## Facts

- Party Yards, Inc. designed and sold beverage containers with advertising logos and sought financing for production related to a major marketing project.
- After obtaining a $100,000 loan elsewhere, Party Yards accepted Templeton’s offer to lend $160,000.
- The parties executed three instruments on December 18, 1996—a promissory note, security agreement, and representation agreement—which the court treated as a single integrated contract.
- Templeton advanced the $160,000 in three installments; Party Yards repaid the principal in April 1997.
- The note provided for 18% annual interest if not paid by March 18, 1997.
- In addition to interest, the contract required Party Yards to pay Templeton “commissions” tied to gross revenue on all Party Yards products and a percentage of gross invoice price, payable regardless of whether Templeton performed services.
- The commissions were structured to continue for twenty years after Templeton’s death to his heirs.
- The contract included an arbitration clause for disputes arising under the agreement.
- A dispute arose; Party Yards sued alleging the transaction was usurious and illegal under Florida law, while Templeton sought to compel arbitration.

## Issues

1. Whether a trial court may compel arbitration and stay litigation without first deciding a substantial claim that the underlying contract is illegal and void for usury.
2. Whether an arbitration clause is enforceable when the contract containing it is challenged as void under Florida’s usury statutes.

## Decision

- The appellate court reversed the order staying litigation and compelling arbitration.
- The court held the trial court had to determine first whether the integrated contract was illegal and usurious before enforcing the arbitration clause.
- The case was remanded for further proceedings, including a judicial ruling on the usury/illegality claim.

## Legal Principles

- When a party raises a substantial, nonfrivolous claim that a contract is illegal and void under Florida usury law, a court must resolve that contract-validity issue before compelling arbitration under a clause contained in the same contract.
- Florida usury law treats as unlawful any arrangement—by “commission” or other device—that obligates a debtor to pay more than the principal plus 18% simple annual interest.
- An order compelling arbitration presupposes an enforceable agreement; if the underlying contract is void for illegality, the arbitration clause cannot be enforced without a prior judicial determination of validity.

## Conclusion

The court required judicial resolution of a colorable usury-based illegality challenge to the parties’ integrated financing contract before arbitration could be compelled, because enforcing arbitration depends on the existence of a valid, lawful contract.


Party Yards, Inc. v. Templeton, 751 So. 2d 121 (Fla. Dist. Ct. App. 5th Dist. 2000)