What is the outcome when a contract is rescinded?

When a contract is rescinded, it is essentially treated as though it never existed. This means that the contract is entirely canceled by mutual agreement of the parties involved. The parties are released from their obligations under the contract, and they return to their pre-contractual positions as much as possible. Rescission typically occurs in situations where there has been a misunderstanding, fraud, undue influence, or a failure of consideration.

In contrast, amending the contract with new terms would not reflect a complete cancellation; rather, it would indicate that the contract still exists but with adjusted provisions. Continuing under the original terms would imply that the contract remains in force, which contradicts the nature of rescission. Additionally, entering a binding arbitration would suggest a dispute resolution process, which is also unrelated to the concept of rescinding a contract. Thus, the choice that accurately captures the definition and outcome of a rescinded contract is the complete cancellation of the agreement by mutual consent.