How to deal with not being able to provide a service or refund to paying customer

Customer paid for an item, the money got swallowed up in our account due
to struggling cashflow, we were left unable to give the customer the item or a
refund as yet. Have been warned of the possibility of us getting accused of
theft/fraud

Asked on April 22, 2017 under Business Law, Pennsylvania

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

It is unlikely that you would be found to have committed  a theft based on what you write: you do not appear to have had a criminal intent (intent to steal), but rather seem to have fallen on hard times after having made the sale. Only if at the time you made the sale you knew or reasonably should have known that you'd be unable to either fulfill the sale or return the money would you have done anything criminal (since in that case you took their money under false pretenses). However, even if you did not commit a criminal act, you can clearly be sued if you did not provide the purchased item or service and also cannot refund the money: you can't keep their money, regardless of your cashflow issues, without providing what they purchased. 
If the company is an LLC or corporation, they can only sue the company, not the owners, so if the company can't pay, the customer is out of luck--they can't sue you personally. If the company is not an LLC or corporation, however, you could be sued personally for the refund and would have to pay out of pocket.


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