My question involves a consumer law issue in the State of: WISC
My buddy bought a car off of Craigslist, its honda with a swapped engine. My friends knows nothing about cars, he bought half a year ago, drove it for about a month and it kept having issues with the clutch, engine mounts, etc. so he told me to fix it. After I fixed it he was nice enough to let me use the car as he bought a brand new car. Anyways, I've been using it for a few months now and decides to sell it. I told my friend i was going to sell it so he signed the title, a premade bill of sale in advance. Link of the Bill of sale we used. http://www.samplewords.com/entrepren...sale-thumb.jpg
I sold it to a guy in Wisconsin and apparently the DMV inspects the car before they let them register it, In IL you can simply walk in and with your title without the car so my friend never had an issue with registering it. when the guy went to register to it, they checked the motor and the VIN was etched off from the motor which probably means it was stolen.
I'll make it CLEAR that my friend and I had no idea that the vin was etched off, he bought the car with that motor in it and to be honest, I would never think twice at looking at a motor VIN. I will for now on for future cars I buy. But anyways back to the story.
The guy already signed the title and the Bill of sale, he demands for me to buy him a new engine or give him all his money back. Or he'll take me and my friend to court, Anything he can do? To be honest I feel bad about it and offered to pay $500 towards a new motor and he'll pay the rest but he demands I pay for everything or give him his money back. Help!
Also, my friend didn't sell it himself because he travels a lot for work, doesnt have the time, and he already gave me the car to use.
Basically, does this Bill of sale protect us from any allegations against us if we do go to court? link of the bill of sale posted above.

