Cloud Corp. v. Hasbro, Inc.

314 F.3d 289 (7th Cir.2002)

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Nature of the Case

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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.