Thompson v. Lithia Chrysler Jeep Dodge
2008 MT 175, 343 Mont. 392, 185 P.3d 332 (2008)
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Rule of Law:
A court, not an arbitrator, must decide whether a contract was ever formed when a party challenges the contract's very existence based on the alleged failure of a condition precedent to formation.
Facts:
- Corey and Kimber Thompson visited a Lithia Chrysler Jeep Dodge dealership to purchase a 2005 Dodge Ram truck.
- The Thompsons made a $2,000 cash down payment, traded in their 2000 GMC Sierra truck, and signed a Retail Installment Contract and a Vehicle Buyer’s Order to finance the remaining balance at a 3.9% annual percentage rate.
- The Vehicle Buyer's Order explicitly stated that if the transaction was a retail installment sale, the order was 'not a binding contract... until approval of the terms hereof is given by a bank or finance company.'
- The Thompsons were permitted to take the new Dodge truck home.
- Approximately one week later, Lithia's Finance Manager, Jeffery Crocker, contacted the Thompsons and informed them that the 3.9% financing was not approved and that they would need to sign new finance papers at a higher 4.9% rate.
- The Thompsons refused to accept the higher interest rate and returned the Dodge truck to the dealership.
- Lithia informed the Thompsons that their trade-in vehicle had already been sold and refused to return their $2,000 cash down payment.
Procedural Posture:
- The Thompsons filed suit against Lithia, Jeffery Crocker, and Daimler Chrysler Financial Services (DCFS) in the District Court for the Eighth Judicial District, Cascade County, Montana (a state trial court).
- DCFS filed a motion to stay the proceedings and compel arbitration, citing the arbitration clause in the contract.
- Lithia and Crocker filed a similar motion to compel arbitration.
- The District Court granted the defendants' motions, ordering the case to arbitration.
- The Thompsons (appellants) appealed the District Court's order to the Supreme Court of Montana.
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Issue:
Where a contract containing an arbitration clause is challenged based on the failure of a condition precedent to contract formation, must a court, rather than an arbitrator, decide the threshold question of whether a contract was ever formed?
Opinions:
Majority - Justice Rice
Yes. When a party challenges the very existence of a contract based on the failure of a condition precedent to its formation, a court must first determine whether a contract was ever concluded before compelling arbitration. The U.S. Supreme Court's decision in Buckeye Check Cashing, Inc. v. Cardegna requires arbitrators to decide challenges to a contract's validity, but it explicitly distinguishes this from challenges to whether a contract was ever formed in the first place. The failure of a condition precedent to formation, such as securing financing on specifically agreed-upon terms, is a question of contract existence, not validity. Therefore, the dispute cannot be sent to an arbitrator until the court first resolves the factual question of whether the condition precedent was met and a binding contract was actually formed.
Analysis:
This case establishes a critical distinction between challenging a contract's validity (e.g., voidable for fraud) and challenging its very existence (i.e., it never came into being). It carves out a narrow but significant exception to the strong federal policy favoring arbitration articulated in cases like Buckeye. By holding that courts must decide fundamental formation issues, the decision prevents parties from being forced into arbitration based on a contract that may have never legally existed. This reinforces the court's role as a gatekeeper in determining the threshold question of whether an agreement to arbitrate was ever actually made.
