In this case, I'd avoid a pointless confrontation and offer to take the bike back and refund the money in full. Then, I'd make the repair and sell the bike for $125. I wouldn't offer to fix whatever the problem is; the deal would be I take the bike back or the buyer keeps his lemon as is. The whole lemon-law thing is ridiculous in this case, but if your friend is a regular flipper, there's no reason to get all bent out of shape by one Ralph Nader wanna-be buyer.
Neal