Court Opinion

ID: 1284229
Source: CourtListenerOpinion
Date Created: 2013-10-30 05:20:57.330757+00
Date Added: 2024-06-11T12:20:42.909975
License: Public Domain

217 S.E.2d 682 (1975)
26 N.C. App. 622
RAY D. LOWDER, INC.
v.
NORTH CAROLINA STATE HIGHWAY COMMISSION.
No. 7510SC95.
Court of Appeals of North Carolina.
August 6, 1975.
Certiorari Denied October 7, 1975.
*691 Berry, Bledsoe & Hogewood by Louis A. Bledsoe, Jr., and Yates W. Faison, III, Charlotte, for Ray D. Lowder, Inc., plaintiff.
Atty. Gen. Rufus L. Edmisten by Asst. Atty. Gen. Walter E. Ricks, III, Raleigh, for the N. C. State Highway Commission (now Dept. of Transportation), defendant.
Certiorari Denied by Supreme Court October 7, 1975.
BROCK, Chief Judge.
This appeal raises two important issues for our determination: (1) whether the *692 overrun constitutes a changed condition entitling Lowder to an equitable adjustment in the contract unit price for undercut excavation pursuant to § 4.3A of the specifications; and (2) whether certain entries and reports which were offered to substantiate Lowder's claim for additional compensation were properly admitted as substantive evidence.
Before reaching the questions raised by this appeal, we acknowledge the well-established rule that the Commission is not subject to suit except in the manner provided by statute. Nello L. Teer, Co. v. North Carolina State Highway Commission, 265 N.C. 1, 143 S.E.2d 247 (1965). General Statute § 136-29 establishes the procedure for the settlement of claims against the Commission by a contractor who claims he has not received "such sum as he claims to be entitled to under said contract." The statute has been interpreted to mean that recovery is possible only within the terms and framework of the contract. Nello L. Teer, Co. v. North Carolina State Highway Commission, 4 N.C.App. 126, 166 S.E.2d 705 (1969).

I.
A threshold question to be resolved is whether the contract provision that "no subsurface information is available" should work to place the loss occasioned by the unexpected amount of undercut squarely on Lowder. This provision is designed apparently to insulate the Commission, the agency responsible for stating estimates in its contract plans and proposals, from liability should those estimates turn out to be erroneous.
There can be little doubt that the contract proposals and plans, as submitted to the bidders for project 8.11618, constituted material representations as to the location and quantity of undercut excavation. Lowder relied on the relative accuracy of the undercut locations and quantities and was reasonably justified in doing so. It had no reason to believe that project 8.11618 would produce an excessive amount of undercut excavation.
As has been noted in the statement of facts, the estimate of 12,000 cubic yards of undercut was based on the results of a 1963 geological test conducted by the Commission's geologists. The results of that test were routed to the Roadway Design Department for computation of the amount of undercut to be used in the proposals for project 8.11618. The estimate of 12,000 cubic yards of undercut was submitted to bidders. However, the 1963 test, the basis of that estimate, was not made available to the bidders. As we have noted, the author of the 1963 test report emphasized that it was based on the conditions prevailing during the weeks preceding 11 September 1963 when "the country side was unusually dry from the lack of summer rains."
The clause in the project special provisions stating "[t]here is no subsurface information available on this project except as may be shown in the plans" cannot limit the Commission's liability. Clauses of this type, stating in effect that the contracting agency does not guarantee the statements of fact in the plans and specifications and requiring the contractor to make his own independent investigation of the site and satisfy himself of the conditions, are not given their full literal effect. See Morrison-Knudsen Company v. United States, 397 F.2d 826, 841, 184 Ct.Cl. 661 (1968); Fehlhaber Corp. v. United States, 151 F.Supp. 817, 825, 138 Ct.Cl. 571, 584 (1957), cert. denied, 355 U.S. 877, 78 S.Ct. 141, 2 L.Ed.2d 108. The information in the plans constituted positive representations upon which Lowder was justified in relying. We are of the opinion, therefore, that (1) a contracting agency which furnishes inaccurate information as a basis for bids may be liable on a breach of warranty theory, and (2) instructions to bidders to make their own independent investigations of the conditions to be encountered cannot be given full literal reach. Hollerbach v. United *693 States, 233 U.S. 165, 34 S.Ct. 553, 58 L.Ed. 898 (1913); see Anderson, Changes, Changed Conditions and Extras in Government Contracting, 42 Ill.L.Rev. 29, 44 (1947). It is simply unfair to bar recovery to contractors who are misled by inaccurate plans and submit bids lower than they might otherwise have submitted.
Having decided that Lowder should not solely bear the loss for its misplaced reliance on the contract quantities, we are confronted with the first of the two critical issues raised by this appeal: Did the overrun constitute a changed condition entitling Lowder to an equitable adjustment of the contract price pursuant to § 4.3A of the specifications?
We acknowledge the established principles that (1) an interpretation which gives a reasonable meaning to all its provisions will be preferred to one which leaves a portion of the writing useless or superfluous, see 4 Williston on Contracts § 619 (3d ed. 1961); and that (2) contract provisions should not be construed as conflicting unless no other reasonable interpretation is possible. Hol-Gar Mfg. Corp. v. United States, 351 F.2d 972, 979, 169 Ct.Cl. 384, 395-396 (1965). A standard provision such as § 4.3A cannot lightly be read out of the contract or deprived of most of its normal substance.
The Commission's argument is that § 4.3A, dealing with "Alterations of Plans or Character of Work," should be ignored in favor of § 4.3B, dealing with "Overruns and Underruns." The gist of this assertion is that § 4.3B is a more specific contract provision and should control the more general § 4.3A. The Commission cites one of Williston's secondary rules of contract interpretation, as reported in the Restatement, Contracts § 236(c), as the basis for this contention: "Where there is an inconsistency between general provisions and specific provisions, the specific provisions ordinarily qualify the meaning of the general provisions." This is not an ironclad rule to be followed in every case. It is merely one rule helpful in arriving at an interpretation of a contract.
Section 4.3A, governing "Alteration of Plans or Character of Work," states:
"The Commission reserves the right to make, at any time during the progress of the work, such increases or decreases in quantities and such alterations in the details of construction, including alterations in the grade or alinement of the road or structure or both, as may be found to be necessary or desirable. Such increases or decreases in alterations shall not invalidate the contract nor release the Surety, and the Contractor agrees to accept the work as altered, the same as if it had been a part of the original contract.
"Under no circumstances shall alterations of plans or of the nature of the work involve work beyond the termini of the proposed construction except as may be necessary to satisfactorily complete the project.
"Unless such alterations and increases or decreases materially change the character of the work to be performed or the cost thereof, the altered work shall be paid for at the same unit prices as other parts of the work. If, however, the character of the work or the unit costs thereof are materially changed, an allowance shall be made on such basis as may have been agreed to in advance of the performance of the work, or in case no such agreement has been reached, then the altered work shall be paid for by force account in accordance with Article 9.4.
"No claim shall be made by the Contractor for any loss of anticipated profits because of any such alteration, or by reason of any variation between the approximate quantities and the quantities of work as done.
"Should the Contractor encounter or the Commission discover during the progress of the work conditions at the site differing materially from those indicated in the contract, which conditions could not have been discovered by reasonable *694 examination of the site, the Engineer shall be promptly notified in writing of such conditions before they are disturbed. The Engineer will thereupon promptly investigate the conditions and if he finds they do so materially differ and cause a material increase or decrease in the cost of performance of the contract, an equitable adjustment will be made and a supplemental agreement entered into accordingly.
"In the event that the Commission and the Contractor are unable to reach an agreement concerning the alleged changed conditions, the Contractor will be required to keep an accurate and detailed cost record which will indicate not only the cost of the work done under the alleged changed conditions, but the cost of any remaining unaffected quantity of any bid item which has had some of its quantities affected by the alleged changed conditions, and failure to keep such a record shall be a bar to any recovery by reason of such alleged changed conditions. Such cost records will be kept with the same particularity as force account records and the Commission shall be given the same opportunity to supervise and check the keeping of such records as is done in force account work."
The section which the Commission contends is solely applicable, § 4.3B, governing "Overruns and Underruns," states:
"Major contract items will be listed in the special provisions. All contract items that are not listed as major contract items will be considered to be minor contract items.
"If the actual quantity of any major contract item overruns or underruns the original bid quantity by more than 15 percent of such original bid quantity, an increase or decrease in the contract unit price may be authorized by the Engineer in accordance with these provisions. Revised contract unit prices pertaining to overruns of major contract items will be applicable only to that portion of the overrun which is in excess of 15 percent of the original bid quantity. Revised contract unit prices pertaining to underruns of major contract items will be applicable to the entire quantity of the affected contract item.
"If the actual quantity of any minor contract item overruns the original bid quantity by more than 200 percent of such original bid quantity, an increase or decrease in the contract unit price may be authorized by the Engineer in accordance with these provisions. Revised contract unit prices pertaining to overruns of minor contract items will be applicable only to that portion of the overrun which is in excess of 200 percent of the original bid quantity. Revisions will not be authorized under these provisions for any contract unit price pertaining to a minor contract item which underruns the original bid quantity.
"Whenever it is anticipated that the quantity of any major contract item may overrun or underrun the original bid quantity by more than 15 percent of such original bid quantity, or that the quantity of any minor contract item may overrun the original bid quantity by more than 200 percent of such original bid quantity, the Engineer may, either at his own volition or at the written request of the Contractor, issue an authorized modification covering the overrun or underrun and payment therefor will be made as provided below:
"1. Where the Contractor and the Engineer are in agreement on the increase or decrease to be made in the contract unit price, then a supplemental agreement covering the revised contract unit price will be issued in conjunction with the authorized modification.
"2. Where the Contractor and the Engineer are not in agreement on the increase or decrease to be made in the contract unit price, then a force account notice will be issued in conjunction with the authorized modification."
*695 A reasonable interpretation of both § 4.3A and § 4.3B is that the purpose of these provisions is to provide the means to resolve controversies arising when, during construction, (1) one or both parties find it necessary to alter the details of construction; (2) the character of work and the unit costs thereof change from those originally estimated (e. g., when rock is discovered during excavation, and plans indicated that only soil would be excavated); (3) unforeseen conditions are encountered which materially change the cost of performing the contract (e. g., this case); and (4) the contractor is required to do a greater or lesser amount of work, within prescribed percentage limits, than could be originally estimated. Whether § 4.3A or § 4.3B is more applicable to this case is not our concern. The main apparent purpose of either section is to provide an immediate remedy for controversy arising during construction.
Our interpretation of the contract is buttressed by the fact that § 4.3B contains no indication that it is to override § 4.3A or that it is intended to be the exclusive remedy for obtaining an adjustment in the contract price. There is no obligation to proceed under § 4.3B. That section dictates how a contractor may be compensated; it does not dictate how he must be compensated. Although § 4.3B is designed to smooth over problems arising when overruns or underruns occur, it does not, by virtue of that fact, indicate that recovery is not available under § 4.3A when the cost of doing unforeseen added work greatly differs from the stated unit price. To adopt the Commission's argument that § 4.3B is solely applicable to these facts would negate the plain language of that section and of § 4.3A.
Other jurisdictions have grappled with the problems raised on this appealspecifically, whether a large overrun or underrun can constitute a changed condition necessitating an adjustment in contract price. Generally these jurisdictions have considered large overruns to be within the scope of "changed conditions" clauses. We note, furthermore, that § 4.3A is substantially similar to the language of both Article 4 and Clause 4 of the standard form United States government contract:
"Should the contractor encounter, or the Government discover, during the progress of the work subsurface and/or latent conditions at the site materially differing from those shown on the drawings or indicated in the specifications, or unknown conditions of an unusual nature differing materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the plans and specifications, the attention of the contracting officer shall be called immediately to such conditions before they are disturbed. The contracting officer shall thereupon promptly investigate the conditions, and if he finds that they do so materially differ the contract shall, with the written approval of the head of the department or his duly authorized representative, be modified to provide for any increase or decrease of cost and/or difference in time resulting from such conditions."
(This is an earlier version of Clause 4.)
We therefore find it helpful to look to the federal as well as state cases wherein questions of changed conditions have been determined. We do this while keeping in mind that neither our Supreme Court nor this Court has been called upon previously to determine whether the changed conditions language of § 4.3A may be applied to an overrun or underrun situation.
The general rule in cases from other jurisdictions has been to designate significant overruns as being within the purview of changed conditions clauses. See Annot., 85 A.L.R.2d 211 (1962). Thus, important variations "in estimated quantities given by the Government to prospective bidders has been held to constitute a changed condition. While an underrun of ten per cent has been considered insufficient, errors of more than ten per cent ranging upward to fifty per cent have been held to entitle a contractor to an adjustment of his contract price because *696 of changed conditions." Gaskins, Changed Conditions And Misrepresentation Of Subsurface Materials As Related To Government Construction Contracts, 24 Fordham L.Rev. 588, 591 (1956).
In Hash v. R. J. Sundling & Son, Inc., 150 Mont. 388, 436 P.2d 83 (1967), a subcontractor procured a contract with Sundling prime contractor for the State of Montana, for excavation work required for the construction of a 5½ mile highway. Hash agreed to do 155,584 cubic yards of unclassified excavation work for 25¢ per cubic yard. Shortly after commencing work, excessive wetness below the subgrade was encountered. This required extensive "dig outs" below the subgrade to provide a solid foundation for construction of the highway bed. The cost of the "dig outs" proved to be 92¢ per cubic yard. Due to a grade change, the amount of excavation work was reduced to 135,000 cubic yards. Although Hash performed 149,000 cubic yards of work, his claim for additional compensation was not based on the overrun, but on a substantial increase in the total cost of excavation work because of the increased ratio of high-priced excavation to low-priced excavation. The court adhered to the principle that "the contractor who encounters substantially different conditions in performing a construction contract from those contemplated and set forth in the plans and specifications contained herein may be entitled to increased compensation for the additional work." 150 Mont. at 394, 436 P.2d at 86. It noted that Hash justifiably had relied on the plans in making his bid. When the variation occurred, Hash was forced to perform an "entirely different contract than the one agreed upon," 150 Mont. at 395, 436 P.2d at 86, and was entitled to the reasonable value of his additional services.
Hash is representative of many cases holding that changed conditions may be found from important variations in contract quantities. (See Annot., 85 A.L.R.2d 211 [1962]; Anderson, 42 Ill.L.Rev. 29 [1947]; Gaskins, 24 Fordlam L.Rev. 588 [1956] and cases therein cited.) The Commission urges us to find that § 4.3A is designed to cover only the kind of situation arising when unexpected material, such as rock, is encountered during excavation. In our opinion the encountering of unexpected excessive wetness may constitute as much a change of condition as the encountering of unexpected rock. Had Lowder's difficulties not arisen from a latent geological problem, but from a failure to inform itself of reasonably observable physical factors, we would be disposed to reach another conclusion.
Where parties labor under a mutual mistake as to vital facts, the contract, in the interests of fairness, should be flexible enough to permit an equitable adjustment.
The broad purpose of changed conditions clauses, and, indeed, the purpose of § 4.3A, is to encourage low, competent bids.
"Cost hazards are such in subsurface areas that qualified contractors, prior to the adoption of the article used in standard forms of government contracts, were obliged to make extremely high bids based on the assumption that the worst conditions conceivable would be met in the performance of the work. Drafters of contract forms foresaw greater economy to the government if contractors could be encouraged to bid upon normal conditions, with the assurance that they would be reimbursed in case of abnormal conditions actually encountered and to the extent that they actually increase costs. The revision of the costs due to conditions that are abnormal is accomplished by what the Changes article denominates an `equitable adjustment'." Anderson, Changes, Changed Conditions and Extras in Government Contracting, 42 Ill.L.Rev. 29, 47 (1947).
To ignore this policy is to open the door to disastrous consequences for the State.
Our construction of the terms of the contract and the lesson of precedents from other jurisdictions convince us that § 4.3A permits an equitable adjustment in contract unit prices for materially different, *697 "changed" conditions. The Commission's first argument is overruled.

II.
This brings us to the second critical issue raised by this appeal: Did Lowder's compilation of damages report qualify as a record made in the regular course of business so as to permit its admission into evidence as an exception to the hearsay rule?
The compilation of damages report, which the Commission argues was improperly admitted, is divided into three parts. Part A is a claim for additional compensation by reason of rental of extra equipment for undercut excavation in the amount of $94,-310.14. Part B is a claim for additional compensation for labor in the amount of $24,343.67. Part C is a claim for additional compensation for expenses incurred between 1 October 1966, the original deadline, and 30 March 1967, two days after the project was accepted by the Commission. Labor costs in Part C are listed as $91,-504.94; bond, insurance, and tax as $14,-755.98; miscellaneous expenses as $36,-540.70; and equipment rental as $219,-796.30. The Part C total is $362,597.92. The aggregate total, less the $129,874.64 paid at the unit bid price by the Commission to Lowder for the overrun is $351,-377.09.
The compilation of damages summary was taken from an analysis of daily reports prepared by Grady Meisenheimer, Lowder's superintendent during most of the construction of project 8.11618. Meisenheimer testified by deposition that he kept daily records of "laborers, machinery, and the type of work that we were doing on the job. We kept records of all of the equipment, how many hours it would run, the kind of work we were doing . . . whatever we were doing, we kept a record of it." These reports were filled out each day after work had stopped, and were mailed each night to the Lowder home office in Albemarle. After lying "fallow" for several years in Lowder's files, the reports were used to prepare the compilation of damages report. Mrs. Nell Poplin, secretary-treasurer of Lowder and "custodian of the financial records," stated that Lowder compiled its information from the daily reports and from an analysis of the reports which had been prepared by Meisenheimer. Poplin testified that "[w]e would take the equipment that was used on the undercut excavation, the men who were the operators of that equipment, and the number of hours each worked, equipment and men." "We took off the equipment, the materials that he received, the number of people on the payroll, the total of skilled, total of unskilled; all the information that he had; . . ." Part A of the compilation of damages "came from the daily reports made by Grady Meisenheimer." Part C was "taken directly from our job cost records." Part B "came directly from our payroll accounts." The cost records, which rely on the daily reports also, were compiled by Mrs. Poplin.
We have carefully examined the daily reports prepared by Lowder's superintendents during construction of project 8.11618. Each report is made on a looseleaf, printed form. On the front side of the form there are spaces for reporting weather conditions, the work day, and the number of skilled and unskilled laborers present. The majority of space is allocated to three headings: "Road Way," "Pipe Lines," and "Clearing." Some space is reserved for "Remarks." On the back side of the form there are two spaces: one is reserved for the listing of "Material Received, Borrowed Or Rented"; the other is reserved for "List of Equipment Nos."
During Grady Meisenheimer's tenure as superintendent, the reports were filled out in some detail. Ample remarks are set out, progress of work is recorded, and equipment on the job site is listed. However, there is, in the majority of the reports, no indication of equipment actually in operation or broken down except as may be reported in the "Remarks." The hours of operation are not set out, and there is no *698 way to tell what equipment was in operation. When equipment appears as "broken down" in the "Remarks," it also appears in the list of equipment on the job site on the reverse side of the form. Although we regard these reports as incomplete, the reports filed after Meisenheimer's departure are practically devoid of information. Little is reported about the nature of work done, and no equipment is listed as being on the job site.
In 1970 the daily reports were reviewed for the first time by Meisenheimer. He stated that he had not been informed, at the time of his review, that Lowder had filed a claim with the Commission for additional compensation. However, Meisenheimer was asked by Lowder officials to return for some reason to help compile the cost records. (Meisenheimer had left the employ of Lowder in November, 1966.) For about two to three weeks, Meisenheimer "glanced through" the daily reports. He had no assistance in this task: "I just gave him the hours and the manpower hours that were involved and the operators. I did not indicate how many hours each individual person spent doing undercut excavation. I stated each piece of equipment, because each piece of equipment has got a man on it, and if that piece of equipment runs ten hours, then that man is bound to be on it ten hours."
Clyde Huneycutt, Lowder's president, maintained that "it would be very hard to look at the daily reports and tell who was doing what other than Mr. Grady Meisenheimer." Huneycutt testified:
"As to the record of equipment contained in the diaries I am not sure of whether they indicate what equipment was working.. . . I could pretty close tell by looking at the daily report, what equipment was not working and what equipment was. Mr. Meisenheimer would know it much better than I would. From looking at the daily report dated October 12, 1966 . . . it would have to be draglines or scrapers performing the undercutting. It could be either one. I cannot tell by looking at the diary. It looks now like some undercutting was done but I cannot tell whether it was done that day or not. The date on the report is not necessarily the date that it was done. . . . On this day, October 12th, 1966, he says that total labor, 36 skilled 19, unskilled 17. As to what they were doing, you can only tell as to what he says. He says they are fine grading.. . . I can't tell how many are fine grading. I cannot look at any other entry in the diary and tell what individual persons were doing on the project.
"I cannot tell, by looking at any of the other daily reports, what individual persons are doing, nor can I tell by looking at the number that are working and the work that was done, except if he tells on that particular day."
Similar testimony was elicited from Mrs. Poplin, custodian of the financial records and the official in charge of preparation of the claim for additional compensation:
"From the daily reports, I could tell what equipment was on the job. I could not tell what type of work that equipment was being used for. I could tell how many persons were on the job by looking at the daily reports. I could not tell what those persons were doing. . . . I could not tell what equipment was in operation."
Because the overrun in the amount of undercut excavation altered Lowder's costs on project 8.11618, it was important that accurate cost records be kept. Poplin elaborated on the method of compilation:
"It was not my job to take the equipment off [the daily reports] and say what that piece of equipment was doing. In order to compile records as to costs incurred in the undercut excavation, it was necessary however, that that be done. That equipment was taken off by someone else.. . . I do not know how they did it.. . . I'm not sure how the equipment that was used in undercut was compiled *699  The equipment was taken from the daily reports that was compiled at the end of the month and given to me. I do not know when it was taken from the daily reports. . . . [However], I transferred these figures to the job cost cards. That is the total job cost as I testified to.
.....
"Mr. Meisenheimer helped compile records for the undercut excavation. I'm not sure when he did this, but it was before our claim was filed with the . . Commission. [He] indicated what equipment was used on the undercut on a daily basis. He did not compile the undercut record of equipment every day. He compiled it when he came and helped get the information together for the equipment and the labor. This was before we filed our claim. It could have been in preparation of the claim." (Emphasis added.)
Mrs. Poplin stated that Meisenheimer knew exactly "what went on," even though he was reviewing daily reports which he had not seen in four years and which were not clear to officers of Lowder. During Meisenheimer's employment with Lowder on project 8.11618, he had many conversations with Mrs. Poplin concerning the cost of undercut. Mrs. Poplin did not keep records of these conversations. She also did not keep records of certain labor and equipment costs as they related to undercut: "I'm not sure how they compiled [the records]. During our course of conversations, Mr. Meisenheimer told me what men and equipment were being used in removing undercut excavation, but I did not keep records of [this]. We talked about it quite often."
The reason for Lowder's asking Meisenheimer to return to help compile records is disclosed by Poplin's following statements:
"I could not tell prior to the time when Mr. Meisenheimer came back exactly what men and equipment had been used in removing undercut excavation. Mr. Meisenheimer was the best person to tell that. He was called back in for the purpose specifically of pointing out which ones. I don't know how he went about pointing out what equipment and which men were used for removal of the undercut excavation. I don't know how he did it, but he did."
Although Mrs. Poplin computed the total job cost, she stated, "I do not now know the cost Ray Lowder incurred, in removing one cubic yard of undercut excavation."
Meisenheimer maintained that he did not know why he was asked to furnish Lowder with information compiled from the daily reports. He received no compensation for his work. But Meisenheimer did testify that when he first learned of Lowder's lawsuit (it is not clear whether he learned of this before he was asked to return to Lowder), he stated that "they deserved every penny they're asking for and more too because it was worth every bit of what they're asking for and I don't know what that is."
In this jurisdiction business entries have long been recognized as an exception to the hearsay rule provided (1) the entries are made in the regular course of business; (2) the entries are made contemporaneously with the events recorded; (3) the entries are original entries; and (4) the entries are based upon the personal knowledge of the person making them. See generally Thompson Apex Co. v. Tire Service, 4 N.C. App. 402, 166 S.E.2d 864 (1969); 1 Stansbury, N.C. Evidence § 155 (Brandis rev. 1973). Systematic checking by businesses, their regular and continuous recordation, and the experience of businesses in relying on their entries are reasons why entries have traditionally been recognized as being unusually reliable. See Laughlin, Business Entries And The Like, 46 Iowa L.Rev. 276 (1961).
In our opinion the compilation of damages report was improperly admitted as an exception to the hearsay rule. It cannot meet the requirements of regularly kept business entries because it was made neither *700 in the regular course of business nor contemporaneously with the events recorded. The result is that the report is not so reliable and trustworthy as to reflect accurately the actual costs incurred as a result of the overrun. The sources of information from which the summary was drawn, its method of compilation, and the circumstances surrounding the entire matter indicate a lack of trustworthiness.
The first requirement for the admissibility of business entries, that the entries be made in the regular course of business, is designed to insure a high degree of accuracy "because such books and records are customarily checked as to correctness by systematic balance-striking, [and] because the very regularity and continuity of the records is calculated to train the record-keeper in habits of precision. . . . " McCormick on Evidence § 306 (2d ed. 1972). This requirement is clearly not met by a summary of incomplete daily reports prepared for use in litigation rather than for the routine operation of the business. The evidence indicates that both Meisenheimer (by deposition) and Lowder officials repeatedly sought to convince the court that the report had not been prepared for litigation. Hence they continually asserted that the summary was completed before Lowder's claim was filed. This is immaterial. We find it difficult to believe that Meisenheimer, who was no longer in Lowder's employ, never knew why he was asked to compile his report. On cross-examination Mrs. Poplin admitted that Meisenheimer's information "could have been in preparation of the claim," and not for the routine operation of the business.
We are also of the opinion that the report fails to meet the second requirement for admissibility as well. It was not made contemporaneously with events recorded on the incomplete daily reports. Thus we are asked in this case to find reliable a report which could only have been based, in large part, on one person's personal judgment, discretion, and memory after a lapse of four years. Lowder officials themselves could not glean enough information from the daily reports (the information on the reports is not some kind of specialized information that the officers were untrained to read) to prepare a summarized compilation of damages. Had the daily reports not been incomplete, we might not express reservations about the finalized report. We are not disposed, however, to rely on a report grounded in an undetached judgment and a fading memory. It simply does not rise to the level of unusual reliability commonly accorded business entries.
It is not our intention to require copious entries in business records. But we are of the opinion that entries should be so complete and in such detail as to indicate that they are reliable and accurate. To report that 36 machines are on a job site on a given day is unsatisfactory. It would be better practice to report not only the number of machines on the job but also the number of machines operating, the task each performs, and the length of time each operates. The product of that kind of record-keeping is more likely to bear the earmarks of reliability.
In the area of evidence dealing with the admissibility of reports or summaries of complicated entries, problems of the motivation of informants have been both difficult and the source of disagreement among courts. Where motivation suggests that trustworthiness is not likely to result, and where reports or summaries have been prepared for use in litigation rather than for the systematic operation of a business, courts have found them to be inadmissible as not having been made "in the regular course of business." In Palmer v. Hoffman, 318 U.S. 109, 63 S.Ct. 477, 87 L.Ed. 645 (1943), the Court upheld a district court's ruling that an accident report, made by the since deceased engineer and offered by defendant railroad trustees, was inadmissible on those grounds. The Court stated that the accident report was not "typical of entries made systematically or as a matter of routine to record events or occurrences, to *701 reflect transactions with others, or to provide internal controls. . . . Unlike payrolls, accounts receivable, accounts payable, bills of lading and the like, these reports are calculated for use essentially in the court, not in the business. Their primary utility is in litigating, not in railroading." 318 U.S. at 113-14, 63 S.Ct. at 480.
It is apparent that Palmer is factually distinguishable. It is also clear that there can be no objection that regularly-kept business entries are self-serving. See Laughlin, Business Entries And The Like, 46 Iowa L.Rev. 276, 289 (1961). Nevertheless, we refuse to find reports admissible when they lack minimum requirements of trustworthiness and reliability. The compilation of damages report was prepared for this litigation; it was based on incomplete daily reports; it was not contemporaneous but was the product of Meisenheimer's personal judgment, discretion, and memory some four years later. It simply is not the product of an efficient clerical system, and it has not been made in the regular course of business. In Palmer the Court said that the test of admissibility is to be determined by "the character of the records and their earmarks of reliability * * * acquired from their source and origin and the nature of their compilation." 318 U.S. at 114, 63 S.Ct. at 480. Because the report fails to meet the requirements that it be made in the regular course of business and that it be made contemporaneously, the report cannot qualify as an exception to the hearsay rule. We hold it inadmissible as evidence of the truth of its contents. See Hartzog v. United States, 217 F.2d 706 (4th Cir. 1954).
We point out, in conclusion, that a part of § 4.3A, the section permitting an equitable adjustment due to materially changed conditions, provides:
"In the event that the Commission and the Contractor are unable to reach an agreement concerning the alleged changed conditions, the Contractor will be required to keep an accurate and detailed cost record which will indicate not only the cost of the work done under the alleged changed conditions, but the cost of any remaining unaffected quantity of any bid item which has had some of its quantities affected by the alleged changed conditions, and failure to keep such a record shall be a bar to any recovery by reason of such alleged changed conditions. Such cost records will be kept with the same particularity as force account records and the Commission shall be given the same opportunity to supervise and check the keeping of such records as is done in force account work."
This is not only a reasonable provision of the contract but also one which the parties clearly agreed upon. The disposition in this case does not require a discussion of this part of § 4.3A, as we have found it necessary only to reach the question of admissibility of the compilation of damages report as a business record.
In our opinion Lowder's claim for an equitable adjustment for additional costs incurred by reason of the large overrun encountered in the undercut operations, occasioned by unexpected and excessive wetness, is cognizable under § 4.3A, Alteration of Plans or Character of Work, of the contract. However, because of the errors discussed above, in admission of evidence of additional costs, the judgment of the trial court is reversed, and the cause is remanded for a
New trial.
PARKER and ARNOLD, JJ., concur.