MAGIC Company is a partnership with several members. If a debtor pays 4,000 to a manager who has a personal and partnership credit, how is the payment applied?

MAGIC Company is a partnership with several members. If a debtor pays 4,000 to a manager who has a personal and partnership credit, how is the payment applied?

• A. The payment will be applied proportionately to the credits of MAGIC Company and M in the amount of P1,600 and P2,400, respectively.
• B. The payment will be applied in its entirety to M's personal credit.
• C. The payment will be applied in its entirety to MAGIC Company's credit.
• D. The payment will be applied equally to the two debts.

Answer: (B)

When a debtor pays a manager who has both a personal liability and a partnership liability to the same creditor, the payment is applied to the manager’s personal debt first. The manager’s personal obligation is a direct, individual claim of the creditor, so a payment to the manager goes to satisfy that personal debt before touching the partnership obligation. Only after the personal debt is satisfied would any remaining funds be applied to the partnership debt. In this case, the 4,000 is directed to the manager’s personal credit, so the full amount is applied there.

When a debtor pays a manager who has both a personal liability and a partnership liability to the same creditor, the payment is applied to the manager’s personal debt first. The manager’s personal obligation is a direct, individual claim of the creditor, so a payment to the manager goes to satisfy that personal debt before touching the partnership obligation. Only after the personal debt is satisfied would any remaining funds be applied to the partnership debt. In this case, the 4,000 is directed to the manager’s personal credit, so the full amount is applied there.