Cerberus Capital Management, the US investment firm, has vowed to fight for the right to abandon a $7 billion (£3.4 billion) takeover in one of the first major legal battles arising from the credit crunch.

The private equity group, chaired by former US vice president Dan Quayle, has filed court papers in New York asking a judge to enforce its right to walk away from an agreed acquisition of tool hire group United Rentals.

Cerberus pulled its $7 billion offer last week and claims it is free to walk away from the deal if it pays United Rentals a $100 million “break fee”.

In a statement, Cerberus said that it had asked the New York State Supreme Court “to ensure that United Rentals honours” the terms of the break fee clause included in the deal.

Cerberus applied to the court in response to an earlier application from United Rentals that sought to compel the investment firm to go through with the deal.

In a sign that both sides are entrenching their position, United Rentals said yesterday that it “stands ready to complete the merger on the agreed terms.”

If the two sides cannot agree a compromise the issue will eventually be decided in court.

The dispute centres on whether Cerberus’ right to abandon the deal in return for a $100 million payment to United Rentals is qualified with conditions.

Cerberus says that it has an unqualified right to walk away but United Rentals claims that the investment firm cannot abandon the deal without a justifiable cause and that changes in capital markets conditions are specifically excluded from the escape clause.

According to legal documents, Cerberus has committed financing for the deal from Credit Suisse but approached United Rentals at the end of August in an attempt to renegotiate terms because of “concerns about recent unanticipated developments in the credit and financial markets”.

The deal is one of several acquisitions, including abandoned offers for Acxiom and Harman International Industries, that have run into difficulties since the summer.

David Gray, the head of UK litigation at DLA Piper, said that the legal fight is “consistent with an increasing sense that we are entering a period of economic slowdown during which private equity firms are reassessing their priorities and — in some cases — tightening their belts.”

“When the market is no longer awash with liquidity, we should expect banks and private equity houses to have a reduced appetite for deals and that disappointed targets will also look more closely at their rights to legal redress on deals that go sour.”

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