Wendy Kennett, and her husband Steven paid £5.99 per child for Ryan, 10, Amy, seven, and Katie, six, to visit Father Christmas.
But she said the Santa told the children: "Well there are bad people in the world and bad things happen, like what happened to those children in America."
Describing his encounter with the "bad Santa", Ryan Kennett said: "Santa told me he is not real, it's just you and dad." The two young girls heard what their brother said and they all broke down in tears.
"I was totally furious," Wendy Kennett said. "I now had three children in tears. It was the worst day of my life."
Notcutts representative Jim Hawker said: "We have accepted the customers' version of events and have dismissed the Santa, apologised and refunded the family."
He added that the firm had also bought the family tickets to Winter Wonderland in London.
"Notcutts certainly feels this was an error of judgment on behalf of the individual."
He said the Father Christmas in question had worked at the garden centre for a number of years and had not attracted any other complaints.
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