author: PRESIDING JUSTICE McCORMICK

text:
    ANTHONY ARDAGH CASSIDY, Indiv. and on Behalf of all Those Underwriters at Lloyd’s, London, subscribing to Policy Nos. C256, C257, C258 and C286, Plaintiff-Appellant, v. DEREK BRYANT INSURANCE BROKERS, LTD., et al., Defendants and Counterplaintiffs-Appellees (Quantex Corporation et al., Counterdefendants and Counterplaintiffs; Forum Insurance Company, Counterdefendant).
    First District (2nd Division)
    No. 1 — 91—2841
    Opinion filed March 16, 1993.

      Peterson & Ross, of Chicago (Thomas S. White, Gregory D. Hopp, and Cecilia M. Clarke, of counsel), for appellant.
    Wilson, Elser, Moskowitz, Edelman & Dicker, of Chicago (Jerry L. McDowell, Elizabeth M. Budzinski, David M. Holmes, Thomas Wilson, Thomas Hyland, and Thomas Leghorn, of counsel), for appellees.
   PRESIDING JUSTICE McCORMICK

delivered the opinion of the court:

This case arises from an extraordinarily unsuccessful insurance program for which valid claims are more than twice the total premiums collected. Forum Insurance Company (Forum) issued the insurance; Will Darrah & Associates, Inc. (Darrah), as managing general agent, sold the insurance; and Derek Bryant Insurance Brokers, Ltd. (Derek), procured reinsurance for most of Forum’s risk from a group of underwriters acting in syndicates at Lloyd’s, London. Each of these four parties sued the other three, and the parties have now settled most of the suits.

Forum assigned its claim against Derek to the underwriters as part of Forum’s settlement with the underwriters. The underwriters then amended their complaint to add the assigned claims. The trial court dismissed the assigned claims, finding that they did not relate back to the underwriters’ original complaint or to Forum’s original counterclaim and, therefore, they were barred by the statute of limitations. The underwriters appeal from the interlocutory order dismissing the assigned claims.

We affirm in part and reverse in part. First, we must determine the appropriate standard for deciding whether the assigned claims relate back to the date of filing either the original complaint or the original counterclaim. We find that the claims do not relate back to the original complaint, but some of the claims relate back to the counterclaim. We find that some of the claims were barred by the statute of limitations before Forum filed the original counterclaim, so we affirm dismissal of those claims. We reverse dismissal of the claims which relate back to the original counterclaim and which were not time-barred when Forum filed that counterclaim.

Although Forum had no prior experience underwriting or managing programs of commercial vehicle insurance, in 1981 it agreed to insure truckers and other owners of commercial vehicles. Darrah wrote the insurance and handled the claims in exchange for a commission based on the amount of premiums collected. Although Forum issued the policies and, therefore, was liable for the policy risk, Forum retained little of the risk because it obtained reinsurance. Derek and its American affiliate, Derek Bryant Associates, Inc. (collectively, Bryants), obtained reinsurance for Forum’s risk first from Anthony Ardagh Cassidy, active underwriter for a Lloyd’s, London, syndicate. With Cassidy acting as lead underwriter, Bryants obtained reinsurance for percentages of Forum’s risk from other Lloyd’s syndicates in exchange for percentages of the premiums paid on the policies.

After Forum obtained further reinsurance outside of Lloyd’s for the first year of the program, which ran from September 15, 1981, to September 30, 1982, Forum bore none of the risk of loss between $0 and $25,000 on each policy, and only 12.5% of the risk of loss between $25,000 and $350,000. The underwriters in the Lloyd’s syndicates bore 87.5% of the risk of loss from $0 to $350,000. As Forum retained only a small part of the risk, it claimed only a small percentage of the premiums.

In October 1982, Bryants obtained reinsurance for the second contract year of the program, from October 1, 1982, to September 30, 1983, on essentially the same terms as those applicable to the first year. Darrah sold a large number of policies to many different concerns. In October 1983, Bryants again obtained reinsurance for Forum’s risks in the third contract year of the program, ending September 30, 1984, but only a few of the underwriters who participated in the first two years agreed to participate in the third year. The underwriters who continued to participate agreed with Bryants to “premium income limits” so that the program would limit sales of new insurance and thereby limit risks.

The remaining underwriters, displeased with results from the first three years of the program, sought to reduce their participation in the program. For contract year four, which the parties shortened to run from October 1, 1984, to December 31, 1984, the underwriters bore only 22.5% of the policy risk of loss between $0 and $350,000. Forum obtained other reinsurance, but increased its share to 21% of the risk from $0 to $350,000. The underwriters did not participate at all in the fifth and final contract year of the program, which was calendar year 1985. Forum retained 40% of the risk of loss from $0 to $350,000 on each policy written that year. Total losses on all policies written during the five years of the program have exceeded $50 million.

In May 1987 Cassidy, on behalf of the underwriters, sued Forum, Darrah and Bryants. In an earlier interlocutory appeal, this court found that Cassidy, as lead underwriter for the program, had authority to bring suit in his own name on behalf of all underwriters in the Lloyd’s syndicates that subscribed to the program. Cassidy v. Forum Insurance Co. (1990), 204 Ill. App. 3d 196, 561 N.E.2d 1167.

Cassidy alleged that Darrah, Forum and Bryants negligently, and in breach of their fiduciary duties to the underwriters, failed to collect and send timely and accurate information concerning insurance losses throughout the duration of the program. The underwriters relied on the inaccurate information in the reports they received from Bryants when they decided to renew the reinsurance, to their substantial detriment. According to the underwriters’ contract with Forum, Bryants were intermediaries of the reinsurance contract, and as such, all communications relating to the program were to be transmitted through Bryants. Cassidy further claimed in his original complaint that Darrah and Forum breached their reinsurance contracts for the third and fourth years of the program, covering October 1, 1983, to December 31, 1984, by writing insurance in excess of the premium income limits for that period.

Forum filed its original counterclaim against Bryants on March 17, 1989, alleging that if there were premium income limits for contract years three and four, then those limits bound Forum “only if it be determined that Bryant *** offered or accepted the terms on Forum’s behalf,” and that determination would be based on “an apparent authority. Forum did not extend any actual authority, express or implied, to Bryant *** to offer or accept the premium income limits on its behalf.”

Forum also alleged that Darrah and Bryants, who had principal offices in the same building in South Carolina, arranged this program with the underwriters before contacting Forum and several other insurance companies to find one willing to write the insurance. Forum acted solely as a fronting company, allowing the underwriters indirectly to write commercial vehicle liability insurance. The underwriters and Darrah controlled the program, and Darrah took instructions from the underwriters, not Forum. Forum relied on the underwriters and their agents, Darrah and Bryants, to run the program prudently and advise Forum of adverse developments. Darrah negligently, and in breach of its fiduciary duty to Forum, failed to collect and send accurate information on the program and failed to adhere to guidelines for writing policies and settling claims.

Forum alleged that Bryants failed to “produce and supply accurate information about claims handling and reserves under the program,” failed to “produce information about claims handling practices and reserving policies of Darrah” and failed to supervise the program properly. Because of these failings, Forum incurred losses on policies that should never have been issued, and Forum incurred loss “by continuing as the ‘fronting company’ in the Program in contract years 3 and 4; *** by taking a larger share of the insurance risk in contract year 4; [and] *** by continuing in the Program after contract year 4.”

Forum in a separate count alleged that Darrah, Cassidy and Bryants devised a deceptive scheme to induce Forum to perpetuate the program into a fifth year, for which Forum would take on more risk and the underwriters would accept no risk.

Cassidy and Forum eventually settled their suit against Darrah and Quantex Corporation, which now owns Darrah. Darrah and Quantex are not involved in this appeal, although Bryants’ claims against Darrah and Darrah’s counterclaims against Bryants remain to be resolved. Following extensive discovery, Forum added three “Supplemental Counterclaims” against Bryants on March 21, 1991. On March 27, 1991, Cassidy dismissed his claims against Forum pursuant to a settlement agreement, and in April 1991 he filed a third amended complaint. Cassidy adopted Forum’s supplemental counterclaims as counts V, VI and VII of the third amended complaint, under an assignment of Forum’s claims.

In the supplemental counterclaim which Cassidy adopted, Forum again described the program as a product of discussions between Darrah and Bryants, with Forum later agreeing to act as the front for the program and Bryants negotiating reinsurance to cover most of Forum’s risk. In count V of the third amended complaint, Cassidy, as assignee of Forum, alleged that for contract year three, Bryants, “[a]cting on Forum’s behalf, but without Forum’s prior knowledge or approval,” accepted premium income limitations, thereby breaching its duties as Forum’s agent for negotiating reinsurance.

Cassidy, as Forum’s assignee, alleged in count VI that the reinsurance agreements which Bryants negotiated with the underwriters “fail properly to cover losses arising from State assigned risk and assessment plans where future *** assessments are made on the basis of the amount of business originally written during the contract year.” Bryants knew that Forum sought reinsurance for such future assigned risks when they negotiated reinsurance which failed to provide the coverage sought. The record contains no further description of the State assigned risk plans.

In count VII Cassidy, as Forum’s assignee, alleged that Bryants, as intermediaries in the program, knew that both Forum and the underwriters relied on information Bryants supplied in making judgments about whether to renew the program each year. Bryants represented that they had a particularly close relationship with Darrah, partially because they maintained offices in the same building as Darrah, and therefore, they were especially capable of overseeing the program. As Forum’s agent for negotiating reinsurance, Bryants had fiduciary duties to disclose to Forum the information they had concerning the program. Bryants breached their fiduciary duties by failing to collect and send to Forum accurate information about the program. Because of that breach, Forum relied on inaccurate information when it decided to “renew[ ] its role as the policy issuing company in Contract Years 3, 4, and 5 of the program.”

Bryants moved to dismiss counts V, VI and VII of Cassidy’s third amended complaint based on the statute of limitations. Cassidy answered that the counts related back to both Cassidy’s original complaint and Forum’s original counterclaim. Cassidy also claimed that the limitations period for count VI had not run when Cassidy filed his third amended complaint. After hearing argument, the trial court held that counts V, VI and VII did not relate back to either earlier pleading because those counts stated new causes of action against Bryants. The court dismissed the counts and found “no just reason for delaying enforcement or appeal.” This court assumes jurisdiction over this second interlocutory appeal under Supreme Court Rule 304(a). 134 Ill. 2d R. 304(a).

To determine whether counts V, VI and VII of the third amended complaint are barred by the statute of limitations, we must decide whether each count relates back to earlier pleadings and when the limitations period began to run for each count. The parties agree that all of these claims are governed by the five-year limitations period applicable to “civil actions not otherwise provided for.” Ill. Rev. Stat. 1991, ch. 110, par. 13-205.

Cassidy contends that all three counts relate back to his original complaint or Forum’s original counterclaim. Bryants respond that since the three counts are Forum’s claims against them, they cannot relate back to Cassidy’s original complaint, and even if they could, they do not relate back to either Cassidy’s original complaint or Forum’s original counterclaim because the three counts allege duties different from those alleged in the original complaint and counterclaim. While we agree with Cassidy that Forum’s claims could conceivably relate back to the original complaint, we find that they do not relate back under the facts and circumstances in this case.

Generally, a new party may move to be added as coplaintiff in an amended complaint after the limitations period for the new party’s claim has expired. (Geneva Construction Co. v. Martin Transfer & Storage Co. (1954), 4 Ill. 2d 273, 122 N.E.2d 540.) The amended pleadings seeking recovery for the new party will relate back to the original complaint as long as the new party’s claim “grew out of the same transaction or occurrence set up in the original pleading.” Ill. Rev. Stat. 1991, ch. 110, par. 2 — 616(b).

In Geneva, the original plaintiff, Geneva, sued Martin for amounts Geneva paid its employee, Powers, as workers’ compensation for injuries Powers suffered, while working for Geneva, because of Martin’s negligence. More than two years after the limitations period expired, Powers sought leave to intervene as an additional plaintiff to recover for those injuries amounts in excess of the workers’ compensation he received from Geneva. The trial court allowed the intervention and amendment of the complaint. Based on a jury verdict for plaintiffs, Geneva recovered its entire workers’ compensation payments of almost $4,000, and Powers recovered an additional $11,000.

Our supreme court affirmed, finding that Powers’ cause of action grew out of the occurrence set up in the original complaint. Martin argued that Powers’ claim could not relate back because Geneva did not intend to sue for anything other than its own loss of workers’ compensation payments. The court rejected the argument as it “would restore the formalistic approach to amendments to pleadings which the legislature has sought to eliminate.” Geneva, 4 Ill. 2d at 289.

Bryants cite McGinnis v. A.R. Abrams, Inc. (1986), 141 Ill. App. 3d 417, 490 N.E.2d 115, as contrary authority. In McGinnis, the plaintiff sued to recover for his injuries, and after the limitations period expired, he sought leave to amend to add his wife as a plaintiff suing for loss of consortium. The trial court dismissed the added count and the appellate court affirmed.

McGinnis does not conflict with Geneva. The original complaint in McGinnis did not indicate that plaintiff was married or that his wife in any way participated in the alleged occurrence. The defendant in that case could not know from the original complaint that he could also be liable to the plaintiff’s wife, or that she had suffered loss of consortium due to the defendant’s conduct. The complaint in Geneva, on the other hand, stated facts showing that Powers also suffered injury due to the defendants’ alleged conduct. Geneva could not state its claim to recover workers’ compensation payments without alleging that Martin’s conduct proximately caused Powers’ injury. Geneva did not involve substitution of the proper party for the claim, as Bryants suggest; Powers was clearly a new party with a claim distinct from Geneva’s and his damages were measured by a standard independent of the measure of Geneva’s damages. His claim related back to the original complaint because the complaint sufficiently informed Martin of the alleged occurrence as well as the fact that Martin’s alleged conduct injured Powers.

Thus, a new plaintiff’s claim will relate back to the original complaint as long as the claim grew out of the occurrence set up in the original complaint, but the claim of a new plaintiff does not grow out of the occurrence alleged in the original complaint unless the original complaint states facts showing that the misconduct which caused the original plaintiff’s harm also caused the new plaintiff’s harm, effectively apprising defendant that he could be liable to the plaintiff later added in the amended complaint.

Bryant argues that if Forum’s supplemental counterclaims could relate back to Cassidy’s original complaint, Cassidy would have a greater right to assert Forum’s claims than Forum itself had, violating the principle that an assignee cannot take any greater right than the assignor had to give. (See Town & Country Bank v. James M. Canfield Contracting Co. (1977), 55 Ill. App. 3d 91, 96, 370 N.E.2d 630.) Since Cassidy sued both Bryants and Forum in his original complaint, Forum could not intervene as an added plaintiff against Bryants. Forum needed to state its claims against Bryants in a counterclaim pursuant to section 2 — 608 of the Code of Civil Procedure (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 608(a)). A defendant’s claims against codefendants pleaded in a counterclaim do not relate back to the original complaint, and they are barred by the statute of limitations if the original counterclaim is filed after the limitations period has expired. See Dignan v. Midas-International Corp. (1978), 65 Ill. App. 3d 188, 382 N.E.2d 559.

However, when Cassidy settled the claim and dismissed the suit against Forum, Forum could have realigned as a coplaintiff in Cassidy’s continuing suit against Bryants. (Ill. Rev. Stat. 1991, ch. 110, par. 2 — 1008(a).) As a coplaintiff, Forum would have had the rights of any coplaintiff added after the statute of limitations had run; if Forum’s claim grew out of the transaction set up in the original complaint, its claim would relate back to that complaint. Therefore, Forum’s supplemental claims could relate back to the original complaint even without the assignment to Cassidy, so Cassidy has not here asserted a right to pursue Forum’s claims greater than the right Forum had to pursue those claims.

In count V of the third amended complaint, Cassidy alleged that Bryants, acting on Forum’s behalf, negotiated with the underwriters a reinsurance agreement for contract year three to include a premium income limit, although Forum neither knew of nor approved the limitation, thereby breaching their duties as insurance brokers procuring reinsurance for Forum. In his original complaint, Cassidy alleged that the reinsurance contract for year three imposed premium income limits on Forum and Darrah, and Forum and Darrah exceeded those limits. Although Cassidy alleged that Bryants negligently provided inaccurate information to the underwriters, he did not in the original complaint state that Bryants negotiated reinsurance on Forum’s behalf, and that complaint does not indicate that Bryants breached any duty by negotiating the premium income limits. Although the transaction in the original complaint, in one sense, gave rise to the claim in the amended complaint, the original complaint does not indicate that Bryants could be liable to Forum for negotiation of the premium income limits. Therefore, count Y of the third amended complaint does not relate back to the original complaint.

We must now separately determine whether count V of the third amended complaint relates back to Forum’s original counterclaim. The counterclaim includes allegations that if there were a premium income limit for contract year three, then that limit bound Forum only because Bryants, with apparent authority, accepted the limit on Forum’s behalf, although Forum did not actually authorize Bryants to accept the limit. The trial court found that the amended complaint did not relate back to the original counterclaim because the amended complaint added the allegation that Bryants were acting as Forum’s agents for negotiating reinsurance.

“Illinois courts are liberal in allowing amendments to pleadings after the running of the statute of limitations. *** The courts in the cases cited by plaintiff allowed the amended pleading to ‘relate back’ to the filing of the original pleading because the cause of action asserted in the amended complaint grew out of the same set of facts and circumstances alleged in the original complaint. The defendant in each case was given adequate notice and knowledge of the incident giving rise to the lawsuit. * * *
The shift in focus from the identity of the cause of action in the original and amended complaints under our pre-Civil Practice Act pleading to the identity of the occurrence or transaction under our practice act is bottomed on the belief that if the defendant has been made aware of the occurrence or transaction which is the basis for the claim, he can prepare to meet the plaintiff’s claim, whatever theory it may be based on.” Zeh v. Wheeler (1986), 111 Ill. 2d 266, 278-79, 489 N.E.2d 1342.

Here, Forum’s original counterclaim made Bryants aware that Forum claimed that if they accepted premium income limits when they negotiated reinsurance, they did so without authority, in breach of their duties to Forum, thereby injuring Forum. By preparing to meet this claim, Bryants would have investigated the premium income limits, their authority as intermediaries to negotiate such limits and the effect on Forum of such limits. This preparation is effectively the same as the preparation they would need to meet the allegations of count V of the third amended complaint. The original complaint effectively informed Bryants of the nature of the liability eventually asserted in count V of the third amended complaint. Count V of the third amended complaint relates back to Forum’s original counterclaim, filed March 17, 1989. See Geneva, 4 Ill. 2d at 289-90; Zeh, 111 Ill. 2d at 278.

Bryants contend that the five-year limitations period for count V began to run when they completed negotiation to include premium income limits, which, according to the amended complaint, applied to the reinsurance only for contract year three. Since the underwriters signed the reinsurance slips for that year in October 1983, the limitations period for count V began running at least by that time. Cassidy answers that the statutory period did not start to run until some time after March 1984, when Forum first suffered damages due to the premium income limit.

In general, a “statute of limitations commences to run when the party to be barred has a right to invoke the aid of the court to enforce his remedy.” (Beynon Building Corp. v. National Guardian Life Insurance Co. (1983), 118 Ill. App. 3d 754, 762, 455 N.E.2d 246.) For most torts, the cause of action accrues when the plaintiff suffers injury. (Ozark Airlines, Inc. v. Fairchild-Hiller Corp. (1979), 71 Ill. App. 3d 637, 390 N.E.2d 444.) If the plaintiff did not know of the injury when it occurred, courts may apply the discovery rule, which “simply means that the court will use the date upon which the plaintiff knew or should have known that he was injured as the day when the designated limitations period begins.” Lincoln-Way Community High School District 210 v. Village of Frankfort (1977), 51 Ill. App. 3d 602, 608, 367 N.E.2d 318.

For torts involving negligence in the performance of a contract or neglect of a contractual duty, the rule is different.

“[WJhere the tort arises out of a contractual relationship *** [the limitations period] commences at the time of the breach of duty, not when the damage is sustained. [Citation.] The principal reason is that the breach itself is actionable. This rule encourages the party to act within five years of the breach rather than to delay until damages increase.” (West American Insurance Co. v. Sal E. Lobianco & Son Co. (1977), 69 Ill. 2d 126, 132, 370 N.E.2d 804.)

Where the plaintiff did not know of the breach, courts may apply the discovery rule to torts arising out of contracts. (Commonwealth Edison Co. v. Encompas, Inc. (1987), 158 Ill. App. 3d 852, 511 N.E.2d 988.) Under that rule, the limitations period begins to run when the plaintiff should have known of the breach of the contractual duty.

Cassidy alleges in count V that Bryants breached their duties to Forum by negotiating reinsurance on Forum’s behalf to include a premium income limit which Forum did not authorize them to accept. This is an allegation of Bryants’ neglect in the performance of a contractual duty they owed Forum as insurance brokers negotiating reinsurance for Forum. Under Lobianco, Forum’s cause of action accrued when Bryants negotiated the reinsurance for contract year three, and Bryants completed that negotiation by October 1983. The five-year statutory period ended in October 1988, five months before Forum filed its original counterclaim.

Count V cannot be considered timely under the discovery rule because the amended complaint does not include allegations of late discovery of the improper negotiations. “A plaintiff seeking to take advantage of the discovery rule must plead that the cause of action remained unknown to the plaintiff.” (Cundiff v. Unsicker (1983), 118 Ill. App. 3d 268, 272, 454 N.E.2d 1089.) Since the limitations period for the contractual tort described in count V expired in October 1988, and the count does not include allegations of late discovery, the relation back to the original counterclaim, filed in March 1989, is insufficient to save the count from dismissal. Accordingly, we affirm the trial court’s decision to dismiss count V of the third amended complaint.

In count VI of his third amended complaint, Cassidy seeks to recover amounts Forum lost because Bryants failed to obtain reinsurance for Forum’s State assigned risk and assessment plans. Cassidy characterizes count VI as alleging that Bryants failed to “communicate to Forum the fact that Underwriters would not agree to cover assigned risks.” Cassidy contends that the amended count VI relates back to the original complaint because in that complaint Cassidy alleged that Bryants failed to communicate to the underwriters information and statistics regarding the program. Cassidy maintains, in the alternative, that the count relates back to Forum’s original counterclaim because in the counterclaim Forum alleged that Bryants failed to provide information to Forum and negligently carried out their duties in the operation of the program.

Neither the original complaint nor the counterclaim notifies Bryants that they failed to negotiate adequate reinsurance coverage for Forum’s risks. Neither the complaint nor the counterclaim even mentions the State assigned risk and assessment plans. Cassidy’s original complaint does not indicate that Bryants failed to give Forum any information, as in that complaint Cassidy claimed instead that Bryant obtained the information from Forum which it sent on to the underwriters. Forum’s original counterclaim indicates only that Bryants concealed from Forum their intention to shift program losses into contract year five, and Bryants harmed Forum by their failure to supply adequate information about claims handling practices, loss reserves and policies implemented in the program. The complaint and the counterclaim do not inform Bryants that they needed to investigate the adequacy of the reinsurance coverage they procured for Forum, or that they might be held liable for failing to obtain coverage for State assigned risks. Therefore, count VI does not relate back to either Cassidy’s original complaint or Forum’s original counterclaim.

Cassidy contends that the limitations period for this count had not expired when he filed his third amended complaint in April 1991. In his trial court brief in opposition to the motion to dismiss, Cassidy stated that Forum did not discover that it had no reinsurance for State assigned risks until May 1986, when Forum first needed such coverage. However, the complaint does not include any allegations concerning the discovery of the lack of full reinsurance. For count VI, as for count V, Cassidy has not included in his amended complaint allegations sufficient to bring the cause within the discovery rule.

Although Cassidy’s attorney sought leave to replead count VI or present affidavits concerning the date of discovery of the injury at oral argument in the trial court, he did not present a proposed fourth amended complaint either to the trial court or to this court. In Lowrey v. Malkowski (1960), 20 Ill. 2d 280, 170 N.E.2d 147, plaintiff attempted to state a cause of action under a statute which had a one-year limitations period. The trial court dismissed the complaint and our supreme court affirmed, finding that the cause of action accrued more than one year before plaintiff brought suit. The plaintiff argued that the trial court abused its discretion when it refused to allow her to amend her complaint to show continuing injury. The court held:

“The trial judge has broad discretion in permitting or refusing amendments and we will review only a manifest abuse of such discretion. [Citations.] In the present case we are powerless to review the exercise of discretion by the trial judge, as plaintiffs have failed to incorporate the preferred amendment in their record on appeal. We must, therefore, assume that the refusal to permit such an amendment was not prejudicial to plaintiffs.” Lowrey, 20 Ill. 2d at 285.

Since Cassidy did not prefer a proposed fourth amended complaint to the trial court, nor did he incorporate one into the record on appeal, we cannot review the trial court’s decision to deny the oral motion for leave to amend the complaint. Count VI does not relate back to either the original complaint or the original counterclaim, and it contains insufficient allegations to bring it within the discovery rule. Therefore, we affirm the trial court’s decision to dismiss count VI of the third amended complaint.

In count VII, Cassidy alleges that Bryants, as insurance intermediaries, breached their fiduciary duties to Forum and the underwriters by failing to monitor Darrah’s compliance with underwriting guidelines, by failing to report all material information about Darrah’s operations and by failing to collect and send accurate information about claims handling and reserves under the program. Because of these failings, Forum renewed its participation in contract years three, four and five of the program, to its considerable detriment.

These allegations closely reflect the facts alleged in Cassidy’s original complaint. There, Cassidy alleged that Bryants violated their duties to obtain and send accurate information concerning claims and loss experience in the program, which the underwriters would use to set insurance premiums and to decide whether to renew participation in the program each year. However, the original complaint alleges that Bryants obtained their information from Forum; the complaint states no facts which put Bryants on notice that they could be liable to Forum for failing to collect and send adequate information. Count VII alleged a different occurrence, of failing to give Forum adequate information, from the occurrence described in the original complaint, and therefore that count does not relate back to the original complaint.

Forum, in its original counterclaim, alleged that Bryants failed to monitor the program and supply accurate information concerning claims handling and reserves, and that Forum therefore incurred losses by continuing as the fronting company for contract year three and thereafter. In investigating these allegations, Bryants would have prepared a defense to the essential allegations now contained in Cassidy’s count VII, as they would investigate the information they collected and sent about the program, their responsibility for monitoring the program and whether Forum relied on information from Bryants when it decided to continue participation in the third, fourth and fifth contract years. Count VII relates back to Forum’s original counterclaim, filed March 17, 1989.

Forum agreed to renew participation for contract year four by October 1984, and for contract year five by January 1985. Bryants do not argue that Forum’s original counterclaim was filed too late to preserve Forum’s claims for those years. Since the claim for those years under count VII relates back to the original counterclaim, filed in March 1989, and the five-year limitations period for those years did not expire until October 1989 and January 1990, the trial court erred in dismissing that part of the complaint.

Forum agreed to renew participation for contract year three by October 1983. The tort alleged in count VII, of failing to inform Forum about claims and loss reserves, arose from contractual duties Bryants owed Forum as intermediaries. Bryants must have completed the alleged misconduct, the contractual tort which induced Forum to renew participation for contract year three, by October 1983. Therefore, unless the discovery rule applies, the limitations period for the claim based on renewal for contract year three expired by October 1988.

While the court can fairly infer from the pleadings that Forum did not discover the breach until some time after October 1983, since Forum would not have renewed participation in the program if it knew of the breach, the pleadings do not specify any later discovery date. Neither in his brief nor in his oral argument to the trial court did Cassidy offer to present evidence of a later discovery date. Cassidy instead relied on the date Forum first suffered damages, which is not the date for beginning the limitations period for a contractual tort, although it may be evidence of when Forum should have known of the breach. Since the tort must have occurred before October 1983, and Cassidy has not alleged facts sufficient to bring the cause within the discovery rule, the trial court properly dismissed the claim for contract year three in count VII.

Cassidy’s original complaint does not contain factual allegations which give Bryants notice that their alleged misconduct would have injured Forum as well as Cassidy. Therefore, Forum’s claims cannot grow out of the occurrences set up in Cassidy’s original complaint. The trial court correctly ruled that Cassidy’s claims as Forum’s assignee did not relate back to the original complaint.

Although count V of the third amended complaint relates back to Forum’s original counterclaim, Forum filed that counterclaim more than five years after Bryants negotiated the premium income limits for contract year three. Since this is a contractual tort, and Cassidy did not allege facts in the complaint bringing the count within the discovery rule, the trial court properly found count V barred by the statute of limitations.

Count VI raises new claims based on facts not asserted in prior pleadings, so it does not relate back to Forum’s original counterclaim. If Forum did not discover the tortious conduct until May 1986, the limitations period would not have expired when Cassidy filed the third amended complaint. However, the third amended complaint contains no factual allegations to bring the count within the discovery rule, and Cassidy failed to present a proposed fourth amended complaint to correct this deficiency in the third amended complaint. Therefore, we affirm the dismissal of count VI.

Count VII includes claims based on renewal of the program for contract years three, four and five. The entire count relates back to Forum’s original counterclaim since both the amended complaint and the original counterclaim allege that Bryants are liable to Forum for their failure to monitor the program and provide accurate information about the program to Forum. Insofar as the count states a claim relating to contract year three, it alleges a contractual tort that was completed before October 1983. Since Cassidy has not alleged facts bringing the count within the discovery rule, and since he did not seek leave to amend to plead such facts, we affirm the dismissal of the part of count VII which states a claim for damages arising from Forum’s renewal of its participation for contract year three. Insofar as count VII includes claims based on Forum’s renewal of participation in the program for contract years four and five, Forum filed its counterclaim within the five-year limitations period. We reverse the trial court’s decision to dismiss the parts of count VII relating to years four and five.

Affirmed in part and reversed in part.

HARTMAN and SCARIANO, JJ., concur.


source: Caselaw Access Project

author: JUSTICE SCARIANO

license: Public Domain

text:
    HAMER HOLDING GROUP, INC.,
      et al., Plaintiffs-Appellants, v. STEPHEN C. ELMORE, Defendant-Appellee.
    First District (2nd Division)
    No. 1 — 92—2337
    Opinion filed March 16, 1993.

      Marshall N. Dickler, Ltd., of Arlington Heights (Shelley R.Z. Barnett and Marshall N. Dickler, of counsel), for appellants.
    Nisen & Elliott, of Chicago (Michael J. Daley, of counsel), for appellee.

       After sorting through the various transfers of assets and corporate name changes which occurred prior to this suit as well as factoring in the trial court’s dismissal of two of the original plaintiffs, we discovered in Hamer I that the sole remaining and proper plaintiff was First United Property Management, Inc., which we referred to as “First United II.” (Hamer Holding Group, Inc. v. Elmore (1990), 202 Ill. App. 3d 994, 1003 n.4, 560 N.E.2d 907, 913 n.4., appeal denied (1991), 136 Ill. 2d 544, 567 N.E.2d 331.) First United II remains the only plaintiff on remand.

   JUSTICE SCARIANO

delivered the opinion of the court:

Plaintiff appeals, pursuant to Supreme Court Rule 307(a)(1) (134 Ill. 2d R. 307(a)(1)), from the circuit court’s denial of a preliminary injunction after remandment of the cause by this court in a previous appeal. (Hamer Holding Group, Inc. v. Elmore (1990), 202 Ill. App. 3d 994, 560 N.E.2d 907 (hereinafter Hamer I).) In Hamer I, we remanded the action for a determination of the scope of plaintiff’s business at the time defendant left its employ and whether, based on that finding, defendant’s covenant not to compete, the enforceability of which was the core issue in Hamer I, as it is here, unreasonably restrained his activity in that business.

On remand, the trial court first found that when defendant voluntarily terminated his employment relationship on March 1, 1988, plaintiff was engaged in the real estate management business for condominium and homeowner associations. As to the second aspect of this court’s mandate, the court ultimately denied plaintiff’s injunction, believing that to issue it would be merely “vindictive.”

Plaintiff appeals, asserting multiple grounds which can be summarized to include: (1) The trial court generally erred by failing to issue the injunction; (2) the court erred when it determined that the scope of plaintiff’s business included only management services offered solely to condominium and homeowner associations; (3) the court violated this court’s mandate on remand by considering matters beyond the record on appeal; and (4) the court erred by balancing the equities when this court’s mandate did not authorize it.

In 1979, AMCO Realty and Management Company was incorporated in Illinois for the purpose of providing management services to condominium and homeowner associations. Defendant Stephen Elmore was its sole shareholder and served as its chief executive officer. On March 15, 1984, Elmore, in his capacity as CEO of AMCO, entered into a contract with First Eagle Holding Company, Inc. (First Eagle), wherein AMCO agreed to convey to First Eagle all of its corporate assets, including its good will.

In order to ensure the value of the good will, paragraph 3 of the sales contract, which was made a condition precedent to the contract, obligated Elmore to enter into an employment contract with First Eagle prior to the closing date, March 30, 1984, a condition he satisfied in a timely manner. On March 26, 1984, First Eagle, as permitted by the sales contract, assigned to a subsidiary, First United ICI, Inc. (First United I), its right to purchase AMCO including Elmore’s now-executed employment contract.

Under the employment agreement, Elmore would be “responsible for management services rendered to condominiums and cooperative associations and rental apartment units”; the term of the agreement was to be one year; and in return, Elmore would receive $2,000 a month as compensation. It also contained the covenant not to compete referred to above, which stated:

“7. Covenant Not to Compete
Employee agrees that during the term of this Agreement he will not directly or indirectly consult with, or render services for or in any manner engage in a business competing with the business of Employer anywhere within a seventy-five (75) mile radius of Monroe and Dearborn, Chicago, Illinois (Restricted Area). Employee further agrees that for a period of three (3) years following the termination of his employment with Employer he will not directly or indirectly consult with or render services for clients of Employer whether or not such clients became clients of Employer through the efforts made by or on behalf of Employee or in any manner engage in a business competing with the business of Employer anywhere in the Restricted Area.
Employee agrees that during the term of this Agreement and for a period of three (3) years following the termination of his employment with Employer, he shall not consult with, render services for or in any manner engage in a business competing with the business of Employer within the Restricted Area with regard to any person, persons or companies that had been contacted by Employee for the purposes of securing such parties as clients of Employer. In the case of termination, such covenant for such three year period following termination shall be with regard to all such parties contacted by Employee or on behalf of Employer by Employee during the 12 month period preceding termination.”

After First United I’s acquisition of AMCO, it assumed the responsibility of acting as the manager for the condominium associations of AMCO’s former clients. It also served as manager of townhouse associations and oversaw a few parcels of commercial properties as well. Elmore served as CEO of First United I, a position he occupied until he decided to end his relationship with it on March 1, 1988. Subsequently, on October 31, 1988, First United I sold its assets including Elmore’s employment agreement to Studio 2, Inc., the remaining plaintiff in this action and now designated First United Property Management, Inc. (“First United II”). First United II’s president and CEO, Mark Maute, had worked under Elmore at AMCO. While Maute was negotiating to purchase the assets of First United I, Elmore’s attorney contacted him and sought a release of his client from the covenant. Elmore also contacted Maute and admitted that he wanted once again to service properties he had managed while at AMCO, which properties implicated the covenant as they were well within its 75-mile geographic scope.

In November 1988, only six months into the three-year time frame of the covenant, Elmore contacted his former clients, offering them his managerial services. When Maute learned of Elmore’s overtures to former clients, he telephoned Elmore and, during their conversation, Elmore cautioned Maute that if he was not released from the covenant, he “was prepared to go down in flames and take everyone else with him.” He also threatened to spread false rumors to his former clients concerning First United II’s ability to manage properties.

Immediately thereafter, First United II brought this action seeking, inter alia, preliminary and permanent injunctive relief to enjoin Elmore from violating his covenant not to compete. The court held evidentiary hearings on whether it should issue a preliminary injunction and found that the restraint was reasonable in its geographic scope and duration, but held that plaintiff had no protectible interest to be safeguarded by the covenant. As a result, it denied plaintiff injunctive relief, which then filed an interlocutory appeal.

On appeal, we reversed the trial court’s finding that plaintiff could assert no protectible interest, holding instead that the covenant was ancillary to the sale of AMCO and therefore plaintiff had a legitimate interest in AMCO’s good will, which could be properly sheltered by the covenant. We found that the reasonableness of the restraint could not be determined, however, because the record was devoid of evidence concerning the scope of the activity to be restrained. To that end, we remanded the case to the trial court for a determination of the scope of plaintiff’s business at the time Elmore left its employ, and also instructed the trial court to then determine, in view of the scope of activity, whether the restraint was reasonable.

Elmore petitioned for a rehearing, which we denied on October 9, 1990; he then sought leave to appeal to the supreme court which was denied as well on February 6, 1991. Although the mandate of this court was filed with the trial court on March 19, 1991, it was not until August 29, 1991, that plaintiff initiated proceedings, seeking direction as to how to comply with our remand order. The court ordered the parties to brief the issue and also to discuss whether the injunction should issue at all, emphasizing the length of time that had elapsed since the original breach of the covenant and, more important, that the temporal extent of the restraint (three years) had expired while the case was on appeal.

The parties filed their briefs on the issues indicated, and the court held a conference on September 19, 1991, at which it expressed its concern over the issue of enforcing the restraint against Elmore at such a late date. It also ordered plaintiff to designate which portions of the record the court should consider while determining the scope of plaintiff’s business at the time Elmore left its service and went on to set an evidentiary hearing for February 19, 1992, to examine the question of whether changed circumstances prevented the issuance of the injunction. Meanwhile, on October 21, 1991, plaintiff filed an amended verified complaint, which continued to seek the injunctive relief it requested in the original complaint, but also added counts seeking damages for Elmore’s breach of the covenant in addition to an accounting and disgorgement action. Plaintiff’s multiple actions for damages are pending in the trial court, awaiting the outcome of this interlocutory appeal.

In compliance with the court’s September 19, 1991 order, the parties designated the record and submitted briefs on the subject of plaintiff’s business at the time Elmore left its employ, and a hearing was held on February 18, 1992. On March 10, 1992, the court issued a memorandum of opinion in which it found that the scope of plaintiff’s business extended only to rendering managerial services to condominium and townhome associations and that it did not include managing apartment buildings or commercial properties; it further determined that the scope never included offering any type of maintenance service to anyone.

Although the court found that the duration, scope and geographical extent of the restraint were reasonable, it did not enjoin defendant; instead, it entered an order based on the memorandum of opinion and set the cause for a status report on March 25, 1992. On that date, the court directed Elmore to file his verified answer to plaintiff’s amended complaint and ordered the parties to brief issues that it termed “the propriety of entering an injunction after the expiration of the original covenant and the impact of change in circumstances and ‘time served.’ ”

On June 2, 1992, the parties appeared in court to discuss these issues and at first, all agreed that the appropriate measure to take was to certify to this court the following issue for an immediate interlocutory appeal: whether an injunction should issue after the original covenant period had expired while the reasonableness of the restraint was being decided in the appellate court. The parties drafted the order certifying the question, but before the court signed the draft order, it held an off-the-record conference in chambers. After this conference, the court ordered Elmore to file a petition manifesting a sufficient change in circumstance, thereby necessitating an evidentiary hearing.

Elmore filed his petition and attached thereto affidavits of customers who attested that they had contracted for Elmore’s services in the management of their condominium associations and who vowed that they would not employ plaintiff in the event that Elmore were to be restrained from providing the contracted-for services. However, these affidavits did not comply with Supreme Court Rule 191(a) (134 Ill. 2d R. 191(a)), as they were not notarized, and were thus incompetent as evidence. Accordingly, the court found Elmore’s petition insufficient to raise an issue of fact warranting an evidentiary hearing on changed circumstances.

Nevertheless, the court denied plaintiff’s motion for injunctive relief. It felt that to issue an injunction at so late a date would be vindictive and, more significant, that plaintiff could be adequately compensated for Elmore’s breach via its still-pending actions for damages. The court opined that not only would the injunction be unduly harsh on Elmore, but that it would also be impossible to enforce against those parties who had entered into contracts for Elmore’s services in violation of the restraint. The plaintiff filed a timely notice of interlocutory appeal pursuant to Supreme Court Rule 307(a)(1). 134 Ill. 2d R. 307(a)(1).

I

In Hamer I, we declined Elmore’s invitation to review the trial court’s refusal to issue a preliminary injunction under the traditional abuse of discretion standard. Instead, in Hamer I we determined that the appropriate standard was “whether the decision of the trial court [is] *** contrary to the manifest weight of the evidence or whether the court erred as to the applicable law or both.” (Hamer I, 202 Ill. App. 3d at 1006, 560 N.E.2d at 915.) In reaching our decision, we analogized to and relied upon our supreme court’s decision in Dixon Association for Retarded Citizens v. Thompson (1982), 91 Ill. 2d 518, 524-25, 440 N.E.2d 117, 120.

In Dixon Association the court held:

“ ‘In this case we do not feel limited by the traditional scope of review of an order issuing a preliminary injunction. Although the order in this case purports to be a preliminary injunction and many references are made in the order to the fact that the court is only preserving the status quo until there can be a hearing on the merits, this order is, in effect, a decision on the merits of the case. It should be noted that the transcript of the hearing on the motion for preliminary injunction is in excess of 4,000 pages. Approximately 28 witnesses testified and more than 80 exhibits were introduced. The hearing lasted approximately 15 days.’ ” Hamer I, 202 Ill. App. 3d at 1005-06, quoting Dixon Association, 91 Ill. 2d at 525, 440 N.E.2d at 120.

Like the Dixon court, we did not feel constrained to use the traditional standard of review because the trial judge, by requiring the plaintiff to prove by a preponderance of the evidence the four elements of a preliminary injunction, reached the ultimate merits of the issue. We premised our conclusion primarily upon the trial court’s apparent belief that it had all the evidence necessary to render a fully informed decision on the merits of the injunction and that the record supported the trial court’s belief.

Elmore ignores our decision in Hamer I as to the proper standard of review, arguing anew that we should employ the less rigid “abuse of discretion” standard rather than the “manifest weight of the evidence” standard. He suggests that because plaintiff has two counts seeking damages still pending at the trial court level and because the trial court has yet to reach the merits of the permanent injunction sought, we are to review only the court’s denial of preliminary relief. He may therefore be implying either that we erred earlier or that circumstances subsequent to our remand of the action turned what had been a defacto decision on the merits into only a preliminary decision.

However, neither of these implications is supported by Elmore’s arguments, for he offers no authority which even tends to indicate that we were mistaken in Hamer I. Additionally, Elmore fails to point to, nor do we find, anything in the record on remand which mandates a departure from the standard we utilized in Hamer I. In fact, the opposite is true. The trial court on remand actually provides additional assurances that the standard of review we applied in Hamer I is equally appropriate here as well. In determining the scope of plaintiff’s business at the time Elmore ceased to be in its employ, the trial court noted:

“The ‘likelihood of prevailing on the merits’ standard is not meant to reduce Plaintiff’s burden of proving by a preponderance of evidence the elements necessary for injunctive relief. [Citation.] In order for a preliminary injunction to issue, the plaintiff must establish by a preponderance of the evidence the four elements necessary for injunctive relief. [Citation.] The standard is not satisfied by Plaintiff’s attempt to support its case with the weakest kind of evidence (inference) ***. An injunction should be granted only where Plaintiff establishes a clear right to relief. *** [T]he court finds no other evidence preponderating on the nature and scope of Plaintiff’s business.”

Similarly, in Hamer I, we relied on the trial court’s use of the preponderance standard to reach our conclusion on the proper mode of review to employ. We stated:

“In our opinion, the court’s use of the ‘preponderance of the evidence’ standard and not only its willingness but its very ability to make explicit findings and conclusions indicate that it felt that it possessed all of the evidence necessary to render, in effect, a fully informed decision on the merits.” (Emphasis in original.) (Hamer I, 202 Ill. App. 3d at 1006, citing Dixon Association, 91 Ill. 2d 518, 440 N.E.2d 117.)

Accordingly, despite Elmore’s protestations to the contrary, we shall once again review all of the trial court’s findings of fact and its determinations of law using the standard we laid down in Hamer I: “[W]hether the decision of the trial court to deny plaintiff injunctive relief [is] contrary to the manifest weight of the evidence or whether the court erred as to the applicable law or both.” 202 Ill. App. 3d at 1006.

II

Moving now to the heart of this appeal, plaintiff questions the propriety of the many procedural steps the court imposed upon the parties in its attempt to comply with this court’s decision in Hamer I. As noted above, the court on remand accepted memoranda and heard argument on the following issues: (1) whether the injunction can issue if the durational scope of the covenant expired while the case was being determined; (2) whether it should accept additional evidence on the issue of the reasonableness of issuing an injunction; and (3) whether the injunction should issue in view of “changed circumstances” and “time served” by Elmore under the covenant.

Plaintiff contends that all these procedural “hoops” were unnecessary and, more important, violated our mandate from Hamer I. The precise language of that mandate is as follows:

“[W]e remand the cause to the trial court for a determination based on the record of (1) the nature and scope of plaintiff’s business as of the time that Elmore left his employment and, assuming that the record contains sufficient evidence upon which the trial court can resolve that issue, (2) whether the restraint on Elmore’s activity in that business would be a reasonable one.” (Hamer I, 202 Ill. App. 3d at 1010, 560 N.E.2d at 918.)

Plaintiff would have us read our mandate as allowing the trial court to decide, based solely on the record developed before it took the initial appeal, what business plaintiff was engaged in at the time Elmore left its employ in March 1988. The plaintiff would then require the trial court to decide, in the vacuum of that record alone, whether the restraint was reasonable.

Plaintiff’s exceedingly narrow interpretation of the mandate is incorrect for two reasons. First, nothing in the language of the remand order suggests that we proscribed adding to the record. In fact, the mandate itself contemplated the parties’ supplementing the record as we merely assumed that the existing record would be sufficient. In any event, plaintiff’s argument is moot because the trial court considered only the possibility of holding further evidentiary hearings on the reasonableness of the restraint; it never followed through by allowing any augmenting of the record with additional proof.

Plaintiff’s second complaint regarding the procedures used by the trial court concerns whether it erroneously accepted memoranda on the reasonableness of the restraint. Plaintiff seems to believe that under our remand order, we dictated that once the court determined the scope of plaintiff’s business, it would intrinsically know if the covenant’s restraint on trade was reasonable. This belief misapprehends or disregards the well-established and long-standing principle of Illinois law that the reasonableness of a restraint on trade is a question of law and not one of fact. (Hamer I, 202 Ill. App. 3d at 1009, 560 N.E.2d at 917; see also Tarr v. Stearman (1914), 264 Ill. 110, 118-19, 105 N.E. 957, 960-61; Lanzit v. J.W. Sefton Manufacturing Co. (1900), 184 Ill. 326, 330, 56 N.E. 393, 394; Tyler Enterprises of Elwood, Inc. v. Shafer (1991), 214 Ill. App. 3d 145, 573 N.E.2d 863; Corroon & Black, Inc. v. Magner (1986), 145 Ill. App. 3d 151, 494 N.E.2d 785.) The trial court, by accepting memoranda and hearing argument on the reasonableness of the restraint, was not adding to the record; it wanted only to have the views of the parties on the prevailing law on the subject as it applied to the facts already of record, thereby assisting the court in its determination of reasonableness as a matter of law. Surely, such a procedure cannot, at this late date, be regarded as unprecedented, whether ordained by the trial or the reviewing courts.

Ill

The final issue we address is whether the trial court was correct when it refused to enjoin Elmore from violating his covenant not to compete with plaintiff for three years after he ceased to be its employee. In Hamer I we held that the covenant at issue in this case was ancillary to the sale of a business as opposed to one which is collateral to an employment contract. (Hamer I, 202 Ill. App. 3d at 1009, 560 N.E.2d at 917.) Illinois law views the former more favorably than the latter. (O’Sullivan v. Conrad (1976), 44 Ill. App. 3d 752, 755, 358 N.E.2d 926, 929.) However, “[wjhatever may be said for the freedom of contract in general, restrictive covenants impair the availability of services and interfere with competition; therefore, such covenants ‘are carefully scrutinized by the courts’ ” (Rao v. Rao (7th Cir. 1983), 718 F.2d 219, 223, quoting Boyar-Schultz Corp. v. Tomasek (1981), 94 Ill. App. 3d 320, 323, 418 N.E.2d 911, 913), a scrutiny, we might add, that our courts apply with equal fervor to both types of restraints.

Courts will enforce, via injunction, a restraint ancillary to a contract for the sale of a business as long as it constitutes a reasonable restriction on trade in terms of the area, duration and scope of the activity restrained. (Hamer I, 202 Ill. App. 3d at 1009, 560 N.E.2d at 917; see also Donald McElroy, Inc. v. Delaney (1979), 72 Ill. App. 3d 285, 389 N.E.2d 1300.) As we have stated supra, the reasonableness of the restraint is a question of law (Hamer I, 202 Ill. App. 3d at 1009, 560 N.E.2d at 917; see also Tarr, 264 Ill. at 118-19, 105 N.E. at 960-61; Lanzit, 184 Ill. at 330, 56 N.E. at 394; Tyler Enterprises, 214 Ill. App. 3d 145, 573 N.E.2d 863; Corroon & Black, 145 Ill. App. 3d 151, 494 N.E.2d 785), which nonetheless turns on the unique circumstances of each case. Hamer I, 202 Ill. App. 3d at 1009, 560 N.E.2d at 917, citing Glass Specialty Co. v. Litwiller (1986), 147 Ill. App. 3d 653, 498 N.E.2d 876; see also Tarr, 264 Ill. at 118-19, 105 N.E. at 960-61; Lanzit, 184 Ill. at 330, 56 N.E. at 394.

Our supreme court has divided the test for reasonableness of the restraint into three distinct parts. A restraint ancillary to the sale of a business will be deemed reasonable if it is: (1) necessary in its full extent to protect the purchaser; (2) unoppressive to the seller; and (3) not harmful to the public. Hamer I, 202 Ill. App. 3d at 1009, 560 N.E.2d at 917; see House of Vision, Inc. v. Hiyane (1967), 37 Ill. 2d 32, 225 N.E.2d 21; Bauer v. Sawyer (1956), 8 Ill. 2d 351, 134 N.E.2d 329; see also Restatement (Second) of Contracts §188 (1981).

Here, the court on remand initially held that the restraint was reasonable, but issued no injunction. At a hearing subsequent to its determination of reasonableness, the court changed its mind, so that by the time of the final hearing on June 31, 1992, it had adopted the view that the restraint was no longer reasonable and was therefore unenforceable, considering the time lag between Elmore’s termination of employment with plaintiff (March 1988), when the covenant began to restrain Elmore, and the point of the hearing (June 30, 1992). Moreover, it found that the equities when balanced tipped in favor of Elmore and thus against issuance of the injunction.

Since the reasonableness of the restraint is a question of law, we review the trial court’s determination de novo. As we recognized in Hamer I, good will constitutes a valid interest and its value may be protected by circumscribing the seller’s ability to compete against the buyer. (Hamer I, 202 Ill. App. 3d at 1007, 560 N.E.2d at 916 (“[A] covenant ancillary to the sale of a business ensures the buyer that the former owner will not walk away from the sale with the company’s customers and goodwill, leaving the buyer with an acquisition that turns out to be chimerical”); see also House of Vision, 37 Ill. 2d at 37-38, 225 N.E.2d at 24 (“When a business is sold, restraints may be imposed to protect the value of the good will transferred ***”).) Plaintiff bears the burden of showing that the full extent of the restraint is necessary to protect this legitimate interest and that it is not sought merely to punish Elmore for breaching the covenant. Behn v. Shapiro (1955), 8 Ill. App. 2d 25, 35, 130 N.E.2d 295, 299.

In the case at bar, plaintiff offers no substantive argument addressing why it must have the restraint to protect the value of the good will it purchased from Elmore in 1984, nearly 10 years ago. Nor does it offer any other rationale to explain why it must have the full extent of the restraint at the present time. Instead, it prefers to object to every perceived deviation from our mandate. Consequently, by failing to point to anything in the record which supports the full extent of the restraint, plaintiff has failed to bear the burden of proving the necessity of the restraint and we may accordingly affirm the trial court on this ground alone.

Furthermore, we agree with the trial court that the record before us does not manifest the reasonableness of the restraint at this point in time. Although not argued by plaintiff, we are mindful of the fact that in Hamer I, which was decided nearly three years ago, we determined that the length and breadth of this restraint were necessary and vital to plaintiff because of the importance its successors placed on obtaining the covenant as a condition precedent to purchasing Elmore’s business. We saw that as evidence that the restraint was indispensable to ensure that Elmore could not, by competing with plaintiff, render illusory the good will plaintiff purchased. However, we do not now feel constrained by that decision because, while we may have been correct about the value of the restraint in 1989-90 when Hamer I was decided, we also recognize that as a matter of logic and economics, the importance and vitality of the restraint to plaintiff must diminish as time passes. As a consequence, a restraint which was reasonable at one time is not therefore reasonable in perpetuity, but on the contrary, will necessarily be rendered unreasonable by the passage of time. Agrimerica, Inc. v. Mathes (1990), 199 Ill. App. 3d 435, 451, 557 N.E.2d 357, 358 (directing trial court on remand to determine the reasonableness of a restraint based on, inter alia, “the effect that the passage of time may have had upon the parties’ interests since the initial violation of the [covenant not to compete]”).

In addition, the agreement sub judice itself evinces an understanding of the postulate that Elmore’s ability to influence the value of the good will would decline over time. Under its terms, Elmore would be free to compete with plaintiff only three years after he ceased to be in its employ. Considering that the trial court passed upon the motion for an injunction nearly five years after the restraint became effective, plaintiff would not seem able to assert a very pressing need for the restraint, even if it had made an attempt to do so.

Moreover, the trial court was of the opinion that plaintiff could be sufficiently compensated for whatever loss it suffered because of Elmore’s breach of the covenant via the claims for damages that accompanied plaintiff’s demand for an injunction. At the final hearing on June 30,1992, the trial court stated:

“To issue an injunction from day one at this point would seem vindictive particularly where there is a cause of action for damages, and therefore the Court declines to enforce the injunction for the reasons stated. ***
I do this because in considering the so-called harm and benefits when I send a party away here although plaintiff did not get its injunction it at least will have the benefit of obtaining damages as a result of the violation.”

As a result, it factored the possibility of a recovery of possible compensatory damages into its calculus of reasonableness, and we concur in that result. Plaintiff offers nothing to explain why damages are an inadequate remedy other than to argue that it seeks the benefit of its bargain. But our supreme court has rejected such an argument as the sole rationale to support enforcement of a restraint. (House of Vision, Inc., 37 Ill. 2d 32, 225 N.E.2d 21; Bauer, 8 Ill. 2d 351, 134 N.E.2d 329.) Implicit in these cases is the idea that society prizes competition more highly than it does the ability of an individual to enter into private agreements, and that when the two come into direct conflict, the interest of the individual must give way to that of the many. The only exception to this is where the restraint on lawful competition serves a purpose other than merely being the fruit of a contractual relationship; it must be necessary to protect the interest purchased in the agreement, and as shown above, we cannot say that the requisite necessity is present here. Considering the difference in time between the occurrence of the breach and when the injunction would issue, as well as the fact that plaintiff may be compensated for any damages it suffered in the still-pending action, we hold that the trial court adopted the eminently appropriate view that the full extent of the restraint was no longer necessary to protect the value of plaintiff’s good will, and thus, the restraint was no longer reasonable as a matter of law.

The court also considered the element of hardship to Elmore and found that this, too, militated against enforcing the injunction. Plaintiff objects to this inquiry, characterizing it as an inappropriate “balancing of the equities,” and raising once again its assertion that the court went beyond our mandate thereby. Plaintiff’s argument again misapprehends the nature of that mandate. We remanded this case for a determination of the reasonableness of the restraint, and among the factors courts take into consideration in order to resolve the issue is the hardship the injunction will impose on the party to be re-

strained. (House of Vision, 37 Ill. 2d 32, 225 N.E.2d 21; Bauer, 8 Ill. 2d 351, 134 N.E.2d 329.) Rather than violating the mandate of Hamer I, the trial court was attempting to comply with it fully by inquiring into the effect of the restraint on Elmore, which is the second as-

pect of our supreme court’s test for reasonableness. (See Hamer I, 202 Ill. App. 3d at 1009, 560 N.E.2d at 917; see also House of Vision, 37 Ill. 2d 32, 225 N.E.2d 21; Bauer, 8 Ill. 2d 351, 134 N.E.2d 329.) In fact, under House of Vision, had the court issued the injunction restraining Elmore while unaware of its probable deleterious consequences toward him, it would have constituted error.

In support of its argument that to balance the equities was error, plaintiff points to cases wherein the court refused to consider the hardship to the plaintiff; but those cases generally stand for the proposition that it is improper to balance equities “where defendant’s actions were done with full knowledge of the plaintiff’s rights and with an understanding of the consequences which might ensue.” (ABC Trans National Transport, Inc. v. Aeronautics Fowarders, Inc. (1978), 62 Ill. App. 3d 671, 682, 379 N.E.2d 1228, 1238.) Even were we to agree that the court was balancing equities rather than merely conducting the test mandated by House of Vision, the instant case is distinguishable because Elmore, although aware of the covenant in 1988 when he allegedly breached it, could not have foreseen that due to protracted litigation, he would remain restrained from competition against plaintiff until 1996 if the full three-year injunction were now to issue.

Furthermore, in reliance on the trial court’s denial of the injunction in 1988, Elmore invested in a company which competes with plaintiff and which plaintiff now seeks to enjoin. While we do not suggest in general that litigants who are aware that a favorable decision of a trial court is being appealed may bank on an affirmance of that order in all cases, we cannot require Elmore to have had the prescience to foresee that the trial court’s determination would be reversed by this court on August 24,1990. As the trial court noted:

“[Wjhere the unsuccessful party [on appeal] relies upon a trial order that denies enforcement of a restrictive covenant, and I confess error here but I would like to state that my reasons were at least reasonably palatable. I mean it wasn’t a flipped coin kind of case. So not that it would have made a difference, but the prevailing party at trial (Elmore) here didn’t exactly take a risk that the opinion was so unsubstantiated that no one would think seriously that it would be affirmed, but they went about their work and competed apparently.”

Consequently, this is not the situation where a defendant in an action seeking an injunction is so radically at fault that a balancing of the equities is completely inappropriate; we accordingly agree with the trial court that to impose the injunction at this late date would result in grave hardship to Elmore.

Finally, there is no competent evidence in the record as to the effect the restraint would have on the welfare of the public. Elmore offered affidavits of his present customers who swore that they would not employ plaintiff to manage their condominiums even if the court enjoined Elmore from performing on their contracts. These affidavits lacked, however, the seal of a notary and as such do not comport with Supreme Court Rule 191(a). (134 Ill. 2d R. 191(a).) Nonetheless, the trial court’s decision can be sustained by relying only upon the first two factors of the House of Vision test. Given the declining value of the restraint to plaintiff, the possibility that it will be able to recover money damages for Elmore’s alleged breach of the covenant in the case pending in the circuit court and the devastating effect restraining Elmore would have on his corporation, we agree with the trial court and find that the restraint, at present, is unreasonable as a matter of law. Accordingly, the trial court was correct to refuse to enjoin Elmore’s competition with plaintiff.

Plaintiff raises a final issue concerning the court’s determination of the scope of its business. However, because we affirm the trial court’s refusal to issue any injunction, we have no cause to review its factual determination as to what activities of the plaintiff are enjoin-able.

For all the foregoing reasons, the judgment of the trial court is affirmed.

Affirmed.

McCORMICK, P.J., and DiVITO, J., concur.

      We also note that plaintiff’s assertions on appeal that it must have an injunction to protect the value of its good will is belied by the casualness plaintiff displayed in reinstituting these proceedings on remand. Although our mandate was filed with the circuit court in March 1991, plaintiff made no efforts to enjoin Elmore’s ongoing competition for nearly half a year. The only possible inference we can draw from this passivity is that Elmore’s competition is not as ruinous as plaintiff presently contends, further supporting the conclusion that the restraint is no longer vital to the value of its good will.