Ratification and policy liability principles govern insurer responsibility, direct recovery rights, and credit for interim payments.

Acceptance and retention of premium can amount to ratification of a manager's execution of an indemnity policy, making the insurer bound by the contract. Liability under such a policy may extend to advances and withdrawals made after the policy date where the credit facility continued to operate, and a claim is not premature merely because default has occurred and enforceable liability has accrued on that default. Unless the contract expressly requires it, the creditor need not first exhaust remedies against the principal debtor or security before proceeding under the policy. Any amount already paid during the suit must be given credit in the decree, including adjustment between connected decrees.

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Issues: (i) Whether the insurance company was bound by the indemnity policy executed by its manager on the ground of authority or ratification; (ii) whether liability under the policy was confined only to advances made after the date of the policy and whether the claim was premature; (iii) whether the insurer could insist that the creditor first exhaust remedies against the principal debtor or limit its liability to the balance remaining after sale of the security; and (iv) whether the decree required modification to give credit for amounts paid during the pendency of the suit.

Issue (i): Whether the insurance company was bound by the indemnity policy executed by its manager on the ground of authority or ratification.

Analysis: The premium paid for the policy was received and retained by the company, and its subsequent conduct showed acceptance of the benefit of the transaction. In such circumstances, the company could not repudiate the act of its manager. The conduct amounted to ratification of the manager's act under the law of agency and contract.

Conclusion: The issue was answered against the appellant, and the policy was held binding on it.

Issue (ii): Whether liability under the policy was confined only to advances made after the date of the policy and whether the claim was premature.

Analysis: The continued operation of the cash credit account after the policy date and the further withdrawals made thereafter were held to be within the ambit of the policy. The liability under the policy arose on the borrowers' default, and the claim did not fail on the ground that no enforceable liability had yet accrued.

Conclusion: The issue was answered against the appellant, and the claim was held not premature.

Issue (iii): Whether the insurer could insist that the creditor first exhaust remedies against the principal debtor or limit its liability to the balance remaining after sale of the security.

Analysis: A creditor is not bound, unless the contract so provides, to proceed first against the debtor or the security before claiming under the policy. The liability under the policy was treated as a distinct liability and not one dependent upon prior exhaustion of remedies against the principal debtor. The analogy of a mortgage decree was rejected as inapplicable to the insurer's liability.

Conclusion: The issue was answered against the appellant, and the liability was not confined in the manner contended for.

Issue (iv): Whether the decree required modification to give credit for amounts paid during the pendency of the suit.

Analysis: Credit had to be given for the payment already made. The decree was modified so that the amount paid during the pendency of the suit would be adjusted in the appropriate decree and corresponding credit would be given between the connected decrees.

Conclusion: The issue was answered partly in favour of the appellant to the limited extent of modification of the decree.

Final Conclusion: The appeal failed on the substantive challenges to liability, but the decree was adjusted to account for interim payments and to align the reliefs between the connected claims.

Ratio Decidendi: A creditor is entitled to proceed directly against an insurer or surety under a policy that makes the insurer primarily liable on default, unless the contract expressly requires prior exhaustion of remedies against the principal debtor or the security; acceptance and retention of the contractual benefit can amount to ratification of an otherwise unauthorised act.

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