Hi there SMP.
I'm no lawyer, but i think that he's showing himself in his true light....
I would personally tell him that since he has had and used the car for approx two months, and you have an agreement with him, he's lumbered and you cannot be held responsible for a fault which is out of your control.
Maybe a good example would be thus:
If you were kind enough to lend your car to me, and whilst I was driving it te clutch packed up - i would expect to foot the bill because the car was in my charge not yours.
If all nice wranglings fail, send him an summons via the online small claims court for the remainder of the money that YOU ARE OWED.
One last thing. You seem nice to me. Forget being nice because Nice = pushover in cases like these.
Remember ' sold to an AQUAINTANCE' not 'Friend'
I would also post this in the Law section of A.B
Good luck friend.