The problem I see is that there is nothing in writing, recorded or an impartial witness. I like to get any estimate in writing (of course it can be more, but there needs to be a very good reason). I also carry one of the small digital tape recorders in my pocket--and often pop it out and say "I hope you don't mind if I record this, since my memory is not quite as good as it once was". Or I have a friend go with me and we make notes.
In this case, I probably would have several friends avaiable when the mechanic comes and see what the deal really was. I would also have a video camera running in the background when the mechanic shows up. The mechanic owes an explaination, old parts, and a time on his labor. Also if he is doing this "under the table" there is a very good chance he is not paying taxes....The IRS tends to frown upon this. I once had a similar situation, and I'll be darned if this guy wasn't audited for several years....
I agree about small claims--try and enforce a judgement if you get one--this is a he said, he said type of situation without any proof.