I wouldn't fold, since I don't see how the owner of the car is going to be able to prove that you caused the timing belt issue. You were asked to fix the water pump told the owner about the timing belt needing attention, and he chose not to do it.
One thing that might cause a problem, is if you were violating some auto repair licensing law by doing this, and I'd suggest checking that out, before you go to court. One way you might be able to get a qucik answer is by asking a friend who has a full-time repair shop.