T owes P3,000 to CHAMP Company and P6,000 to C; T pays P3,000 to C; Which is correct regarding the application of the payment?

• A. Payment will be applied proportionately to the two credits at P1,000 for C's credit and P2,000 for CHAMP Company's credit.
• B. Payment will be applied equally to the two credits.
• C. Payment will be applied in its entirety to C's credit.
• D. Payment will be applied in its entirety to CHAMP Company's credit.

Answer: (C)

Appropriation of payments is the idea here: when a debtor has separate debts to different creditors, a payment made to a specific creditor is applied to that creditor’s obligation first, unless there’s a clear intention to apportion differently or a legal right of set-off applies.

In this case, T pays 3,000 to C. That payment is applied entirely to C’s debt because the payment was made to C, not to CHAMP. C is owed 6,000, so applying the 3,000 reduces C’s balance to 3,000 while CHAMP’s claim remains 3,000 untouched. There’s no reason for the payment to be diverted to CHAMP unless T explicitly designates it or a set-off/role of cooperation among creditors is involved. Therefore, the correct outcome is that the payment goes wholly to C’s credit.