CLOUD CORP. V. HASBRO, INC.
314 F.3d 289 (7th Cir.2002)
NATURE OF THE CASE: Cloud (P), seller, appealed an order which entered judgment after a
bench trial in favor of Hasbro (D), purchaser, in an action for breach of contract.
FACTS: Hasbro (D) created 'Wonder World Aquarium.' This toy included large or small
packets of a powder that when dissolved in distilled water forms a transparent gelatinous
filling for the aquarium. The gel simulates water. D contracted out the manufacture of this
product. Southern Clay Products Company was to sell and ship Laponite HB, a patented
synthetic clay, to P, which was to mix the Laponite with a preservative according to a
formula supplied by D, pack the mixture in the packets and ship them to affiliates of D in
East Asia. The affiliates would prepare and package the final product. D sent P a confirming
purchase order. Upon receipt of a purchase order, P would send D an order acknowledgment and
would order from Southern Clay. A few months after the launch of the product D sent a letter
to all its suppliers that contained a 'terms and conditions' form to govern future purchase
orders. One of the terms was that a supplier could not deviate from a purchase order without
D's written consent. Every time D sent a purchase order to P it would include an
acknowledgment form for P to sign that contained the same terms and conditions that were in
the October letter. P did not sign any of these forms. The order acknowledgments that P sent
D in response to D's purchase orders contained on the back of each acknowledgment P's own
set of terms and conditions. There was a space for D to sign P's acknowledgment form but it
never did so. Neither party complained about the other's failure to sign the tendered forms.
Southern Clay Products was having trouble delivering the Laponite in time to enable P to
meet its own delivery schedule. D notified P that it was to use a new formula in
manufacturing the powder, a formula that required so much less Laponite that the same
quantity would produce a third again as many packets. P could produce 4.5 million small and
5 million large packets, compared to the 3.8 and 3.9 million called for by the February and
April orders but not yet delivered. Although it had received no additional purchase orders,
P sent D an order acknowledgment for 4.5 million small and 5 million large packets with a
delivery date similar to that for the April order, but at a lower price per packet. P's
acknowledgment was sent in June. P was under the understanding that if the formula reduced
the amount of Laponite per packet it should increase the number of packets it made rather
than return unused Laponite to Southern Clay Products. By 1997 Wonder World Aquarium was
losing market appeal and D had more than enough packets in East Asia to deal with current
demand levels. Mistakenly believing that the market was expanding rather than contracting, P
manufactured a great many packets of powder in advance of receiving formal purchase orders
for them from D. D refused to accept delivery. P sued for breach of contract seeking more
than $600,000 in damages. The district judge ruled in favor of D. The district judge,
despite ruling for D, found that D intended to exceed the quantities of ... packages it had
ordered from P in February and April of 1996, that D was more concerned with prompt product
than with the specific terms of its orders,' and, most important, that 'given D's repeated
message that it could not get enough Laponite HB to fill its needs in a timely fashion, P's
decision to produce as many packets as possible appeared to be a safe course of action. P
appealed.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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