Sara Mendelson, Carl Mendelson and Dorothy Higer appeal from a judgment of the Superior Court (Waldo County, Silsby, J.) finding them jointly and severally liable to Poultry Processing, Inc. for $48,267.85 on a note plus $16,874.88 in attorney fees. The defendants contend that the court erred as a matter of law in ruling that the plaintiff was under no obligation to cash in two of the life insurance policies pledged as collateral for the note. Because we agree that the plaintiff had no such duty in the circumstances of this case, we affirm the judgment.
The case was submitted to the court on an agreed statement of facts. In 1977, Maplewood Packing Co. of Belfast was a customer of Cumberland Cold Storage Co. of Portland, a division of Poultry Processing.1 Poultry Processing extended credit to Maplewood for freezing and storage charges under a warehouse receipts financing arrangement. When Maplewood’s credit reached about $200,000, the debt was secured by the execution of a promissory note dated June 14, 1977 in the amount of $214,000. The note was signed by James Mendelson, personally and as president of Maplewood. The note was also signed by Sara Mendelson, Carl Mendelson, Doris Mendelson and Dorothy Higer.2
On August 11, 1978, the defendants assigned to Poultry Processing ten life insurance policies as collateral for the principal balance owing on the note. Eight of the policies were pledged by the defendants individually, and two were pledged by Clements Chicks, Inc., an affiliate of Ma-plewood, acting through its president, James Mendelson. Under the terms of the assignment agreements, Poultry Processing obtained the exclusive right to surrender the policies for their cash value and to obtain loans or advances against them upon default.
On or about August 1, 1979, Maplewood and Clements Chicks filed under chapter 11 for bankruptcy. Maplewood made its last payment on the note at about this time, leaving a principal balance owing of $100,-885. Two months later, Maplewood notified Poultry Processing by letter that the cash surrender value of the ten assigned policies at the time of the default was $126,311, an amount that exceeded the defendants’ debt by $25,426. Maplewood also notified Poultry Processing that it was planning to invoke the policies’ automatic premium loan provisions so that the premi-*661urns and interest payments on existing loans would be paid automatically as they came due in order to protect Poultry Processing’s interest.
By letter dated May 29, 1980, Poultry Processing advised the defendants that it would surrender eight of the pledged policies. Poultry Processing cashed in the eight policies and, on July 31, 1980, advised the defendants that it had collected $80,-130.76.3 Inexplicably, Poultry Processing never surrendered the remaining two policies owned by Clements Chicks. The insurer had informed Poultry Processing in February 1980 in response to its inquiry that the two policies had a surrender value of $25,410.93. The same insurer had also issued one of the eight policies that Poultry Processing did surrender.
In December of 1981, three months after Poultry Processing was informed by the insurer’s agent that the value of the two policies had dwindled to $4,642.54 due to the automatic premium loan provisions, Poultry Processing brought suit on the note for $21,015.76 plus accrued interest and attorney fees. After trial without a jury, the court entered judgment for Poultry Processing, ruling that the plaintiff had not violated any contractual obligation or common law duty by its failure to obtain the cash surrender value of the two remaining life insurance policies.
The defendants contend on appeal that Poultry Processing owed them a duty to exercise reasonable care to preserve the value of the two remaining life insurance policies pledged as collateral for the note and that Poultry Processing breached its duty by failing to cash in the policies when their value was sufficient to pay off the amount owing on the note. They argue that case law, the Uniform Commercial Code, Title 11 M.R.S.A. (1964 & Supp.1990), and the Restatement of the Law of Security (1941) determine that the pledgee has a duty to obtain the cash surrender value of a life insurance policy. A fair reading of these sources shows that their reliance is misplaced.
Neither the common law of security nor the relevant provisions of the U.C.C. required Poultry Processing to obtain the cash surrender value of the life insurance policies in question. While section 17 of the Restatement affirms the duty of a pledgee to exercise reasonable care for the physical protection of the pledged object4 the pledgee’s duty to preserve and collect pledged claims outlined in section 18 of the Restatement does not render the pledgee “liable for a decline in the value of pledged instruments, even if timely action could have prevented such decline.” Restatement of the Law of Security § 18, comment a (1941) (emphasis added). The defendants’ reliance on Grace v. Sterling, Grace & Co., 30 A.D.2d 61, 289 N.Y.S.2d 632 (1968), is likewise misplaced. First, the Appellate Division merely held that factual issues were present that precluded summary judgment. Second, the pledgee in Grace was accused of negligence for its failure to obtain common stock for convertible debentures having a face value of approximately one half the market value of the stock. That circumstance is very different from the case before us where the pledgors, themselves, triggered the decline in cash value of the policies. Moreover, the Grace case may not represent the majority view because of the absence in that ease of any demand upon the pledgee by the owner-pledgor. See, e.g., Hutchinson v. So. Cal. First Nat’l Bank, 27 Cal.App.3d 572, 103 Cal.Rptr. 816 (1972); Tepper v. Chase Manhattan Bank, 376 So.2d 35 (Fla.App.1979); FDIC v. Air Atlantic, Inc., 389 Mass. 950, 452 N.E.2d 1143 (1983); New Jersey Bank v. Toffler, 139 N.J.Super. 161, 353 A.2d 116 (1976); but cf. Dubman v. North Shore Bank, 90 Wis.2d 226, 279 N.W.2d 455 (1979) (citing Grace with approval but following Hutchinson on the facts before the court).
*662Similarly the U.C.C. does not create an obligation on the part of the plaintiff to cash the insurance policies. Defendants correctly state that 11 M.R.S.A. § 9-104(7) specifically exempts “a transfer of an interest or claim in or under any policy of insurance” from the standard of “reasonable care in the custody and preservation of collateral” created in section 9-207(1). Defendants argue, however, that section 9-207 is incorporated by reference through the application of section 3-606. In particular defendants argue that Comment 5 to section 3-606 incorporates the standard of reasonable care of section 9-207.
Section 3-606 states that the holder of collateral “discharges any party to the instrument to the extent that without such party’s consent the holder ... [unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has the right of recourse.” 11 M.R.S.A. § 3-606(l)(b). Comment 5 then explains that “[a]s to when a holder’s actions in dealing with collateral may be ‘unjustifiable’ ” the section on rights and duties with respect to collateral in the possession of a secured party (Section 9-207) should be consulted.”
Assuming without deciding that defendants are correct in their contention, we hold, nevertheless, that the standard of care set forth by article 9 has not been breached in this case. We are not confronted with a case involving securities the value of which is beyond control of the parties. Here the defendants themselves instituted application of the automatic premium loan provisions of the life insurance policies that resulted in the decrease of the cash value while protecting the benefits under the policy and they so notified the plaintiff in 1979.
Contrary to the defendants’ contention, the plaintiff had no duty to pay the premiums. The defendants never requested the surrender of the policies and application of the cash value to their obligation. See Restatement of the Law of Security § 52 (1941). Moreover, the plaintiff never misled the defendants into believing that all of the policies had been surrendered. Indeed, contrary to the defendants’ contention, the letters to the defendants of May 29 and July 31, 1980 clearly disclosed that only eight of the policies had been surrendered. The defendants were aware, therefore, that two of the policies would continue to decline in cash value due to the premium loans. Whether the standard of care contained in 11 M.R.S.A. § 9-207 is incorporated into the provisions of 11 M.R.S.A. § 3-606 makes no difference. The plaintiff has not breached that standard.
The entry is:
Judgment affirmed.
McKUSICK, C.J., and WATHEN, GLASSMAN, CLIFFORD and COLLINS, JJ., concurring.
. Although Cumberland Cold Storage Co. was the original plaintiff in this action, Poultry Processing was substituted at trial as the real party in interest.
. The five signatories to the note were the original defendants to this action. The action was dismissed as to James Mendelson, who died before trial. Doris Mendelson is not a party to this appeal.
. Poultry Processing collected an additional $8,174.89 from two of the same eight policies in July of 1983 for reasons that are unexplained but not relevant to this proceeding.
. For a discussion of the duties of a pledgee of collateral see Livermore Falls Trust & Banking Co. v. Richmond Mfg. Co., 108 Me. 206, 79 A. 844 (1911).