Well, not to be too contrary here, but if those 13 inqs were on OP's report when s/he first applied, why on earth did Chase approve the app in the first place? If they don't like inqs, they shouldn't have issued the card. If they issued the card, they shouldn't have turned around and canceled it for elements that were on the report all along.
This must be the bank equivalent of buyer's remorse. "Lenders remorse," maybe.
*** Of course, if 13 inqs popped on the report in one month's time after the card was issued, then I guess that's less surprising. 
But really, since we now get inqs pulled for opening checking accounts and applying for an apartment lease and getting a cell phone and who knows, maybe for adopting a kitty, there really are a lot of bogus inqs on reports these days.
OP, I'd call back and ask someone to look at the report with you, and explain that many of these inqs were incurred in the course of your business and weren't classic seeking of credit. And I think that saving $120 is worth a getting a card, too. Especially since once that first trip is made to Toys 'R' Expensive, it's just the first of many, many more.
+1 to Hauling!
But as to why they did this, I think this will answer it for you. All Chase's credit analysts read Superman comics as kids. Some of them took it all quite seriously, and some of them still do (apparently).
(Bizarro "Very Happy" emoticon)
@jforsyth wrote:Like I said, it's not always about the scores. Pleasing the algorithms and pleasing the human beings can be two very different things.
Having a ton of accounts and inquiries will freak out creditors. Not every promotion/one time saving is worth the inquiry and having the account on your report for a minimum of 10 years.
He already admitted to getting a ton of inquiries because of his business. Why add to all of those just to save a quick buck? Not worth it in the long run if you ask me.
I agree with you to some extend but not all 
Good credit is about saving money (I maybe wrong, but that's how I take it). Not everyone would qualify for 10% discount at Toysrus (due to bad credit).
For a large purchase if it helps to save money to apply for a card then It is not always a bad idea. OP would not have been upset if the card was not closed, he is upset because the card was closed after it was approved. I would be upset too, no doubt.
If it wasn't for the score, I would have applied for many cards that I did not want .
I am not sure if the toysrus card carries some rewards as well, if yes then it would be a good card to have if the purchases at toysrus are going to be regular.