George S. Rush appeals an adverse decision of the district court on his claim for attorney's fees. In essence, he contends that his attorney has an enforceable lien on funds paid into the court by Metrocentre Improvement District No. 1 (Metrocentre), and that this lien has priority over a claim of The Home Insurance Company (Home), which was interpleaded by Metrocentre as a third-party defendant. We agree and reverse.

The underlying action involves a claim by Rush, a general contractor, for the unpaid balance of a contract entered into between Rush and Metrocentre for the construction of a shopping mall known as the Metromall. Contemporaneously, Rush and Home issued payment and performance bonds to Metrocentre, which, among other things, guaranteed that Rush would pay its subcontractors and suppliers for labor and materials furnished.

The project was substantially completed in August of 1978, and was accepted by Metrocentre on October 25, 1979. Rush, however, failed to pay a substantial amount of money owed to its subcontractors who, in turn, claimed against Home pursuant to the performance bond. Home paid the subcontractors, and then refused to consent to Metrocentre's release of the $33,031.25 balance remaining due on the contract. Metrocentre withheld this balance, and on March 10, 1980 Rush retained the attorney of record for the purpose of recovering the balance claimed from Metrocentre.

The present action was filed on July 7, 1980, and named Metrocentre as defendant. Home was subsequently interpleaded as a third-party defendant and Metrocentre paid into the district court the $33,031.25 balance due.

On February 19, 1981 Rush and Home, who had been engaged in disputes involving approximately $10,000,000.00 in other cases, resolved over $1,000,000.00 of the claims between them by entering into a comprehensive settlement agreement. Paragraph 4.B of the agreement provided that on or before September 1, 1981 Rush would pay Home the sum of $150,000.00 by means of a cashier's check. Paragraph 10.D of the agreement, however, modified paragraph 4.B by providing that Rush would assign to Home all funds paid into the court by Metrocentre, and that Rush would receive a $19,048.71 credit1 on the $150,000.00 owed Home, less one-half of any amount by which the court-held funds were diminished prior to receipt by Home.2 Rush now claims that the funds paid into the court by Metrocentre are subject to an attorney's lien.

Section 25-301 of the Arkansas statutes provides for the creation of an attorney's lien upon his client's cause of action upon the occurrence of either of the following two events: (1) service by registered mail of notice upon the adverse party enumerating the cause of action; or (2) the commencement of an action against the adverse party.3 Further, the statute provides that the lien "attaches to any settlement ... in his client's favor and the proceeds thereof in whosoever hands they may come; and such lien cannot be defeated and impaired by any subsequent negotiation or compromise by any parties litigant ...." Ark.Stat.Ann. § 25-301. The statute is to be liberally construed to effectuate its purposes. Slayton v. Russ, 205 Ark. 474, 169 S.W.2d 571-72 (1943).

The district court, in resolving this issue, found as follows:

At the time plaintiff's complaint was filed, he had no right to the contract funds which subsequently were interpleaded into the Court. The resolution of this case does not result in a settlement, verdict, report, decision, judgment or final order in Rush's favor. The balance of the interpleader fund, after subtracting the reasonable costs and attorney fees of Metrocentre, is the property of and payable to Home.

Rush v. Metrocentre Improvement District No. 1, No. LR-C-80-330 (filed Nov. 6, 1981).

This finding, however, overlooks the underlying nature of the transactions involved in the February 19, 1981 Settlement Agreement. In essence, under Paragraph 10.D, Rush assigned all rights to the interpleaded funds in return for Home's agreement to forgive a part of an obligation owed it by Rush on claims other than Home's claim to the interpleaded funds. The situation would be no different had Rush accepted $19,048.71 in cash in settlement of his claim to the interpleaded funds and then applied that money in partial satisfaction of other obligations owed Home.

There can be no question that a decrease in the monetary obligations owed by an individual confers a benefit upon that individual to the extent that his burden is lessened. Cf. Restatement (Second) of Contracts § 338, Comment c (a transfer of property in satisfaction of a preexisting debt is a transfer for value). Accordingly, because the transaction set forth in Paragraph 10.D of the agreement has operated to reduce Rush's other obligations, he has benefitted to the extent of that reduction.

In sum, we hold that the Settlement Agreement was a settlement in Rush's favor in the amount of $18,161.614 within the meaning of the statute. Therefore, Rush's attorney has a valid and enforceable lien which has attached to that sum.

The judgment of the district court on this issue is reversed, and the cause is remanded to the district court for further proceedings consistent with this opinion.