What is the term used for the mutual agreement to cancel a contract?

The term "rescission" refers specifically to the mutual agreement between parties to cancel a contract, effectively annulling the contract and reverting the parties back to their pre-contractual positions. This means that both parties agree to set aside the obligations created by the contract as if it never existed. In legal contexts, rescission can occur due to various reasons, including mutual mistake, fraud, or undue influence, and it often requires both parties to consent to the cancellation.

Understanding the concept of rescission is important, as it highlights the significance of mutual consent in contractual relationships. Once a contract is rescinded, the parties are typically restored to their initial situation before the contract was formed, which is crucial for ensuring fairness and justice in contractual dealings.