Well, you have a bad situation here all the way around. First thing I would like to say is that I do NOT agree with having to tiptoe around this guy because he might "blow up" on you. HE needs to "man up" and behave like a mature adult. You are the good guy, he is the offender. Don't forget that and don't turn it around.
Now, since you had an agreement - even verbal - that he would pay for any damage, and you have proof of the before and after condition, I would not hesitate to explain to him that this is what was agreed to, and hand him an estimate for the repairs.
When he told you about the hood, you should have gone to inspect at that time. You might have revoked the agreement BEFORE this became such a big issue.
However, whatever you decide, I would approach it in a calm, reasonable manner. If he loses his temper, I would give him a couple of days to cool off, and if he doesn't, it is time to pursue it in court.
Lessons to be learned: 1) Written agreements BEFORE any equipment or money changes hands. 2) Documentation of the condition of any equipment loaned before it leaves the premises. 3) If dealing with a known hothead, WALK, no, RUN away.
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