Grease Monkey Intern., Inc. v. Montoya

• Citation: 904 P.2d 468
• Decision Date: 25 September 1995
• Docket Number: No. 94SC206,94SC206
• Parties: GREASE MONKEY INTERNATIONAL, INC. and Grease Monkey Holding Corp., Petitioners, v. Nick MONTOYA and Aver Montoya, Respondents.
• Court: Supreme Court of Colorado

Page 468

904 P.2d 468

GREASE MONKEY INTERNATIONAL, INC. and Grease Monkey Holding Corp., Petitioners, v. Nick MONTOYA and Aver Montoya, Respondents.

No. 94SC206.

Supreme Court of Colorado En Banc.

Sept. 25, 1995.

Hopper and Kanouff, P.C., Dennis A. Graham, Gene R. Thornton, Victor M. Morales, Denver, for petitioners.

Teresa A. Zoltanski, Denver, for respondents.

Christopher H. Munch, Denver, for amicus curiae Christopher H. Munch, Professor of Agency and Partnership Law, University of Denver College of Law.

Bader & Villanueva, P.C., Gerald L. Bader, Jr., Jeffrey M. Villanueva, Renee B. Taylor, Denver, for amicus curiae Colorado Trial Lawyers Association.

Kennedy & Christopher, P.C., John R. Mann, Denver, for amicus curiae Colorado Defense Lawyers Association.

Justice ERICKSON delivered the Opinion of the Court.

We granted certiorari to review Montoya v. Grease Monkey Holding Corp., 883 P.2d 486 (Colo.App.1994). ¹ Petitioners Grease Monkey International, Inc. and Grease Monkey Holding Corporation (collectively Grease Monkey) appeal the court of appeals decision to affirm the trial court's entry of judgment in favor of respondents Nick and Aver Montoya. The court of appeals held that "[g]iven the circumstances of this case and existing Colorado case law, we adopt Restatement (Second) of Agency § 261 as reflecting Colorado law and conclude that the trial court did not err in applying it here." Montoya, 883 P.2d at 488-89. We agree that Restatement (Second) of Agency provides authority for the resolution of the factual issues in this case, but do not approve of the adoption language in the court of appeals opinion. ² We affirm.

I

Grease Monkey Holding Corporation is a Utah corporation, and Grease Monkey International is a wholly-owned subsidiary of Grease Monkey Holding Company. From 1983 through 1991, Arthur Sensenig was Grease Monkey's President, Chief Operating Officer, and Chairman of the Board. During that time, Sensenig ran Grease Monkey and had broad authority to act as general officer and agent for Grease Monkey. Sensenig had authority to raise capital from banks and other lenders. The trial court found that Sensenig "had implied or had apparent authority to raise capital by borrowing or obtaining loans on behalf of Grease Monkey from private citizens like the ... [respondents] in this case." Sensenig did not need Board approval for these loans unless they exceeded $500,000.

Respondents Nick and Aver Montoya were married for over fifty years. Nick Montoya worked for the railroad approximately ten years, and he was sole proprietor of a barber shop for about thirty years. He kept the financial records for his church and household. In 1985, he sold a parcel of land he owned with his two sons for $1.2 million. The trial court found Nick Montoya to be a person of "average investor sophistication." Aver Montoya was a factory worker for approximately seventeen years, and she left financial matters primarily to her husband.

Nick Montoya met Arthur Sensenig in the mid-1960's. Sensenig was a teller at a bank where Mr. Montoya was a customer. During the 1960's and 1970's, Sensenig gave Mr Montoya investment advice. Mr. Montoya was impressed by Sensenig and his progress at the bank. Sensenig ultimately achieved the position of vice-president before leaving the bank. Mr. Montoya also knew Sensenig through a church connection.

From 1983 through 1991, Sensenig secured payments from respondents under the guise that the payments were investments in Grease Monkey. Sensenig secured the payments by representing that, because Grease Monkey was a new company, it did not have its own account, and that as President and Chairman of the Board, Sensenig used his personal account as the corporate account. In furtherance of his scheme, Sensenig took Mr. Montoya to the Grease Monkey offices and showed him a promotional slide show presentation used by Grease Monkey to solicit franchise business. However, none of the payments were invested in Grease Monkey, and Grease Monkey did not receive any of the funds. Rather, Sensenig used respondents' money for his own personal benefit.

Generally, about a week after writing out an investment check, respondents received a promissory note as evidence of their investment. When Sensenig delivered interest payments to respondents, he brought charts showing the growth and success of Grease Monkey. Mailings to respondents concerning their investments were on Grease Monkey letterhead and calls regarding the investments were made to Sensenig at Grease Monkey. Sensenig gave respondents many Grease Monkey promotional items, such as pens, hats, and sweatshirts.

Respondents filed a complaint against Grease Monkey, as Sensenig's employer, for breach of contract, fraud, misrepresentation, breach of duty of good faith and fair dealing, promissory estoppel, extreme and outrageous conduct, and negligent hiring and supervision. ³ After a trial to the court, respondents prevailed on their fraud and misrepresentation claims, and their other claims for relief were dismissed. The trial court entered judgment against Grease Monkey for the outstanding balance due on the promissory notes. The trial court made the following findings: (1) the respondents reasonably believed they were investing in Grease Monkey; (2) Sensenig's representations to respondents were material, false representations, upon which respondents relied to their detriment; (3) Sensenig was acting within his apparent authority when he made the representations regarding the nature of the investments; and (4) Grease Monkey is liable with regard to the investments.

The trial court concluded that the Restatement (Second) of Agency § 261 established Grease Monkey's liability. According to the trial court, "[s]ection 261 is nothing more than a refinement of the principle of apparent authority, which is well established in Colorado law by other cases." The trial court denied respondents' other claims, including the claim of negligent hiring and supervision.

In Montoya v. Grease Monkey Holding Corp., 883 P.2d 486 (Colo.App.1994), the court of appeals affirmed the trial court's judgment. The court of appeals concluded that "the trial court properly held Grease Monkey liable ... because, Sensenig, as its [P]resident, acting within the scope of his apparent authority as an agent of the corporations, engaged in conduct which was customary for an individual employed in Sensenig's position, and was placed in that position by Grease Monkey." Id. at 488. The court of appeals applied section 261 as "reflecting Colorado law...." Id. at 488-89.

II

Grease Monkey contends that the court of appeals erred in the application of section 261 of the Restatement (Second) of Agency in light of footnote twenty-seven in Moses v. Diocese of Colorado, 863 P.2d 310 (Colo.1993), cert. denied, --- U.S. ----, 114 S.Ct. 2153, 128 L.Ed.2d 880 (1994). We disagree because Moses is distinguishable from the present case.

Section 261 of the Restatement (Second) of Agency provides that "[a] principal who puts a servant or other agent in a position which enables the agent, while apparently acting within his authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud." The application of section 261 is not limited to principals and agents but extends also to masters and servants. See Beer Mart, Inc. v. Stroh Brewery Co., 804 F.2d 409, 412 (7th Cir.1986); Dark v. United States, 641 F.2d 805, 807-08 (9th Cir.1981); L.J. Dreiling Motor Co. v. Peugeot Motors, 605 F.Supp. 597, 610-11 (D.Colo.1985); aff'd in part, rev'd in part on other grounds, 850 F.2d 1373 (10th Cir.1988). Grease Monkey primarily relies upon footnote twenty-seven of Moses for its claim that section 261 is precluded from being applied as Colorado law. Footnote twenty-seven states:

The scope of employment requirement restricts vicarious liability for tortious conduct to actions that "should be considered as one of the normal risks to be borne by the business in which the servant is employed." Restatement (Second) of Agency § 229 cmt. a (1958). Although the commission of an intentional tort may sometimes be within the scope of employment, the agent's intent in committing the tortious act must be to further the employer's business. See Cooley v. Eskridge, 125 Colo. 102, 112, 241 P.2d 851, 856 (1952) (stating authority to do an unlawful act will not be implied unless it is warranted from the nature of the employment itself) (citations omitted); Byrd v. Faber, 57 Ohio St.3d 56, 565 N.E.2d 584, 587 (1991) (giving the example that a bar owner employing a bouncer may be vicariously liable to a patron if the bouncer injures the patron while removing him from the premises). However, if an employee commits an intentional tort solely for reasons that do not further his employer's business or cannot be considered a natural incident of employment, the employer cannot be vicariously liable. Cooley, 125 Colo. at 114, 241 P.2d at 857. The scope of employment limitation on vicarious liability partially distinguishes vicarious liability from the tort of negligent hiring.

Moses, 863 P.2d at 329 n. 27. Section 261 articulates a specific situation where liability will attach to the principal under the apparent authority doctrine. Footnote twenty-seven discusses a master's liability for the intentional torts of a servant.

A

Under most situations, the distinction between an agent and a servant is immaterial. Warren A. Seavey, Handbook of the Law of Agency § 3, at 4 (1964). However, principal-agent, master-servant, and employer-independent contractor concepts each refer to distinct legal relationships which may or may not overlap. The issues raised in the present case require that these terms be accurately defined and applied.

Under the principal-agent relationship, "[t]he distinguishing characteristic of the agent is that he represents his principal contractually. If properly...