## Facts

- Mel Frank Tool & Supply, Inc. leased a warehouse in Council Bluffs, Iowa, to Di-Chem Company for a three-year term (June 1, 1994–May 31, 1997) for “storage and distribution.”
- During negotiations, the landlord was told Di-Chem would store “chemicals,” but the lease did not mention “hazardous materials,” and the landlord was not shown to have known Di-Chem intended hazardous-material storage as the defining use.
- The lease required Di-Chem to make no unlawful use of the premises and to comply with city ordinances, and it contained a destruction-of-premises termination clause tied to destruction or unfitness of the premises.
- In July 1995, city officials inspected and then informed Di-Chem that, under the city’s adopted Uniform Fire Code, the building’s use as “Hazardous Materials Storage” violated regulations.
- Di-Chem was not barred from all use; evidence and correspondence indicated only some chemicals were prohibited, while non-hazardous chemicals and some allowable quantities could still be stored.
- Di-Chem moved out and vacated the premises before the lease ended.
- Mel Frank sued for unpaid rent for the remainder of the lease term and for physical damage to the premises; Di-Chem asserted impossibility/frustration-type defenses and relied on lease provisions to avoid liability.
- The district court entered judgment for Mel Frank for unpaid rent and property damage; Di-Chem appealed.

## Issues

1. Whether enforcement of a fire-code ordinance restricting hazardous-material storage excused Di-Chem’s performance under impossibility, frustration of purpose, or commercial frustration.
2. Whether any lease provision, including the destruction-of-premises clause, released Di-Chem from liability for rent and damages under the circumstances.
3. Whether the district court clearly erred in finding that a real estate agent represented Di-Chem and prepared the lease on Di-Chem’s behalf.

## Decision

- The Iowa Supreme Court affirmed the judgment for Mel Frank.
- The court held Di-Chem did not prove impossibility or frustration because the lease’s shared purpose (“storage and distribution”) was not destroyed and Di-Chem retained substantial permitted use.
- The court held the lease provisions invoked by Di-Chem, including the destruction-of-premises clause, did not apply to regulatory limits on certain inventory and did not terminate rent obligations.
- The court upheld the district court’s finding that the agent represented Di-Chem and prepared the lease, rejecting Di-Chem’s challenge under the applicable standard of review.

## Legal Principles

- Frustration of purpose excuses performance only when the party’s entire or essential purpose for the contract is substantially destroyed and that purpose was within the parties’ mutual understanding at formation.
- A partial impairment of a tenant’s intended business use, where substantial beneficial use remains, does not satisfy frustration or impossibility.
- A general stated lease purpose (e.g., “storage and distribution”) controls over a tenant’s more specific unilateral purpose unless the specific purpose is shown to have been shared and foundational to the bargain.
- A lease clause requiring compliance with laws and ordinances allocates to the tenant the risk that regulatory requirements will restrict certain uses.
- A destruction-of-premises clause tied to destruction or unfitness is not triggered by regulatory restrictions where the premises remain physically intact and generally usable.

## Conclusion

Because the ordinance restricted only part of Di-Chem’s desired use and the parties’ shared lease purpose remained achievable, Di-Chem was not excused from performance and remained liable for rent and damages; the lease’s compliance-with-laws allocation and the inapplicability of the destruction clause reinforced that result.


Mel Frank Tool & Supply, Inc. v. Di-Chem Co., 580 N.W.2d 802 (Iowa 1998)