## Facts

- Corey and Kimber Thompson sought to buy a 2005 Dodge Ram 1500 from Lithia’s dealership in Great Falls, Montana.
- The Thompsons paid $2,000 cash down and traded in a 2000 GMC Sierra 2500; the trade-in’s net allowance was $1,512 after payoff of the existing loan.
- The parties executed a retail installment contract listing a 3.9% APR and containing a broad arbitration clause covering claims and disputes, including those about the arbitration clause and arbitrability.
- The parties also executed a vehicle buyer’s order listing a 3.9% APR and stating the transaction would not be binding on the dealer unless and until a financing institution accepted financing on the stated terms.
- The Thompsons took the truck home, but about a week later Lithia told them financing at 3.9% was not approved and demanded either new paperwork at a higher APR or return of the truck.
- The Thompsons refused to sign new papers, returned the truck, and expected return of their down payment and trade-in; Lithia did not return either.
- Lithia later obtained financing approval on the original terms and asserted it made payments to maintain the 3.9% APR.
- The Thompsons sued over the transaction and Lithia’s retention of the down payment and trade-in; defendants moved to compel arbitration and stay discovery.

## Issues

1. When a party argues no contract was formed due to failure of a condition precedent, must the court or the arbitrator decide that contract-formation question before arbitration may be compelled?
2. Did the financing-approval language in the parties’ documents create a condition precedent to contract formation?

## Decision

- The Montana Supreme Court reversed the order compelling arbitration and remanded.
- The Court held that the district court, not an arbitrator, must decide whether a condition precedent to contract formation failed when the claim is that no contract (and thus no arbitration agreement) ever existed.
- The Court held the buyer’s order language regarding financing acceptance on stated terms could constitute a condition precedent to formation, creating a genuine dispute that required judicial resolution before arbitration could be ordered.

## Legal Principles

- Arbitration is contractual; a party cannot be compelled to arbitrate absent an agreement to arbitrate.
- A dispute about the existence or formation of a contract is a threshold matter for the court, even when the arbitration clause is broad and purports to cover arbitrability or validity disputes.
- Contract language providing a transaction is “not binding” unless financing is accepted on specified terms may establish a condition precedent to contract formation, not merely a condition of performance.
- A court errs by compelling arbitration without first determining whether a contract (and arbitration agreement) came into being when formation is reasonably contested.

## Conclusion

The court held that alleged failure of a condition precedent to contract formation must be decided by a court before arbitration may be compelled, and that the financing-acceptance language in the vehicle purchase documents raised a formation dispute requiring judicial determination on remand.


Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, Inc., 185 P.3d 332 (Mont. 2008)