What is "Mutual Rescission" in contract terms?

Mutual rescission is a legal concept in contract law that occurs when both parties to a contract agree to terminate their obligations under that contract. This means that all parties involved come to a mutual understanding that they will no longer be bound by the terms of the contract and that it is effectively nullified.

This process is significant because it requires the consent of both parties; it is not unilateral, which sets it apart from other contract termination scenarios. By both parties agreeing to rescind the contract, they can resolve any issues that may have arisen or simply decide that they no longer wish to proceed under the terms initially agreed upon.

The other options do not encapsulate the essence of mutual rescission. For example, the scenario where one party unilaterally cancels the contract does not involve the agreement of the other party, making it a different concept altogether. Likewise, modifying contract terms or transferring rights pertains to amendments or the sharing of obligations rather than ending the contract. Thus, mutual rescission specifically denotes the collaborative decision to terminate, which is why the correct choice is that both parties agree to terminate the contract.