A is indebted to the partnership for P9,000 and B is the managing partner while C is another partner to whom A is also indebted for P3,000. A pays C P3,000 and C receipts the payment in his own name. Which is correct?

• A. The payment of A is fully applied to the obligation of C.
• B. P2,250 to partnership's credit and P750 to C's credit.
• C. P750 to partnership's credit and P2,250 to C's credit.
• D. The payment is fully applied to the obligation to the partnership.

Answer: (D)

When payment is made to a partner who is also a creditor, the rule is to apply the payment first to the partnership’s obligation, to the extent of the partnership debt. A separate personal claim of the partner is satisfied only if there is any surplus after the partnership debt is extinguished.

In this scenario, A owes the partnership 9,000 and also owes C personally 3,000. A pays C exactly 3,000. Since there is no excess beyond the partnership debt to cover C’s personal claim, the entire 3,000 is applied to reducing the partnership’s debt, leaving the partnership obligation at 6,000. There’s no portion available to credit C’s personal claim, so the payment is fully applied to the partnership’s obligation.