What happens if one party rescinds a contract?

When one party rescinds a contract, it means that they are legally canceling the agreement and effectively nullifying any obligations that the parties had under that contract. The key principle behind rescission is that the contract was formed based on mutual consent, and if one party withdraws that consent, it leads to the cancellation of the agreement.

In this context, rescission occurs due to reasons such as misrepresentation, undue influence, or failure of consideration. As a result, the parties are returned to their pre-contract status (often referred to as "status quo ante"), and any obligations created by the contract cease to exist. This principle emphasizes the importance of mutual agreement in contract formation; if that agreement is fundamentally compromised, the contract can no longer stand.

The other options do not align with the legal implications of rescission. Obligations remaining in effect contradict the premise of canceling the contract. The idea that all parties must honor new terms is not applicable, as rescinding a contract negates the contract altogether rather than altering its terms. Lastly, the notion that only one party must agree to rescind does not hold true since rescission typically requires a unilateral decision based on valid grounds, reaffirming that the contract is effectively dissolved.