Back in the era when PG Wodehouse was writing about the benefits of employing a manservant to disentangle you from unwanted marriages, breach of promise was a serious act which could land you in court.
With the law now focusing post, rather than pre-marriage, there's less need for a Jeeves. However, as Cerberus and Chatham Lodging Trust are finding this week, breach of commitment remains a serious consideration in the business world.
The two are currently being sued by Innkeepers USA Trust after terminating a deal to buy 64 Innkeepers hotels for $1,2bn, commenting that a "material adverse effect" had occurred that gave them permission to walk away. Innkeepers is seeking an order requiring Cerberus and Chatham Lodging Trust to buy the group or pay "substantial damages", to be determined at a trial.
Cerberus and Chatham Lodging are seeking the return of their $20m deposit, which is being held in escrow. Innkeepers has warned that the damages it is seeking could exceed this.
It is not yet clear what the "material adverse effect" was and Innkeepers' chief restructuring officer, Marc A. Beilinson, has been quick to comment that the group was "pleased" with the operating performance of its properties, adding: "that's why we expect to once again see substantial interest in the 64 hotels that Cerberus and Chatham failed to purchase, in the event Cerberus and Chatham fail to live up to their contractual obligations".
The complaint made by Innkeepers states: "Cerberus and Chatham's purported termination is nothing more than a calculated effort to apply leverage … to renegotiate the terms of the parties' binding contract. Regardless of their motives, one thing is clear: Cerberus and Chatham are not excused from their obligations under the plain terms of the Binding Commitment Letter and Term Sheet."
Innkeepers' complaint continues, to lay out details of two attempts by the buyers to renegotiate at a lower price, which included threats to walk away from the deal.
A downturn can cause a strain in any relationship, as Marriott International has also seen this week with the owners of the Waikiki Edition. The deal would have meant Innkeepers' exit from bankruptcy protection, where it has been since July 2010, with the buyers having agreed to pay $400.5m cash and assume $723.8m in mortgage debt. The pair beat a $970.7m offer from Lehman Ali and Five Mile Capital Partners, which reportedly does not terminate until 15 September, providing an alternative, if lower, possibility for Innkeepers.
Cerberus and Chatham have yet to respond. Innkeepers suggestion that market volatility caused by fears over another recession was behind the move, if true, means that the pair are unlikely to complete the deal in the current climate.
Sticking with the marriage analogy, although Innkeepers is bullish over finding another buyer, it is possible that it will now be viewed as damaged goods. Only when the "material adverse effect" is revealed will a new buyer be reassured and a happy union negotiated.