The liability of a surety is co-extensive with that of the principal debtor unless otherwise provided by the contract.

( 1 ) THIS is a defendant 4's revision against the judgement and decree D/-15-7-1983 passed by the I Additional Small Causes Judge, Bangalore City, in S. C. No. 137/82 decreeing the suit against all the defendants including defendant-4.

( 2 ) THE plaintiff granted credit facility to defendants - 1 to 3 in the name of their firm - defendant-1. The first transaction was the demand loan of Rs. 12,000/- and the other was cash credit hypothecation facility to the limit of Rs. 25,000/ -. Ultimately after giving deduction to the amounts paid, the suit was filed by the plaintiff Bank for Rs. 8,644-08. Defendant 4 had stood surety for both the loans.

( 3 ) DEFENDANTS 1 to 3 did not contest the suit. It is only defendant 4 that resisted the suit. She raised a contention that as the plaintiff creditor allowed the hypothecated properties to be lost, her liability as a surety stood discharged the second contention urged is that the acknowledgement given by defendants 1 to 3 in order to keep their debts alive does not bind her as she has not signed the acknowledgement.

( 4 ) THE trial court negatived all the contentions of defendant 4 and decreed the suit.

( 5 ) THE material portion of condition No. 4 found in the surety bond reads as :-"moreover, though as between the principal debtor and me/us I am/we are sureties only. I/we agree that as between yourselves and me/us, I am/we are principal debtor (s) jointly with him and accordingly I/we shall not be entitled to any of the rights conferred on sureties by Ss. 133, 134, 135, 139 and 141 of the Contract Act. "

( 6 ) THE learned counsel Shri Raghavan submitted that there was nothing in S. 141 of the Contract Act to show that the parties could absolve themselves from the operation of S. 141. S. 141 of the Contract Act reads as :-"a surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security. "there is nothing to show that the plaintiff creditor had any part to play in the loss of the hypothecated security as such. This Court in a Division Bench decision reported in Karnataka Bank Ltd. v. Gajanan Shankararao Kulkarni, AIR 1977 Kar 14, has held as :-"the sureties could not appeal to the provisions of S. 141 which in the facts and circumstances of the case was not attracted. A mere passive inactivity or passive negligence on the part of the creditor by failing to realise the debt from the collateral security is not sufficient in itself, to discharge the surety, for the reason that the surety can himself avoid consequences of such passivity by himself paying the debt and becoming subrogated to the rights of the creditor. In the absence of a contract to the contrary, the creditor is under no obligation of active diligence for the protection of the surety, so long as the surety himself remains inactive. Thus tested, the inaction on the part of the creditor-Bank would not, of itself, mitigate sureties liability. "therefore in view of this dictum laid down and also in view of the fact that the evidence does not disclose that the creditor had anything to do with the loss of the hypothecated properties, the argument of the learned counsel Shri Raghavan that the liability of the surety defendant 4 stood discharged on account of this, merits to be rejected.

( 7 ) THE learned counsel Shri Raghvan then submitted that there was nothing in S. 141 of the Contract Act to indicate that the parties could contract out of the liability envisaged by S. 141. But S. 128 of the Contract Act reads as :-"the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. "the Contract Act has created rights and liabilit