50. Is the contractor likely to succeed in an action challenging the validity of the settlement agreement?

An account stated is a contract between parties whereby they agree to an amount as a final balance due from one to the other. This final balance serves to merge all transactions between the parties by discharging all claims owed. In other words, all rights as to the individual, original transactions are discharged and the new agreement is enforceable. It is not necessary that the account stated be in writing. It is also not required that an account stated be «express,» but may be implied.

A is correct. An account stated is when the parties agree to an amount as a final balance due that discharges all claims and mutual duties. This is what occurred here, where the homeowner honestly believed that the contractor's work was defective and had deviated from the plans. The contractor's acceptance of the homeowner's settlement offer of $35,000 was, therefore, a valid account stated that surrendered all claims and discharged the original contract.

B is incorrect. This answer reaches the correct answer with the wrong reasoning. The contractor is unlikely to succeed in challenging the settlement agreement, but not because of the reasonable value of the work. Rather, the settlement was a proper account stated given that the homeowner honestly believed the performance was defective and the contractor accepted the offer of $35,000. The reasonable value of the work is irrelevant to this analysis.

C is incorrect. A determination of whether a good faith settlement agreement is valid is not based on whether there was detrimental reliance, so this answer choice is irrelevant.

D is incorrect. In a good faith settlement agreement, one party is agreeing to accept money in exchange for the other's relinquishment of further legal action under the contract. Such a settlement agreement will be upheld, even though the settlement amount is often less than the original agreed-upon amount.