IN RE MGL CORPORATION

SIGMUND, United States Bankruptcy Judge

Before the Court is the Motion of the Bortnick Limited Partnership (the "Partnership") to Compel Payment of Rent (the "Motion") for Premises 3434 State Road, Bensalem, Pennsylvania (the "Warehouse"). The Motion is opposed by John T. Carroll, III, Esquire, the Chapter 11 trustee for the Estate of MGL Corporation (the "Trustee") and Congress Financial Corporation ("Congress") which holds a lien on all the assets of MGL Corporation, MGL Apparel, Inc. and Lorianna Stores, Inc. and is funding this Chapter 11 liquidation through a series of consensual financing orders. A hearing was held on March 13, 2000. Finding the arguments made by Congress unpersuasive and indicating my inclination to approve the Motion, Congress's counsel requested leave to file a memorandum of law. As Congress agreed to contemporaneously advance into the Trustee's escrow account the amount of the rent, I found no prejudice to the Partnership in deferring my ruling until after briefs were submitted. I have received those documents, and the matter is accordingly ripe for decision.

The Chapter 11 cases of these three debtors are administratively consolidated. Each estate, however, is being administered by its own Chapter 11 trustee. The trustees have engaged Phoenix Management Group ("Phoenix") pursuant to Court Order and the liquidation is being managed by its officer John Bonner.

BACKGROUND

The facts are undisputed. The Partnership is the owner of the Warehouse which it leased to the Debtor. The Trustee is now using it as a staging area for the inventory which will ultimately be sold by the Trustee. Congress holds a first lien and security interest in, inter alia, the inventory, and has opted to support the Chapter 11 liquidation by providing financing of budgets prepared by Phoenix as opposed to seeking relief from stay to exercise its rights to foreclose on its collateral. While Congress is apparently undersecured, the Trustees believes there are certain free assets that enable them to administer these estates for the benefit of unsecured creditors.

An unsigned lease was admitted into evidence, Exhibit B-1, the Partnership being unable to locate a signed copy. An offer of proof was made (and accepted by the objectors in lieu of testimony) that Gene Bortnick had executed the lease on behalf of the Partnership and MGL Corporation of which he was a principal. The proffer also evidences a historic recognition of MGL's tenancy by Congress which was funding lease payments prepetition. Moreover, the existence of and the implicit admission in the Landlord Agreement, Exhibit B-2, refute the contention that there is no lease obligation. In any event, the issue of the executed lease agreement seems to me a red herring since MGL is admittedly occupying the Warehouse and intends to remain there during the liquidation. Absent some right to be there, it would have a hard time supporting continued occupancy.

The Debtor Lorianna Stores, Inc. operated approximately 40 retail clothing stores which have been closed. All the inventory has now been transferred to the Warehouse for liquidation. Bonner reported to the Court that the actual sale should occur sometime in the next 4-6 weeks. There is no dispute that the use of the Warehouse is necessary to the successful liquidation of the inventory nor that the benefit of that liquidation inures to Congress, the lienholder.

The Motion, relying on § 365(d)(3) and § 105, seeks payment of the monthly rent of $31,500 without which the Partnership contends it will be unable to pay its mortgage. In the alternative, it moves to compel the Trustee to reject the lease, remove the inventory and allow the partnership to re-let the Warehouse.

Section 365(d)(3) provides:
The trustee shall timely perform all the obligations of the debtor, except those specified in section 365(b)(2), arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title. The court may extend, for cause, the time for performance of any such obligation that arises within 60 days after the date of the order for relief, but the time for performance shall not be extended beyond such 60-day period. This subsection shall not be deemed to affect the trustee's obligations under the provisions of subsection (b) or (f) of this section. Acceptance of any such performance does not constitute waiver or relinquishment of the lessor's rights under such lease or under this title.
The Trustee filed a motion to extend time to assume or reject the lease on March 20, 2000. A hearing is scheduled for April 18, 2000.

The Partnership's mortgagee is First Union which owns Congress. I also understand that the mortgage relates to property in addition to the Warehouse which is not leased to the Debtors. As if to demonstrate the independence of each of these financial institutions, First Union has sent a notice of default and intent to foreclose for failing to make the March payment. In any event, I find the corporate relationship to be irrelevant to the resolution of the Motion.

Congress does not dispute that § 365(d)(3) obligates a trustee to timely perform all obligations of the debtor until the lease is assumed or rejected. Rather it finds that provision inapplicable here where it is funding the liquidation. The thrust of Congress' objection to the Motion emanates from an agreement it entered with MGL contemporaneously with the other loan and security documents between the parties. The undated Landlord Agreement provides in pertinent part:

Lender, at its option, may enter and use the Premises for the purpose of repossessing, removing, selling or otherwise dealing with any of the Personal Property, and such license shall be irrevocable and shall continue from the date Congress enters the Premises for a period of up to one hundred (180) days after the receipt by Congress of written notice from the undersigned directing removal of the Personal Property; provided, that, Congress shall have no obligation whatsoever to pay the regularly scheduled rent or any other sums and charges provided under the lease related to the Premises between the undersigned and Debtor (the "Lease") as a result of Congress' use of the Premises pursuant to the rights granted to it hereunder, and Congress shall not thereby assume the Lease or incur any obligations of Debtor.

Thus, it was the parties' agreement that Congress would not have to fund the payment of rent for a six month period while it used the Warehouse to repossess, remove, sell or otherwise deal with its collateral. Congress sees no reason why that rent waiver would not be applicable here where its inventory is being liquidated by the Trustee for its benefit. As I stated at the hearing, I respectfully disagree. The agreement speaks of Congress entering the Premises and using it for the purpose of repossessing, removing, selling or otherwise dealing with the property. However, it is not Congress that is the actor but the Trustee, albeit with the consent and financial support of Congress. In order for Congress' argument to be valid, the Trustee would have to be Congress' agent, which no one contends is the case. While it is true that Congress will benefit from the Trustee's actions, a conclusion it obviously acknowledges by the financing of his efforts, the Trustee is not under the direction or control of Congress. Congress had the ability to conduct this liquidation itself under Article 9 of the Uniform Commercial Code, and opted instead to support a Chapter 11 liquidation by a Chapter 11 trustee. Having made that decision to realize certain presumed but unstated benefits, it cannot now disavow that strategy by contending that an agreement made for its benefit only is enforceable against the Trustee.

In its brief, Congress raises two arguments not advanced at the hearing and which I had not considered. I will do so now. First, Congress states that the Trustee is the third party beneficiary of the rent waiver while Congress' liened inventory is at the Warehouse. Congress urges that I look through the language of the agreement and to its intent, recognizing that Gene Bortnick signed the lease on behalf of the Partnership and the Debtor, agreed to the rent waiver and then directed the filing of the Chapter 11 case. Congress ignores what has been apparent in this case — that the Chapter 11 liquidation by a trustee was a Congress, not Debtor or Bortnick, directed strategy. I reiterate my prior point: with the benefits come the burdens. While it is clear that the Partnership agreed that Congress would not have to pay rent for use of the Warehouse during a secured creditor sale, that is not what is occurring here. Thus, I cannot hold that the Trustee is not liable to pay rent for the use of the Warehouse because of the Partnership's agreement with Congress.

Indeed Congress had conditioned its support of the Debtor's bankruptcy liquidation on the Debtor seeking the appointment of Phoenix as Chapter 11 trustee for the three cases. A motion to that effect was denied as contrary to the authority granted to this Court.

Having so concluded, I also cannot compel Congress to fund the Trustee's obligation to pay rent. Congress is correct that an order directed at it would be improper absent a motion under § 506(c). Whether such a motion could be successfully controverted is not before me in this contested matter between the Partnership and the Trustee. For the present, I will order the Trustee to make current payments of rent to the Partnership. To implement this ruling, the Trustee shall release the escrowed rent payments to the Partnership unless Congress indicates its refusal to fund the rent obligation. In such case, the Partnership may renew its alternative request that the lease be deemed rejected and the Trustee ordered to vacate the Warehouse.

Section 365(d)(3) requires the trustee to timely perform all obligations of the debtor arising from and after the order for relief under any lease of non-residential real property until such lease is assumed or rejected. If the trustee does not assume or reject an unexpired lease of non-residential real property within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such lease is deemed rejected. The trustee filed a motion to extend the time for assumption or rejection within the 60 day period, and a hearing is scheduled for April 18th. If the rent is not current at that time, the motion will be denied and the lease will be deemed rejected and the trustee ordered to vacate the premises. Id. § 365(d)(4).

An Order consistent with this Memorandum Opinion shall issue.

ORDER

AND NOW, this 6th day of April, 2000, upon consideration of the Motion of Bortnick Limited Partnership to Compel Payment of Rent (the "Motion") for Premises 3434 State Road, Bensalem, Pennsylvania, after notice and hearing, and for the reasons set forth in the accompanying Memorandum Opinion;

It is hereby ORDERED and DECREED that the Motion is GRANTED. The Chapter 11 Trustee shall pay current rent for use of the Warehouse during this bankruptcy case.