dissenting.
Because I am persuaded that Poultry Processing had a duty to exercise reasonable care in preserving the cash surrender value of the two life policies in question under both the common law of security and the relevant provisions of the Maine Uniform Commercial Code, I respectfully dissent.
The trial court expressly found that the balance owing on the note would have been paid in full if the two policies had been surrendered in 1979 or 1980 along with the other eight policies. The court also found that there was no apparent reason on the record why all ten policies were not surrendered. These findings are not clearly erroneous and should not be disturbed on appeal. Crowley v. Dubuc, 430 A.2d 549, 552 (Me.1981).
At common law, although the pledgee of collateral for a note is not the insurer of the collateral, the pledgee nonetheless owes the pledgor a duty to exercise reasonable care to preserve the collateral. Jenkins v. National Village Bank, 58 Me. 275, 278 (1870); Restatement of the Law of Security § 17 (1941). “The care which the pledgee is required to exercise in connection with his possession of a pledged chattel is that which a reasonable man under like circumstances would recognize as necessary to prevent his conduct from creating *663an unreasonable risk of harm to the pled-gor’s chattel.” Restatement of the Law of Security § 17 comment b. As the Court observes, this rule of reasonable care pertains only to the physical care of the chattel. Id. comment a.
Insurance policies are not mere chattels, however, but “indispensable instruments” the pledge of which also pledges the property right represented. Id. § 1 comment e. “Where instruments representing claims of the pledgor against third persons are pledged, the pledgee has the duty of using reasonable diligence to preserve and collect the claims or to enable the pledgor to undertake such preservation and collection.” Id. § 18 (emphasis added). The pledgee’s responsibilities thus “extend to the exercise of such care as a reasonably prudent pledgee would exercise under like circumstances to protect and preserve the validity and value of the securities.” Grace v. Sterling, Grace & Co., 30 A.D.2d 61, 64, 289 N.Y.S.2d 632, 638 (1968). A pledgee who violates this additional duty is similarly guilty of negligence. Restatement of the Law of Security § 18 comment a.
The facts reveal that Poultry Processing had notice of the cash surrender value of the two policies in issue at a time when there was enough value in them to pay all of the principal and interest owing on the note. Moreover, the Court’s assertion that the defendants never requested the surrender of the policies and application of the cash value to their obligation is misleading. Although the record reveals no express request, there can be no doubt that such a request was implicit in the letter from Ma-plewood to Poultry Processing dated October 29, 1979. To conclude otherwise is to emphasize the inartful form of the letter over its only conceivable substance.
Poultry Processing also had notice of the fact that the cash surrender value of the policies was being depleted because of the automatic premium loan provisions invoked by the defendants without objection by Poultry Processing.1 In addition, after the default, only Poultry Processing had the right to surrender the policies for their cash value. Although it cashed in eight of the ten policies pledged by the defendants, it did not cash in the other two, allowing them instead to become worthless for no apparent reason. This was a breach of Poultry Processing’s common law duty to preserve the value of the collateral that it held.
The Court correctly points out that the pledgee is not liable for a decline in the value of a pledged instrument, even if timely action could have prevented it. Id. But the dissipation of the value of the two life policies in this instance was not due to vagaries of the market place beyond the control of Poultry Processing. Rather, the loss was a direct result of Poultry Processing’s unexplained failure to collect the defendants’ claims against the insurer, a violation of Poultry Processing’s duty of reasonable diligence with respect to the preservation and collection of claims. In such a circumstance, the pledgor can set off the amount of his damages in any action against him by the pledgee. Id. § 20(2). Because the surrender value of the two remaining life policies was sufficient to pay off the note when the other eight policies were surrendered, and because Poultry Processing for no apparent reason failed to preserve or collect that value, Poultry Processing’s claim against the defendants should be extinguished.
The defendants contend that they should also be discharged from their obligations on the note under the Maine Uniform Commercial Code. The relevant provisions of the Code generally follow the common law. Section 9-207(1) provides that “[a] secured party must use reasonable care in the custody and preservation of collateral in his possession.” 11 M.R.S.A. § 9-207(1) (1964). The comment explains that this *664provision “states the duty to preserve collateral imposed on a pledgee at common law.” Id. § 9-207 comment 1 (citing Restatement of the Law of Security §§ 17, 18); see also Grace v. Sterling, Grace & Co., 30 A.D.2d at 64, 289 N.Y.S.2d at 638 (“This is the rule at common law and also under the Uniform Commercial Code.”).
It is true that Article Nine of the Uniform Commercial Code generally does not apply to a “transfer of an interest or claim in or under any policy of insurance.” 11 M.R.S.A. § 9-104(7) (Supp.1990).2 It does not follow, however, as Poultry Processing urges, that all transactions involving insurance are outside the purview of the Code. Where, as here, the underlying transaction involves a negotiable instrument, the pledgee of an insurance policy is subject to the provisions of Article Three. Section 3-606 of the Maine statute provides that “[t]he holder 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 a right of recourse.” Id. § 3-606(l)(b) (1964). The comment to section 3-606 incorporates by express reference the standard of reasonable care embodied in section 9-207(1) in explaining when a holder’s action or inaction in dealing with collateral may be “unjustifiable.” Id. § 3-606 comment 5.
Because Poultry Processing also breached its duty of reasonable care under the Maine Uniform Commercial Code, the defendants should be discharged from their obligations on the note under the Code as well as at common law. It is patently unfair to suggest that Poultry Processing could allow the security to be dissipated as a result of its own negligence and then recover the debt that would have been paid, but for that negligence, out of the proceeds of the security. Yet the Court today rewards Poultry Processing for its neglect and penalizes the defendants by requiring them to pay their debt twice. Accordingly, I would vacate the judgment and remand the case to the Superior Court for entry of judgment for the defendants.
. The Court’s assertion that the defendants themselves triggered the decline in the cash value of the policies is also misleading. When Maplewood notified Poultry Processing that it was planning to invoke the policies’ automatic premium loan provisions in order to protect Poultry Processing’s security interest, Poultry Processing was given the opportunity to object. The letter from Maplewood ended: "If this is not agreeable with you, please advise.” Poultry Processing did not reply.
. The rationale behind this prohibition is that ”[s]uch transactions are quite special, do not fit easily under a general commercial statute and are adequately covered by existing law.” Id. § 9-104 comment 7 (1964).