So this is the summary:
1. The loaned car that was stolen was not insured for theft.
2. After researching the police report filed by the mechanic, he filled it out with a name other than his own. It now appears that the stolen car did not belong to the mechanic or his wife.
3. Attorneys in Texas, although unwilling to take the case, indicate that the law of bailment applies to this case. My friend is not responsible for the stolen vehicle, as he had no agreement with the mechanic and there was no negligence leading to the car being stolen.
4. The repairs on my friend's car are a separate issue. The Attorney General's website recommends paying whatever fees the mechanic demands, and then suing to receive money back for any unauthorized repairs.
5. My friend has attempted to pay for the repairs as agreed upon, but the mechanic will not take a payment. After telling my friend he would not accept payment, he told him that the invoice was now $1,400 instead of $280. He failed to provide an invoice for any amount.
6. Since he is unwilling to take a payment for the repairs or return the car, my friend is left with the option of suing in small claims court.
7. I'm going to help my friend draft up a demand letter, asking for the mechanic to return the car in the condition it was received, within 10 days or go to court.
8. My guess is, he is going to have to go to court to get the car back.
9. After all of this, my friend is still willing to help pay for the stolen car, but just wants it to be a fair amount.
Thanks everybody for your help. This was definitely a learning experience so far.