How would you handle this?

Look on gunbroker.com and search for browning citori 20ga. You will find several with a buy it now price around $1,200. with various dings. Find the one closest to your brother's and you have a good comparison to current asking prices. Unless his is a higher grade the offer may not be too far away. As to the "friend" damaging the gun and not reporting or fixing it properly, I think your brother learned how "good" a friend he really is. Maybe they can come to an agreement. Good luck!
 
The friend made a couple offers of 1200 to 1300 for it but that was it. Fastforward to this weekend. We go hunting with the friend and afterward my brother ask for the gun back. No problem, after the hunt we go back and get it. The issue is at some point while using the gun over the last year+ he had it leaned against his truck and his dog bumped it, knocking the front sight bead off and a small scratch on the raised rib and he misplaced the Boyt case. He glued a different front sight on it and had it in a different case plus a couple extra choke tubes.

He's had the gun for over a year... used it, broke it, purchased chokes for it and has a different case. It's his gun, he just hasn't paid your brother for it yet. Collect the $1,200 and be done with it.
 
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I would talk to the guy, explain his concern and go from there. Most true friends will do the right thing no matter what.

One of my best friends and I were in a casino years ago. He borrowed $500 from me (my winnings) at the table after he kept losing. Before giving it to him, I asked when would I get it back and he asnwered when we got home. When we got home, he had about half and tried to give me a story. I told him to give me the gold off his neck, a new boombox radio etc.. I was taking $1k worth of merchandise to secure my $250. When he realized I was serious and that I wanted to kick his *** for it, he borrowed the $$ from somewhere.

I learned a lesson that day and have never loaned a friend $$ since.
 
As a general rule I never let anyone borrow my tools or a gun. The one exception to the gun rule was when I was working as an Officer we had a female officer who didn't own a personal weapon (we had to turn our weapons in at the armory at the end of the day if we had one that day (Corrections)) and needed one due to a stalker which was caused directly by where we worked. She borrowed it for a month and returned it in the same condition as when I let her borrow it.

As far as your situation, He borrowed a weapon that was in pristine shape and returned it rather beat up. There's a serious problem there, I can see buying something on payments with someone you know is good for it but not loaning out like that. Your brother made a mistake loaning a weapon out for over a year like that and the guy that borrowed it screwed up by beating it up, putting a screwy fix on it and losing the case. In my mind that means he should pay A. to fix it right and replace the case as well as a rental fee or B. the original asking price of the weapon. If that would be a problem I would take the best offer above 1300 right it off as a learning experience and get rid of the friend that caused the problems.
 
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