Cloud Corp. v. Hasbro, Inc.

United States Court of Appeals for the Seventh Circuit · Contracts

ContractsUCCStatute of FraudsContract ModificationBattle of the FormsWaiverUCC 2-201UCC 2-201(2)

Facts

Hasbro issued purchase orders to Cloud for packets used in a toy aquarium product, and the quantity of packets that could be produced depended on a formula Hasbro supplied specifying the amount of Laponite per packet. In June 1996 Hasbro changed the formula to require less Laponite, enabling Cloud to manufacture substantially more packets from the same ingredient supply, and Cloud sent Hasbro an order acknowledgment reflecting the increased quantities at a lower price. Hasbro did not explicitly object and its purchasing employees exchanged emails and other communications referring to quantities consistent with the increased numbers. Cloud manufactured the extra packets, but after Hasbro's demand declined and the product line was discontinued, Hasbro refused to accept or pay for the additional packets beyond the February and April purchase orders.

Issue

Whether the June 1996 increase in quantity was an enforceable modification of the earlier purchase orders despite contractual language requiring Hasbro's written consent to modifications and the UCC statute of frauds. Also, whether Cloud acted unreasonably in relying on Hasbro's informal communications and course of dealing without obtaining a formal written purchase order.

Rule

A quantity modification in a sale-of-goods contract must satisfy UCC writing requirements, but the writing need not be the contract itself; adequate documentary evidence of the modification and its essential terms is enough, and a sender's name on an email can satisfy the signature requirement. Between merchants, a confirmatory writing sufficient against the sender binds the recipient absent written objection within ten days. A signed no-oral-modification clause is enforceable under UCC 2-209(2), but an ineffective attempted modification may still operate as a waiver under UCC 2-209(4) if the party asserting waiver shows either reasonable reliance or a clear and unequivocal waiver.

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Blue Mesa Plastics in Denver sent a signed supplier-terms letter to Harbor Peak Games, a toy distributor in Chicago, stating that no purchase order could be modified without Harbor Peak's written consent. Harbor Peak later sent purchase orders, and Blue Mesa responded with its own acknowledgments listing warranty and shipping terms but saying nothing about modification. After an alleged quantity increase, Blue Mesa argues the no-modification term never became part of the contract because its acknowledgments omitted it.

How should a court most likely rule on whether the written-consent-to-modify term is part of the parties' contract?

Explanation. Under the majority's reasoning, when an acceptance is silent about a term in the offer, that omission is not an inconsistency. A term in the offer therefore remains enforceable. The court distinguished between contradictory terms, which may cancel out, and mere silence, which does not. Thus the written-consent requirement would remain part of the contract. (Derived from Cloud Corp. v. Hasbro, Inc. (n.d.).)