What term refers to the act of rescinding a contract and returning the parties to their original positions?

The act of rescinding a contract and returning the parties to their original positions is known as rescission. This legal concept allows a contract to be annulled, essentially treating it as if it never existed. When rescission occurs, both parties are released from their contractual obligations, and any benefits or consideration exchanged during the contract are typically returned. This can arise due to various reasons such as mutual agreement, misrepresentation, fraud, or undue influence, among others.

Other terms related to contract law differ in their meanings: novation involves replacing one of the parties in a contract with the consent of all parties, which creates a new contract; reformation is the process of modifying an existing contract to reflect what the parties actually intended; and termination simply refers to the ending of a contract, which does not necessarily involve returning parties to their original positions. Thus, rescission is specifically the correct term for the action of annulling a contract and restoring the involved parties to their prior state.