SW Legal studies in Business

Failure of Condition Precedent Means No Contract Existed
Description

Montana high court held that due to the failure of a condition precedent, no contract was formed. Because the contract was not formed, the arbitration clause in the contract could not be enforced.

Topic Contracts
Key Words

Condition Precedent; Formation; Arbitration

C A S E   S U M M A R Y
Facts

The Thompsons intended to buy a new pickup from Lithia Dodge. The retail installment contract with Lithia listed the annual interest rate as 3.9 percent. It stated that the contract was not binding until financing was completed. The contract also stated that any dispute must be resolved by arbitration. A week later, Lithia’s finance manager said the 3.9 percent rate had not been accepted and they would have to sign a contract for 4.9 percent financing. They refused to pay the higher rate and a dispute followed. The Thompsons sued Lithia, as it demanded the pickup back and had already sold the vehicle the Thompsons traded in. The trial court held that because of the arbitration clause, the matter had to go to arbitration; the Thompsons appealed.

Decision

Reversed and remanded. Approval of 3.9 percent financing for the purchase of the pickup was a condition precedent to forming a contract between Lithia and the Thompsons. The order form said the dealer would not be obligated to sell until the financing had been approved by a bank or finance company. That did not happen so the condition precedent was not fulfilled. There was no agreement, so no contract. Hence, the arbitration clause is not binding, as it was part of the contract. The case may proceed to trial.

Citation

Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, 185 P.3d 332 (Sup. Ct., Mt., 2008)

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