary adjudication on strict 

liability claims based on defects in the windows. (Ibid.) In concluding that the 

grant of summary judgment was erroneous, our Supreme Court held that 

manufacturers of component parts installed in mass-produced homes may be 

subject to strict products liability in tort when their defective products cause harm. 

(Id. at pp. 479-481.) The court further examined the extent to which the 

economic loss rule may circumscribe that liability, explaining that the rule allows 

a plaintiff to recover in tort “when a product defect causes damage to ‘other 

property,’ that is property other than the product itself.” (Id. at p. 483, italics 

omitted.) The court stated: “To apply the economic loss rule, we must first 
24

determine what the product at issue is. Only then do we find out whether the 

injury is to the product itself (for which recovery is barred by the economic loss 

rule) or to property other than the defective product (for which plaintiffs may 

recover in tort).” (Ibid.)

2. Underlying Proceedings

Prior to trial, United filed a motion in limine seeking to exclude all evidence 

of alleged construction defects that had not caused “any present, appreciable 

damage to ‘other property.’” In opposing the motion, Laura and Tom asserted

their intent to present evidence that L.A. Stucco used the “wrong kind of nails” 

that “actually penetrated the waterproofing all around the house,” and thereby 

“caused extensive damage.” The court denied the motion in limine, stating that 

Laura and Tom would be limited to damages for breach of contract if they 

demonstrated only “defects without damage.” 

At trial, Laura and Tom’s stucco experts, Roberts and McCormick, testified 

that the house suffered some water intrusion that L.A. Stucco’s work should have 

-- but did not -- eliminate. They further testified that L.A. Stucco had created a 

new source of water intrusion. According to Roberts and McCormick, L.A. 

Stucco had improperly used concrete nails that penetrated the house’s building 

paper and flashings, which they described as the house’s “weather-resistant 

barrier” or “waterproof membrane.” Roberts stated that when he conducted a 

“water” or “trickle” test at a sliding door, water pooled inside the house. Roberts 

and McCormick opined that the holes created by the concrete nails precluded the 

use of the “omega system” to remediate L.A. Stucco’s defective work, and 

required the removal and replacement of the entire stucco system. 
25

In contrast, United’s stucco expert Harrington testified that L.A. Stucco had 

appropriately used concrete nails around the windows and doors, and that the 

defects in L.A. Stucco’s work were remediable through an application of the 

omega system. He maintained there was no credible evidence that any water 

intrusion was attributable to L.A. Stucco’s work. 

Following the close of presentation of evidence, at the trial court’s 

invitation, the parties submitted additional briefing on the economic loss rule. 

After concluding that the case was not subject to the rule, the trial court gave no 

instruction regarding it.

In closing argument, Laura and Tom’s counsel maintained that because L.A. 

Stucco’s use of concrete nails necessitated the remediation work actually 

undertaken, Laura and Tom were entitled to recover the $364,359 she paid for that 

work, together with approximately $131,000 in rent and moving expenses. 

United’s counsel contended there was no evidence that the nails had caused any 

actual water intrusion. He thus asserted that Laura and Tom were entitled to 

recover only the costs of installing an omega system -- which he estimated at

$116,547 -- plus approximately $19,500 in additional costs. 

The jury was presented with a special verdict form that required no findings 

reflecting the economic loss rule, and no allocation of damages to the breach of 

contract and negligence claims. The jury found that L.A. Stucco was negligent, 

that it had breached its written contract with Building Dreams, and that Laura and 

Tom had suffered $403,827 in damages.

3. Entitlement to Tort Damages 

United contends the economic loss rule barred Laura and Tom from 

recovering the $364,359 Laura paid to remediate L.A. Stucco’s work, arguing that 
26

there was no evidence of actual damage to other property beyond that work. 

According to United, Laura and Tom demonstrated only defects within the work, 

namely, delamination and cracking. Although the concrete nails pierced the 

house’s pre-existing building paper and flashings, United maintains that the 

penetrations do not constitute actual damage because Laura and Tom showed no 

actual water infiltration attributable to them. The crux of United’s contention is 

that creating numerous holes in the house’s water barrier did not constitute actual 

damage until water intrusion occurred. We disagree.5

 United’s contention raises an issue regarding the application of the 

economic loss rule, namely, whether an item of property with a designated 

function -- here, the house’s pre-existing water barrier -- suffered actual damage 

when its capacity to discharge that function was materially impaired, even though 

that failure had not yet manifested itself. In Duarte v. Zachariah (1994) 22 

Cal.App.4th 1652, 1660-1665 (Duarte), the appellate court addressed a closely 

related issue regarding the existence of bodily injury. There, following a 

mastectomy to remove a breast cancer, the plaintiff consulted with a doctor 

regarding measures intended to reduce the chances of the cancer’s recurrence. (Id. 

5 We note that the trial court concluded the economic loss rule was 

inapplicable to the underlying action -- which it characterized as “a negligently 

performed services case” -- because it regarded the rule as encompassing only 

products liability actions. Although at least one appellate court has held that the 

rule does not encompass certain negligence claims relating to defective services 

(North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764,

777-779), our Supreme Court has criticized the rationale offered for that limitation 

without resolving the extent to which the rule may be subject to it. (Aas, supra, 24 

Cal.4th at pp. 643-653 & fn. 11.) Because United’s contentions fail for other 

reasons (see pts. B.3 & B.4 of the Discussion, post), it is unnecessary to examine 

the trial court’s determination.
27

at pp. 1655-1656.) The doctor negligently administered excessive doses of a drug, 

which impaired the ability of the patient’s bone marrow to produce blood platelets.

(Id. at pp. 1656-1657.) That impairment precluded any future use of 

chemotherapy to treat cancer, as it rendered the plaintiff susceptible to 

hemorrhaging while on chemotherapy. (Id. at pp. 1656, 1663.) Following a 

recurrence of the plaintiff’s breast cancer, she initiated a malpractice action against

the doctor. (Id. at p. 1655.) The trial court granted nonsuit on her negligence 

claim, concluding there was no evidence that the medication overdose caused the 

recurrence of her cancer. (Ibid.) 

Although the appellate court agreed with that aspect of the ruling, it 

determined that the injury to the plaintiff’s bone marrow was actionable regardless 

of whether it caused her cancer. (Duarte, supra, 22 Cal.App.4th at p. 1655.) The 

court determined that the reduction in the bone marrow’s capacity to produce 

platelets constituted “‘actual damage,’” for purposes of recovery in negligence. 

(Id. at pp. 1661-1663.) The court stated: “Such an impairment is a detrimental 

change in the physical condition of [the plaintiff’s] body. The evidence shows that

platelets are the component of blood that causes the blood to clot in response to a 

wound or cut. There is no testimony in the record whether the degree of that 

impairment affected blood clotting in ordinary circumstances, e.g., cuts or 

hemorrhage caused by trauma.[] However, there is testimony that the change in

[the plaintiff’s] bone marrow rendered her peculiarly susceptible to suppression of 

the production of blood platelets if treated by chemotherapy, subjecting her to lifethreatening spontaneous hemorrhaging. This susceptibility prevented the renewal 

of chemotherapy . . . before the detection of the recurrence of her cancer,[] and 

precludes the present treatment of the cancer by this means. [¶] This evidence 
28

shows that the change in [the plaintiff’s] bone marrow was an appreciable 

functional impairment . . . . ” (Id. at p. 1663, fns. omitted.) 

Under the rationale in Duarte, the physical impairment of an item’s capacity 

to function may constitute actual damage even though no failure has yet occurred, 

provided that the impairment is sufficiently material or significant. Here, Laura 

and Tom’s experts testified that the concrete nails had injured the integrity of the 

house’s “weather-resistant barrier” or “waterproof membrane,” and that testing at 

a sliding door showed that water would, in fact, infiltrate through a nail hole. In 

our view, that evidence established “an appreciable functional impairment” of the 

house’s pre-existing water barrier (Duarte, supra, 22 Cal.App.4th at p. 1663, 

italics omitted), thus showing damage to “property other than [L. A. Stucco’s] 

defective product,” for purposes of the economic loss rule (Jimenez, supra, 29 

Cal.4th at p. 479).

6

4. Instruction On Economic Loss Rule

United contends the trial court erred in failing to instruct the jury regarding 

the economic loss rule. As explained below, United has shown no error in the 

instructions. 

6 United’s reliance on Fieldstone Co. v. Briggs Plumbing Products, Inc.

(1997) 54 Cal.App.4th 357 and Casey v. Overhead Door Corp. (1999) 74 

Cal.App.4th 112, disapproved on another ground in Jimenez, supra, 29 Cal.4th at 

p. 481, fn. 1, is thus misplaced. In each case, the economic loss rule barred the 

recovery of tort damages because there was no evidence of injury to property other 

than the defendant’s own defective product. (Fieldstone Co., supra, 54 

Cal.App.4th at pp. 363-366; Casey, supra, 74 Cal.App.4th at pp. 123-124.) That 

is not the case here. 
29

Generally, “[a] party is entitled upon request to correct, nonargumentative 

instructions on every theory of the case advanced by him which is supported by 

substantial evidence.” (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 572, 

(Soule).) However, “[i]n a civil case, each of the parties must propose complete 

and comprehensive instructions in accordance with his theory of the litigation.” 

(Downing v. Barrett Mobile Home Transport, Inc. (1974) 38 Cal.App.3d 519, 

523.) “The trial court has no duty to instruct on its own motion, nor is it obligated 

to modify proposed instructions to make them complete or correct. [Citations.] 

Such instructions may be rejected without the trial court’s attempting to modify or 

correct them. [Citation.]” (Maureen K. v. Tuschka (2013) 215 Cal.App.4th 519, 

526.) Thus, “[i]n order to complain of failure to instruct on a particular issue the 

aggrieved party must request the specific proper instructions. [Citations.]” (Hyatt 

v. Sierra Boat Co. (1978) 79 Cal.App.3d 325, 335.) 

The application of the forfeiture principle hinges on the adequacy of the 

instructions as given. “When a trial court gives a jury instruction which is correct 

as far as it goes but which is too general or is incomplete for the state of the 

evidence, a failure to request an additional or a qualifying instruction will waive a 

party’s right to later complain on appeal about the instruction which was given.

[Citation.] However, when a trial court gives a jury instruction which is 

prejudicially erroneous as given, i.e., which is an incorrect statement of law, the 

party harmed by that instruction need not have objected to the instruction or 

proposed a correct instruction of his own in order to preserve the right to complain 

of the erroneous instruction on appeal. [Citation.]” (Suman v. BMW of North 

America (1994) 23 Cal.App.4th 1, 9.)

Here, United forfeited its contention of instructional error. During the 

discussions on jury instructions, United directed the trial court’s attention to Aas
30

and requested that the jury be instructed in accordance with that decision, but 

proposed no specific instruction. As explained above, the trial court was not 

required to create an instruction for United.

In an apparent effort to avoid a forfeiture, United suggests that the jury 

instructions as given were defective, arguing that they incorrectly stated that Laura 

and Tom were entitled to the same damages under the claims for breach of 

contract and negligence. We disagree. 

In construction defect actions, plaintiffs may recover “the cost of repairing 

the home, including lost use or relocation expenses . . . .” (Erlich v. Menezes

(1999) 21 Cal.4th 543, 561; see Orndorff v. Christiana Community Builders

(1990) 217 Cal.App.3d 683, 687-691.) Those damages are available for 

negligence, as well as for breach of contract, subject to the special restrictions 

imposed on contractual damages. (See Erhlich, supra, 21 Cal.4th at p. 561; 

Walker v. Signal Companies, Inc. (1978) 84 Cal.App.3d 982, 993; Amerson v. 

Christman (1968) 261 Cal.App.2d 811, 824-825.) As our Supreme Court has 

explained, “‘[c]ontract damages are generally limited to those within the 

contemplation of the parties when the contract was entered into or at least 

reasonably foreseeable by them at that time; consequential damages beyond the 

expectations of the parties are not recoverable. [Citations.] . . . .’ [Citation.] ‘In 

contrast, tort damages are awarded to [fully] compensate the victim for [all] injury 

suffered. [Citation.]’ [Citation.]” (Id. at p. 550, quoting Applied Equipment 

Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515-516.) 

The instructions given to the jury accurately reflected these principles. 

They informed the jury that upon proper proof, the Mulitzes were entitled to the 

costs of repairing the house and Laura’s relocation expenses, but expressly stated 

that contract damages were subject to the requirements stated above. In addition, 
31

the instructions asserted that “each item of damages may be awarded only once 

regardless of the number of legal theories alleged.” We discern no error in the 

instructions given. 

Furthermore, we would find no prejudice were there no forfeiture. The 

improper rejection of a requested instruction is not reversible error unless the 

omission was prejudicial, that is, it is “reasonably probable defendant would have 

obtained a more favorable result” had the instruction been given. (Soule, supra, 8 

Cal.4th at p. 570.) “A ‘reasonable probability’ in this context ‘does not mean 

more likely than not, but merely a reasonable chance, more than an abstract 

possibility.’” (Kinsman v. Unocal Corp. (2005) 37 Cal.4th 659, 682, italics 

omitted, quoting College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 

715.) To determine whether instructional error was prejudicial, we evaluate “(1) 

the state of the evidence, (2) the effect of other instructions, (3) the effect of 

counsel’s arguments, and (4) any indications by the jury itself that it was misled.” 

(Soule, supra, at pp. 580-581.) In this regard, the evidence is viewed in the light 

most favorable to the party claiming error. (Sesler v. Ghumman (1990) 219 

Cal.App.3d 218, 223.)

Here, there is no reasonable probability of an outcome more favorable to 

United had the jury been instructed regarding the economic loss rule. As 

explained above (see pt. B.1. of the Discussion, ante), the rule operates to bar the 

recovery of tort damages only upon a threshold determination that there is no 

damage to property other than “the defective product.” (Jimenez, supra, 29 

Cal.4th at p. 483.) Thus, any instruction regarding the rule would have informed 

the jury that Laura and Tom would not be entitled to damages for negligence if it 

found no damage to property other than L.A. Stucco’s defective stucco work. 

However, the record shows that the jury necessarily found damages to property 
32

that pre-existed L.A. Stucco’s work. In concluding that Laura and Tom were 

entitled to full compensation for the remediation they undertook, the jury rejected 

United’s theory that L.A. Stucco’s work created no damage to the house’s waterbarrier. For that reason, the jury would have rejected the application of the 

economic loss rule had it been instructed regarding that rule. In sum, United has 

shown no instructional error.7

C. Expert Testimony 

United contends the trial court improperly barred its expert Harrington from 

testifying regarding the bases of his opinion. As explained below, United has 

forfeited its contention for want of a timely offer of proof, and in any event, the 

late-proffered testimony would have constituted inadmissible hearsay.

Generally, hearsay may underpin expert testimony, subject to certain 

limitations. Expert opinions may be based on “hearsay information of a type 

reasonably relied upon by professionals in the field in forming an opinion on the 

subject may be used to support an expert opinion, even though not admissible in 

court.” (Korsak v. Atlas Hotels, Inc. (1992) 2 Cal.App.4th 1516, 1524, italics 

7 For similar reasons, we reject United’s related contention, namely, that the 

special verdict form was defective because it requested the jury find the total 

amount of damages without allocating them to a specific theory. Although a 

special verdict form must allow the jury to resolve every material issue, any failure 

to do so is subject to harmless error analysis. (Taylor v. Nabors Drilling U.S.A., 

LP (2014) 222 Cal.App.4th 1228, 1240, 1244-1247.) Here, the record establishes 

that the jury accepted Laura and Tom’s theory of negligence in its entirety, as the 

instructions regarding that theory were accurate, the jury found that L.A. Stucco 

had engaged in negligence, and the jury awarded Laura and Tom all the damages 

they sought. The record thus discloses no reversible error in the special verdict 

form. 
33

omitted.) In contrast, expert opinion founded on unreliable hearsay is not 

admissible. (Ibid.) Furthermore, “[w]hile an expert may state on direct 

examination the matters on which he relied in forming his opinion, he may not 

testify as to the details of such matters if they are otherwise inadmissible.” 

(Grimshaw v. Ford Motor Co. (1981) 119 Cal.App.3d 757, 788-789.) The trial 

court is authorized to exclude expert opinion founded on unreliable hearsay

(Korsak, supra, 2 Cal.App.4th at p. 1524), and regulate the recitation of the details 

of reliable hearsay underlying an expert’s opinion (Grimshaw, supra, 119 

Cal.App.3d at pp. 788-789). 

Ordinarily, in order to preserve an objection to the exclusion of testimony 

during a witness’s direct examination, the evidence’s proponent must make an 

offer of proof or its equivalent. (Evid. Code, § 354, subd. (a).) “[An] offer of 

proof must be specific in its indication of the purpose of the testimony, the name 

of the witness, and the content of the answer to be elicited.” (3 Witkin, Cal. 

Evidence (5th ed. 2012) Presentation at Trial, § 414, p. 569; accord, Semsch v. 

Henry Mayo Newhall Memorial Hospital (1985) 171 Cal.App.3d 162, 167.) In 

addition, the offer of proof must be timely. (Malatka v. Helm (2010) 188 

Cal.App.4th 1074, 1086 (Malatka).) The requirement for an offer of proof is 

applicable to the exclusion of expert testimony. (McCleery v. City of Bakersfield

(1985) 170 Cal.App.3d 1059, 1073-1074.) 

On direct examination, Harrington testified that Building Dreams’s expert,

Gidon Vardi, had visited the house. Laura and Tom’s counsel then asserted 

objections to the line of questioning, which the trial court sustained. When 

United’s counsel inquired whether Harrington discussed with Vardi whether 

complete removal and replacement of the house’s stucco system was appropriate, 
34

Laura and Tom’s counsel asserted an objection predicated on relevance and the 

hearsay rule. The following colloquy then occurred:

“The court: Sustained. Let’s not pursue this any further.

“[United’s counsel]: An expert is allowed to rely --

“The court: Excuse me. No. they’re not.”

Without offering a description of Harrington’s proposed testimony, United’s 

counsel examined Harrington regarding other topics.

United’s motion for a new trial challenged the exclusion of the proposed 

testimony. Accompanying the motion was a declaration from Harrington, which 

United offered as a description of Harrington’s proposed testimony. Harrington 

stated that he had conferred several times with Vardi to “prepar[e] a joint defense 

methodology.” He further stated: “[Vardi] and I agreed that L.A. Stucco’s work 

was deficient but that the scope of repairs being performed by [Laura and Tom] 

was excessive . . . . Specifically, we agreed that there were many existing 

problems with [the house] that was built in the 1970’s, including, but not limited 

to, water intrusion at decks and columns, that were included in [Laura and Tom’s] 

repairs but completely unrelated to L.A. Stucco’s work.” According to 

Harrington, he and Vardi had “jointly formulat[ed]” an alternative repair proposal. 

We conclude that United failed to preserve its contention regarding 

Harrington’s testimony, as it first made an offer of proof in a post-trial motion, 

almost two months after the jury returned its verdict. (Malatka, supra, 188 

Cal.App.4th at p. 1087 [party forfeited contention regarding exclusion of evidence 

because it made no offer of proof until post-ruling motion two months after 

evidentiary hearing].) Furthermore, we would find no error were there no 

forfeiture, as Harrington’s declaration established that his proposed testimony 

constituted inadmissible hearsay. In Mosesian v. Pennwalt Corp. (1987) 191 
35

Cal.App.3d 851, 857, disapproved on another ground in People v. Ault (2004) 33 

Cal.4th 1250, 1272, fn.15, an expert was permitted to testify that his opinion 

regarding the toxicity of a pesticide was based in part on his consultation with six 

other experts, all of whom shared his opinion. The appellate court concluded that 

that portion of the expert’s testimony was inadmissible, stating: “The general and 

well-settled rule prevents an expert from predicating an opinion upon the outside 

opinion of another expert. [Citation.] The expert should base the opinion upon 

facts personally observed or upon a hypothesis supported by the evidence. 

[Citation.] [¶] The opinions of the six outside experts were unquestionably 

hearsay opinions. Experts may rely upon hearsay in forming opinions. They may 

not relate an out-of-court opinion by another expert as independent proof of fact.

[Citation.] It is proper to solicit the fact that another expert was consulted to show 

the foundation of the testifying expert’s opinion, but not to reveal the content of 

the hearsay opinion. [Citation.]” (Id. at p. 860.) Harrington’s proposed testimony 

was thus properly excluded. In sum, United has established no error relating to the

limitation of Harrington’s testimony. 

D. United’s Fee Request 

United contends the trial court erroneously denied its request for an award 

of attorney fees as the prevailing party on Building Dreams’s first amended 

complaint (FACC), which was dismissed after the close of presentation of 

evidence at trial. For the reasons discussed below, we reject the contention. 

1. Governing Principles

Attorney fees are not recoverable as costs unless expressly authorized by 

statute or contract. (Code Civ. Proc., §§ 1021, 1033.5.) Here, United sought a fee 
36

award as an item of costs pursuant to the attorney fee provision of L.A. Stucco’s

agreement with Building Dreams, which states: “In the event of any . . . litigation 

relating to the project, project performance or this contract, the prevailing party 

shall be entitled to reasonable attorney fees . . . .” That provision, viewed in 

isolation, is sufficiently broad to support the prevailing party’s recovery of fees as 

costs with respect to contract and non-contract claims. (Silver v. Boatwright Home

Inspection, Inc. (2002) 97 Cal.App.4th 443, 449 (Silver).) 

“Whether a party to litigation is entitled to recover costs is governed by 

Code of Civil Procedure section 1032, which provides, in subdivision (b), that 

‘[e]xcept as otherwise expressly provided by statute, a prevailing party is entitled 

as a matter of right to recover costs in any action or proceeding.’ For the purpose 

of determining entitlement to recover costs, ‘Code of Civil Procedure section 1032 

defines “prevailing party” . . . .’” (Santisas v. Goodin (1998) 17 Cal.4th 599, 606 

(Santisas).) In this regard, subdivision (a)(4) of section 1032 states: “‘Prevailing 

party’ includes . . . a defendant in whose favor a dismissal is entered . . . .” 

Generally, a party that falls squarely under this characterization is entitled to its 

costs as a matter of right. (Crib Retaining Walls, Inc. v. NBS/Lowry, Inc. (1996) 

47 Cal.App.4th 886, 890.) 

Nonetheless, the prevailing party under Code of Civil Procedure section 

1032 may not qualify for a fee award under the tests for the designation of 

prevailing party applicable to Civil Code section 1717 (Santisas, supra, 17 Cal.4th 

at p. 619). That statute provides that “[i]n any action on a contract, where the 

contract specifically provides that attorney’s fees and costs, which are incurred to 

enforce that contract, shall be awarded either to one of the parties or to the 

prevailing party, then the party who is determined to be the party prevailing on the 

contract, whether he or she is the party specified in the contract or not, shall be 
37

entitled to reasonable attorney’s fees in addition to other costs.” (Civ. Code, 

§ 1717, subd. (a).) 

Subdivision (b)(1) of Civil Code section 1717 further provides: “(1) The 

court, upon notice and motion by a party, shall determine who is the party 

prevailing on the contract, whether or not the suit proceeds to final judgment. 

Except as provided in paragraph (2), the party prevailing on the contract shall be 

the party who recovered a greater relief in the action on the contract. The court 

may also determine that there is no party prevailing on the action for the purposes

of this section. [¶] (2) Where an action has been voluntarily dismissed or 

dismissed pursuant to a settlement of the case, there shall be no prevailing party 

for purposes of this section.” The latter exception includes the voluntary dismissal 

of an action after the commencement of trial. (D & J, Inc. v. Ferro Corp. (1986) 

176 Cal.App.3d 1191, 1193-1195 (D & J).) 

United’s fee request invoked the principles applicable to actions involving 

contract and non-contract claims. The FACC contained claims for declaratory 

relief, equitable contribution, and indemnity, together with a claim for breach of 

contract. Only the breach of contract and declaratory relief claims were 

potentially subject to Civil Code section 1717, as the remaining claims were not 

based on contract. (Exxess Electronixx v. Heger Realty Corp. (1998) 64 

Cal.App.4th 698, 713-716.) 

Under the circumstances of this case, the application of Civil Code section 

1717 hinges on whether the dismissal of the FACC was voluntary. Code of Civil 

Procedure section 581 contains two pertinent provisions regarding dismissal after 

the commencement of trial. Subdivision (d) of Code of Civil Procedure section 

581 (section 581(d)) states: “Except as otherwise provided in subdivision (e), the 

court shall dismiss the complaint, or any cause of action asserted in it, in its 
38

entirety or as to any defendant, with prejudice, when upon the trial and before the 

final submission of the case, the plaintiff abandons it.” Subdivision (e) of Code of 

Civil Procedure section 581 (section 581(e)) states: “After the actual 

commencement of trial, the court shall dismiss the complaint, or any causes of 

action asserted in it, in its entirety or as to any defendants, with prejudice, if the 

plaintiff requests a dismissal, unless all affected parties to the trial consent to 

dismissal without prejudice or by order of the court dismissing the same without 

prejudice on a showing of good cause.” 

As Witkin explains, dismissals under those provisions are voluntary, even 

though the propriety of a dismissal under section 581(d) is consigned to the 

court’s discretion. (6 Witkin, Cal. Procedure (5th ed. 2008) Proceedings Without 

Trial, §§ 311-312, pp. 766-768; D & J, supra, 176 Cal.App.3d at pp. 1193-1195.) 

Section 581(d) ordinarily requires “some affirmative action by the plaintiff in 

abandoning his cause of action.” (6 Witkin, Cal. Procedure, supra, § 312, at 

p. 767.) Section 581(e) permits the plaintiff to request a dismissal. (6 Witkin, 

supra, § 311, at p. 766.) Under the provisions, a voluntary dismissal is “with 

prejudice” unless all the affected parties agree to a dismissal without prejudice, or 

the court finds “good cause” for such a dismissal. (Id., § 313, at p. 768.) 

In Silver, which involved a pretrial voluntary dismissal of a complaint 

containing contract and noncontract claims, the appellate court set forth the 

analysis appropriate for a contract-based fee request: “[W]hen a trial court is 

presented with a contractual claim for attorney’s fees by a defendant who has been 

voluntarily dismissed from a suit . . . , the court must deny such fees as are limited 

to the parties’ contract claims. Regarding the noncontract claims, the court must 

look to the parties’ contractual attorney’s fees provision to determine if it defines 

who is a prevailing party or addresses voluntary . . . dismissals. If the contract 
39

does not provide such guidance, the court must utilize its discretion in determining 

whether such defendant should be considered a prevailing party for the purpose of 

recovering attorney’s fees as costs under section[] 1032 . . . .” (Silver, supra, 97 

Cal.App.4th at p. 452.)

2. Underlying Proceedings

After filing the FACC, Building Dreams entered into a settlement with 

Laura and Tom, which stated that it “will assign” to them all its claims against 

L.A. Stucco including those asserted in the FACC. Shortly before trial, the trial 

court found that the settlement had been made in good faith (Code Civ. Proc., 

§ 877.6). 

The FACC was never amended to reflect any assignment, and at trial Laura 

and Tom neither asserted the FACC’s claims nor presented evidence expressly 

intended to support them. Following the close of presentation of evidence, but 

before the jury was instructed, United sought a directed verdict regarding the 

FACC’s breach of contract claim, stating that it was “still outstanding,” and had 

“never been addressed as part of this lawsuit against L. A. Stucco.” After the 

court responded that the FACC was being dismissed pursuant to the settlement, 

the following colloquy occurred:

“[Laura and Tom’s counsel]: “I agree with counsel. I did not present 

anything on behalf of Building Dreams [in] this case. [¶] My understanding, now 

that everything has been signed and a good faith settlement has been approved, all 

of it is being dismissed. [¶] . . . [¶] I can’t imagine that it’s not going to be 

dismissed as part of the settlement.

“The court: I don’t know what you’re talking about. You have that as part 

of this settlement. Tell them to file a dismissal --

“[Laura and Tom’s counsel]: Well, it’s also --
40

“The court: But they also failed to show up for trial, and if they don’t show 

up for trial and present their case, then I’m going to dismiss the cross-complaint, 

so –

“[United’s counsel]: That’s all we’re asking for, your honor.

“[The court]: All right. You’ve got it.” (Italics added.)

After the jury returned its verdict, the trial court entered a judgment stating 

that the FACC had been dismissed “based on Building Dreams[’s] failure to 

appear . . . .” United filed a motion for a fee award under Civil Code section 

1717, arguing that the FACC’s dismissal was not voluntary, and that “Building 

Dreams’s decision not to appear at trial and prosecute its claims constitutes a 

complete abandonment of its claims.” United sought a fee award totaling 

$302,769,46. 

In opposing the fee request, the Mulitzes and Building Dreams asserted 

that the settlement had assigned the FACC’s claims to the Mulitzes. Laura and 

Tom contended the FACC’s dismissal was voluntary, arguing that the court had 

dismissed the FACC as an element of the settlement. Building Dreams 

maintained that United was not the prevailing party on L.A. Stucco’s contract 

with Building Dreams, arguing that the jury’s special verdicts established that 

L.A. Stucco had breached that contract. 

United’s replies to the oppositions contended that the FACC’s dismissal 

was not voluntary because it followed the grant of United’s motion for a directed 

verdict. In the alternative, United argued that if no directed verdict was granted, 

“the only other plausible interpretation” was that the dismissal was pursuant to 

section 581(d), which United viewed as an involuntary dismissal. Later, in 

supplemental briefing invited by the trial court, United declined to apportion its 

requested fees between the Mulitzes’ claims and the claims contained in the 
41

FACC. 

The trial court denied the fee request on several grounds. In ruling, the 

court observed that nothing established that the intended assignment of the 

FACC’s claims to Laura and Tom -- as described in the settlement -- had, in fact, 

occurred. Regardless of the identity of the owner of the FACC’s claims, 

however, the court determined that United was not the prevailing party on the 

contract, concluding that Laura and Tom had prevailed on their breach of contract 

claim based on L.A. Stucco’s contract with Building Dreams. In addition, relying 

on section 581(e), the court determined that the FACC had been voluntarily 

dismissed without prejudice, stating: “Under the unique circumstances of this 

case . . . there is ‘good cause’ for this court to find . . . that the dismissal . . . was 

not with prejudice . . . .” In so concluding, the court stated that it had never ruled 

on United’s motion for a directed verdict. The court also found there was 

insufficient evidence that United had incurred any fees in litigating the FACC’s 

claims, noting United’s failure to assist the court in apportioning United’s fees 

between the Mulitzes’ claims and the FACC’s claims. 

3. Analysis

In our view, United has shown no error in the trial court’s ruling. As 

explained below, to the extent United sought a fee award as the prevailing party 

on the contractual claims in the FACC under Civil Code section 1717, the record 

supports the court’s determination that the FACC was voluntarily dismissed at 

trial. Furthermore, to the extent United sought a fee award as the prevailing party 

on the noncontractual claims in the FACC, United has forfeited any contention of 

error. 

Our inquiry into the determination regarding a voluntary dismissal has a 
42

narrow focus. On appeal, “[w]e do not review the trial court’s reasoning, but 

rather its ruling.” (J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co.

(1997) 59 Cal.App.4th 6, 15.) Thus, we may affirm the trial court’s decision “on 

any basis presented by the record whether or not relied upon by the trial court.”

(Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 252, fn. 1.) 

Furthermore, it is unnecessary to examine the determination that the dismissal 

was without prejudice, as that aspect of the ruling is irrelevant to the propriety of 

the fee award.

We conclude that the record establishes a voluntary dismissal under section 

581(d). Under that provision, a voluntary dismissal “must be predicated upon a 

clear, unequivocal and express intent to abandon an action. Such intent must be 

demonstrated to the court by way of a motion to dismiss, stipulation of the parties 

or some other form of express intent on the record.” (Kaufman & Broad Bldg. 

Co. v. City & Suburban Mortg. Co. (1970) 10 Cal.App.3d 206, 213.) 

Although the record does not conclusively show that the assignment 

described in the settlement occurred, it establishes that Building Dreams and the 

Mulitzes each intended to abandon any claims they might assert through the 

FACC. In the settlement filed with the court, Building Dreams expressly stated 

that it “will assign” the FACC’s claims to Laura and Tom. That statement 

expressed Building Dreams’s intent not to further litigate those claims, as “once 

the transfer [of a claim] has been made, the assignor lacks standing to sue on the 

claim.” (Johnson, supra, 111 Cal.App.4th at p. 1095.) Indeed, as the trial court 

noted, Building Dreams did not appear at trial to litigate them. Furthermore, when 

United directed the trial court’s attention to the FACC, the Mulitzes’ counsel 

acknowledged that they had not attempted to litigate the claims, and agreed that it 

should be dismissed. Because Building Dreams and the Mulitzes manifested an 
43

express intent to abandon the FACC on the record, the trial court correctly 

concluded that there was a voluntary dismissal of the FACC.

8 For that reason, the 

trial court properly denied United’s fee request, insofar as it sought fees as the 

prevailing party on the FACC’s contract-based claims under Civil Code section 

1717.9 

United suggests that the trial court’s determination regarding the existence 

of a voluntary dismissal constituted an improper modification of the judgment, 

which stated that the FACC had been dismissed “based on Building Dreams[’s]

failure to appear.” We disagree. Generally, “[t]he same rules apply in 

ascertaining the meaning of a court order or judgment as in ascertaining the 

meaning of any other writing. [Citation.]” (Mendly v. County of Los Angeles

(1994) 23 Cal.App.4th 1193, 1205.) “If a court order or judgment admits of two 

constructions, that one will be adopted which is consistent with the judgment 

required by the facts and the law of the case.” (Graham v. Graham (1959) 174 

Cal.App.2d 678, 686.) Thus, “‘whe[n] it appears that an ambiguity is the result of 

oversight and inadvertence, “the judgment as entered should be liberally construed 

8 We recognize that on appeal, Building Dreams has expressly refrained from 

arguing that there was a voluntary dismissal of the FACC. However, because 

Building Dreams noticed no appeal, we must disregard any potential challenge it 

may raise to the trial court’s ruling. (In re Estate of Powell (2000) 83 Cal.App.4th 

1434, 1439.) 

9 D & J, supra, 176 Cal.App.3d 1191, upon which United relies, is 

inapposite. There, the plaintiff sued the defendant solely for breach of contract. 

(Id. at p. 1193.) Following the commencement of trial, the plaintiff requested that 

the action be dismissed with prejudice. (Ibid.) After granting that request, the 

trial court denied the defendant’s motion under Civil Code section 1717. (D & J, 

supra, at p. 1193.) Affirming the ruling, the appellate court concluded that the 

dismissal was voluntary. (Id. at pp. 1194-1196.) D & J thus supports no 

contention of error regarding the ruling at issue here. 
44

with a view of giving effect to the manifest intent of the court.”’ [Citation]” 

(Southern Pacific Pipe Lines, Inc. v. State Bd. of Equalization (1993) 14 

Cal.App.4th 42, 57, quoting People v. Landon White Bail Bonds (1991) 234 

Cal.App.3d 66, 77.)

Viewed in light of the proceedings relating to the FACC’s dismissal, the 

judgment must be understood to reflect the trial court’s awareness that Building 

Dreams’s nonappearance at trial was due to the settlement. As explained above, in 

dismissing the FACC, the trial court was fully aware of the settlement. For that 

reason, the judgment comports with the existence of a section 581(d) dismissal. 

Indeed, before the trial court, United argued that the terms of the judgment 

reflected such a dismissal.

We further conclude that United has forfeited any contention of error 

regarding the denial of fees relating to the noncontractual claims in the FACC, 

which fall outside the scope of Code of Civil Procedure, as United has offered no 

argument regarding that aspect of the ruling. (Horowitz v. Noble (1978) 79 

Cal.App.3d 120, 138-139.) Furthermore, we would reject that contention were 

there no forfeiture, in view of the trial court’s conclusion that there was no 

evidence that United incurred fees independently attributable to the claims in 

FACC. In view of that determination, nothing would support a fee award relating 

to the noncontractual claims in the FACC. In sum, United has established no error 

in the denial of its fee request.
45

DISPOSITION

The judgment and orders of the court are affirmed. Respondents are 

awarded their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

MANELLA, J.

We concur:

EPSTEIN, P. J.

WILLHITE, J.