To everyone who's suggested OP should abide by the contract despite what the products might be used for: Shame on you. Are you so devout in your fetish of commercial contractual relations as to put them before moral considerations? I I would pontificate more, but that wouldn't answer OP's question.
Now an answer for OP:
Issue 1: You bear some responsibility - you should have known better
This contract was strange from the get-go. Usually when someone is contracted to prepare educational material it is by an institution, not by an individual. It is also unusual, if I am not mistaken, to contract a freelance SW developer rather than someone with a teaching background. Finally, you said you were "approached" by that person, i.e. you physically met. Did he strike you as a person who would need this strange kind of service?
Also, when you were discussing the work - you must have asked about the context of the tutorials' use; the target audience; what they are assumed to know; their typical experience; the goals for audience members after the tutorials are through, etc. If he answered these questions, you had probably figured out what this was going to be used for - enough to realize this was funny business; if he refused answer these questions, that's even more suspicious. Or, I mean, ok, he could tell you: "This is work I need done no questions asked." - but then you cannot be surprised there are more/ethical(/legal) issues with this work you're doing.
So, at any rate, you knew there was something amiss with this transaction. I'm not saying that means you're not entitled for compensation for your work, but it's not like he sprang something on you completely out of the blue.
Now, be honest with us: Isn't it the case that you're feeling guilty about going along with what you were contracted to do, and are, shall we say, semi-consciously forgetful in presenting the less-than-pleasent details? I suspect the answer to be yes. If you want moral or ethical advice, the first piece of advice is be fair in how you tell yourself, and us, the story. That very often leads you to conclusions you may not like, but you already know are right.
Issue 2: An honors project - or perhaps misuse of honors' students by the university?
It is quite strange that preparing 12 tutorials on a subject would be a honors program project for anyone. These are tasks for (tenured or untenured, regular or temporary) members of the academic faculty. I believe one of the following holds:
- You've misunderstood or misheard what he's told you. This is not so unlikely, since I'm sure he was uncomfortable discussing his transgressions and may not have related them coherently and accurately.
- The tutorials are not the honors project, but perhaps part of what happens to honors students is that they are given a one-off teaching position on a subject of their choice.
- (and this is what I'm the most worried about) The university may be manipulating honors students into preparing teaching materials for it instead of actually paying junior/senior academic staff to do it.
I've encountered many cases of option 3 in my experience as a graduate teacher/researcher union organizer. We considered this part of a process of "Juniorification" (rough translation from Hebrew): Adjuncts are used to do tenured faculty work; PhD candidates to do young faculity's / post-docs' / adjunct teachers' work; M.Sc. candidates to do PhD candidates' work; and senior undergrad students used as teaching assistants for peanuts.
If this is the case, I'm not sure it's your problem to have to deal with, but perhaps it would be useful to try to contact the university's academic staff union(s) and discuss the situation anonymically (if they're active and don't have their heads stuck up their asses, which is not impossible considering what I suspect may be going on.)
Issue 3: This is a social/group dilemma, not just a personal dilemma
This situation is not just about you, or you and that student. It's about:
- His university
- His fellow students, who may be adversely affected by underhanded activity (by him or by the university, or both, see above)
- His parents/family, who may well be footing the bill for this project
- Teachers or other members of faculty who may be affected (see above)
- His fellow non-honors students, who might be held to standards of competence/capability which this person is unfairly inflating
Don't try to deal with it just by yourself, or yourself-and-him. Even before acting (disclosing what he did, taking the money etc.) try to get in contact with several of these parties. The parents option might be particularly useful if he is indeed young and living with them.
Now, it's true that there is increased risk of him avoiding payment if you do that, or the deal getting otherwise cancelled, but the more you do that the better you chance would be to get compensation in this case without having to resort to legal means. Also, this would reduce the chance of him trying to get money back from you.
... don't return money for the work you've done, but take no more
You did do work. And you should have been able to do more work and get paid for it, and must now look for another job. On the other hand, you have some responsibility for the way things ended up. So, without making an exact judgement, I would say that what you got so far is probably fair...
But do keep an open mind about how much you should get additionally, or return from what you've received, when talking to third parties.
I really hope this works out - for you and for him and for everyone else involved and am sorry you got into this mess!