## Facts

- Ray Sulka, a California resident, developed information systems and implemented computer-technology improvements for businesses; he was also a financial planner.
- In February 1996, Sulka became a registered agent for First Financial Planners, Inc. (FFP), a Missouri corporation founded and controlled by Roy Henry.
- In June 1996, Sulka and Henry entered an agreement for Sulka to evaluate FFP’s computer needs and propose technological improvements; Sulka performed and submitted a report.
- On July 21, 1996, Sulka and Henry executed a second agreement titled “Independent Contractor Agreement.” Henry signed as president of FFP, and Sulka signed as president of “P.D.2000, L.L.C.” (P.D.2000), an entity not yet formally organized.
- The contract provided that P.D.2000 would develop and implement (1) a security system, (2) a financial planning system, and (3) an intranet communications structure for FFP branch offices and certain clients.
- The contract term was five years (Sept. 1, 1996 to Aug. 31, 2001), with compensation of $25,000 per month, and P.D.2000 was to pay expenses out of that amount.
- The contract limited FFP’s termination rights to specified grounds, including payment to P.D.2000 of a lump sum equal to one year of monthly fees paid in advance.
- The contract expressly stated that FFP acknowledged P.D.2000 was “in the process of forming an LLC in the state of Nevada.”
- Sulka began performance immediately after signing, moved to St. Louis, and entered a one-year lease.
- FFP made the first two monthly payments using checks payable to “Sulka West,” then terminated the arrangement without paying the contract’s termination fee.
- Eleven days after termination, Sulka filed P.D.2000’s organizational documents in Nevada and executed a formal ratification of Sulka’s pre-formation activities undertaken for P.D.2000.
- P.D.2000 sued FFP for breach of contract to recover the termination fee. At trial, FFP’s sole defense was that P.D.2000 lacked capacity to enforce the contract because it did not exist when the contract was signed.
- The jury found for P.D.2000 and assessed damages of $300,000; the court entered judgment totaling $359,745 with costs and interest.
- FFP appealed, arguing the trial court should have directed a verdict or entered judgment notwithstanding the verdict (JNOV) because P.D.2000 lacked capacity to sue on the contract.

## Issues

1. Whether a limited liability company that was formed after execution of a contract, but later ratified the pre-formation agreement and performance, had capacity (and was the real party in interest) to enforce the contract against the other contracting party.

## Decision

- The Missouri Court of Appeals affirmed the judgment for P.D.2000.
- The court rejected FFP’s capacity defense, concluding P.D.2000 could enforce the agreement despite being formed after the contract was signed.
- Given the contract’s express acknowledgment that P.D.2000 was forming and the subsequent ratification by the formed entity, the trial court properly denied FFP’s motions for directed verdict and JNOV.

## Legal Principles

- A business entity formed after a contract is executed in its name may become entitled to enforce that contract if it later adopts or ratifies the pre-formation agreement and related acts taken on its behalf.
- When a counterparty knowingly contracts with an entity described as “in formation” and accepts performance, that counterparty may be barred in equity from avoiding contractual obligations by denying the entity’s existence or capacity.
- The “real party in interest” is the party that possesses the substantive right being asserted; post-formation ratification and adoption can establish that the formed entity, not the promoter personally, owns the claim.
- A directed verdict or JNOV is improper if the evidence permits a reasonable jury to find for the prevailing party on the controlling legal theory and the appellant’s argument depends on a rejected legal defense.

## Conclusion

The court affirmed a jury verdict for P.D.2000 on FFP’s breach of a five-year independent contractor agreement, holding that FFP could not escape the contract’s termination-fee obligation by claiming P.D.2000 lacked capacity simply because it was not yet formally organized when the agreement was signed, where the contract disclosed the in-formation status and the later-formed LLC ratified the pre-formation contract and acts.


P.D.2000, L.L.C. v. First Financial Planners, Inc., 998 S.W.2d 108 (1999)