Distinguish between firm’s debts and partner’s private debts.
Firm’s debts are the liabilities of the business, which are settled using the property of the firm. As per Section 49 of the Act, the firm’s assets are applied first to pay off the debts of the firm. The surplus remaining after this payment is then divided among partners, which can be used for their private liabilities.
Partner’s private debts are the personal liabilities of a partner. The private property of a partner is applied first to pay his private debts. If there is a surplus, it may be utilised for payment of the firm’s debts in case the firm’s liabilities exceed its assets.
The fundamental distinction lies in the order of priority: firm’s assets are used first for firm’s debts, while private assets are used first for private debts. It is also noted that private property does not include the personal properties of the partner’s wife and children.
Explanation
The answer is derived directly from the rules stated under Section 49 of the Act provided in the context. It distinguishes the two types of debts based on the source of payment (firm property vs. private property) and the order of application (priority of claims). The explanation clarifies that firm assets prioritize firm debts, whereas private assets prioritize private debts, including the specific note regarding the exclusion of wife's and children's properties from private assets.