Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
The trustee in bankruptcy moved before the referee to compel the City of New York to pay over the proceeds of a sale of the bankrupt's property; the referee granted the petition, but the district judge reversed his order. The facts were as follows. On May 19, 1938, the bankrupt agreed with the City to an assessment of $1171 for sales taxes for which it had theretofore become liable and which it was to pay off in installments. By December 6, 1938, the bankrupt had reduced this to $956, but as it then stopped payments, the City Treasurer, proceeding under subdivision b of § N41-11.0, Chapter 41, of the "Administrative Code" of the City (quoted in the margin*fn* ), issued a warrant to an "officer * * * of the department of finance" who docketed it in the office of the Clerk of Kings County, which imposed a lien upon all the property of the bankrupt. On May 16, 1939, the City Treasurer directed the officer to whom he had issued the warrant, to seize the property and he did so. It has been sold in execution of this warrant by order of the bankruptcy court after adjudication, and the proceeds await the determination in this proceeding of the validity of the lien acquired. The bankrupt was insolvent both on December 6, 1938, and May 16, 1939, and so the City's officials knew on both dates. An involuntary petition was filed on June 7, 1939, which was followed by an adjudication on the 17th. The trustee argues that the lien had necessarily disappeared because the bankrupt's shifting stock of merchandise on December 6, 1938, must have completely changed before May 16, 1939; and that if the origianl levy attached at all, it was only as new goods were substituted. Further, that as to all goods acquired within four months of petition filed, § 60, sub. b, 11 U.S.C.A. § 96, sub. b, invalidated the lien if it did attach, because it arose after the City had learned of the bankrupt's insolvency. We agree with this reasoning, and consequently the result must depend upon § 67, sub. b, 11 U.S.C.A. § 107, sub. b.
This was a "statutory lien" within that section, and not a "lien * * * obtained by * * * legal * * * proceedings," § 67, sub. a. Henderson v. Mayer, 225 U.S. 631, 32 S. Ct. 699, 56 L. Ed. 1233; Irby v. Corey, 5 Cir., 95 F.2d 963. It is not necessary to decide whether the lien of an execution issued on a judgment is also a "statutory lien," whenever a statute has been passed to regulate its incidence and effect. The only possible question is as to the use of the word, "may," instead of "shall." While that word can be mandatory (Rock Island County Supervisors v. United States, 4 Wall. 435, 446, 18 L. Ed. 419; United States v. Thoman, 156 U.S. 353, 359, 15 S. Ct. 378, 39 L. Ed. 450), if this were a situation appropriate to the exercise of any discretion, we should construe it in its usual, i.e. in its permissive, sense. We have however been unable to see any proper scope for discretion in these circumstances. Congress cannot of course have meant that the court should decide in each case whether the result of invalidating the lien would be too harsh, thus conferring a dispensing power to be exercised in misericordiam. The most reasonable interpretation seems to us to be that the preference shall depend upon whether the local law "may" create a lien. There was some reason for such a concession; the amendment to § 64, 11 U.S.C.A. § 104, had cut down very considerably the priority given to taxes, and had eliminated altogether any priority for state debts. Perhaps Congress thought § 67, sub. b, in some measure a quid pro quo for what had been taken away.