What Is a Bona Fide Error?
A bona fide error is an unintentional mistake or oversight that may be corrected promptly to avoid exposure to legal action. Bona fide is a legal term that is often inserted in documents to indicate that any errors it contains are accidental and will be corrected.
Bona fide is a Latin phrase that means "in good faith.”
- A bona fide error, in law, acknowledges a mistake but maintains that it was unintentional.
- In this case, the burden of proof is on the accused.
- An accused business should also be able to prove that the business has reasonable procedures in place that should have prevented the error.
- In the financial world, bona fide rules are required in documents related to some types of mergers such as the reverse triangle merger.
Understanding the Bona Fide Error
An exception for a bona fide error, if included in a legal document, indicates an acknowledgment that human errors occur. That is, the party agrees to make a good faith effort to fulfill the agreement and, if any violation occurs, it will be unintentional and correctable.
The bona fide error also arises as a defense against legal action. To successfully argue a bona fide defense, a person accused of violating a law, a regulation, or a binding contract provision must prove that the error was unintentional.
The accused must also be able to prove that the error was not due to the lack of reasonable procedures that were in place to prevent it from happening.
Example of a Bona Fide Error
The Fair Debt Collection Practices Act, enacted in 2010, cracked down on what it called "abusive, deceptive, and unfair practices" by debt collectors. The law defines the tactics a debt collector may and may not use to collect a debt, and how they must respond if the debtor complains about their treatment. If the dispute eventually makes its way to a court, the debtor may have to prove that the debt collector acted improperly.
The debt collector has one effective response: That the violation was a bona fide error. The debt collector must be able to prove that the violation was unintentional and that the business has procedures in place that normally would have prevented it from occurring.
A Case in Tahoe
A debt collection agency's use of the bona fide defense was rejected by the Ninth Circuit Court of Appeals in one case brought against it by a Tahoe consumer. In this case, the debt collector was pursuing a payment of $614.52 in medical debt. The collector billed the debtor $614.52 plus $29.07. The debtor sued on the grounds that the interest owed was miscalculated.
The debt collector argued that the miscalculation was a bona fide error. The court agreed that it was an error. However, it concluded that the debt collector's procedures were not adequate to prevent such a problem (the interest miscalculation) from occurring. The debtor won the case.