Legal Question in Construction Law in California

No.

Probably not. Settlements, releases, accord and satisfaction of contract disputes, and so forth, can be negotiated, agreed upon, and become effective under procedures similar to what you have described. However, I think a careful examination of each step -- the papers, when and how they were exchanged, the nature of the defective workmanship, what the parties had in mind at each step, and so forth -- would more than likely show some failure or defect such that the making and acceptance of the refund would not release the contractor from liability for defects in workmanship. Nevertheless, I could not say flat "no" without reviewing all the evidence.