## Facts

- Grease Monkey International, Inc. was a wholly owned subsidiary of Grease Monkey Holding Corporation.
- Arthur P. Sensenig served from 1983 to 1991 as Grease Monkey’s President, Chief Operating Officer, and Chairman of the Board, and he broadly ran the company.
- Sensenig had authority to raise capital and obtain loans; board approval was not required for loans under $500,000.
- Over about four years, Sensenig solicited funds from Nick and Aver Montoya, representing the payments as investments tied to Grease Monkey’s growth.
- Sensenig directed the Montoyas to make checks payable to him personally, claiming he used his own account as the company account.
- He used Grease Monkey offices and franchise promotional materials (including a slide presentation) to support the appearance of a legitimate corporate investment.
- Sensenig executed promissory notes, paid interest for a period, and supplied information portraying Grease Monkey as a growing franchisor, while diverting the Montoyas’ money for personal use.
- Sensenig later defaulted; the Montoyas were not repaid principal and did not receive all interest due.
- After a bench trial, the district court found Grease Monkey liable for fraud and misrepresentation based on the Montoyas’ reasonable reliance and Sensenig’s apparent authority; other claims were dismissed.

## Issues

1. Whether a corporation is liable for a senior officer’s fraud and misrepresentations to third parties when the officer acted for personal benefit but appeared to act within authority created by the corporation.
2. Whether an appellate court may “adopt” Restatement (Second) of Agency § 261 as “the law” of the state, or may only apply it when consistent with existing law.

## Decision

- The Colorado Supreme Court affirmed the judgment for the Montoyas.
- The court held Grease Monkey liable because it placed Sensenig in a position of broad apparent authority enabling him, while seemingly acting within that authority, to defraud third parties.
- The court agreed that Restatement (Second) of Agency § 261 supported resolving the agency-liability question on these facts.
- The court disapproved the court of appeals’ “adoption” phrasing, clarifying that courts may apply Restatement provisions as persuasive formulations when they reflect state law, but do not enact them as law.

## Legal Principles

- A principal may be liable for an agent’s fraud against third parties when the principal’s manifestations and placement of the agent in a position of authority cause reasonable belief that the agent is authorized, even if the agent acts entirely for personal gain.
- Restatement (Second) of Agency § 261 expresses the rule that a principal who places an agent in a position enabling the agent, while apparently acting within authority, to commit fraud is subject to liability to defrauded third parties.
- Reasonable reliance may be shown where the agent is a high-level corporate officer and uses corporate indicia (offices, promotional materials, and role-based credibility) to induce the transaction.
- Courts may rely on Restatement sections as persuasive statements of applicable law when consistent with state precedent; formal adoption of law is reserved to the legislature.

## Conclusion

The court upheld corporate liability for losses caused by a top officer’s fraudulent fundraising because the corporation’s placement of the officer and lack of meaningful oversight created apparent authority that reasonably induced third-party reliance, while also clarifying that Restatement provisions may guide decisions but are not judicially “adopted” as legislation.


Grease Monkey Int'l, Inc. v. Montoya, 904 P.2d 468 (Colo. 1995)