What happens during Discharge by Rescission?

During discharge by rescission, both parties agree to cancel their obligations under a contract. This process effectively nullifies the existing agreement, bringing an end to any duties or responsibilities that the parties may have had towards each other. Rescission is often pursued when the parties deem the contract to be unworkable or when circumstances have changed significantly since the agreement was made.

Rescission can occur for several reasons, including mutual agreement, misrepresentation, fraud, or a significant change in circumstances. When both parties are aligned in their desire to terminate the contract, it allows them to move forward without the encumbrances associated with the original terms. This mutual consent is crucial because, in many jurisdictional contexts, a contract's enforcement typically requires that both parties uphold their commitments unless officially rescinded.

The other options presented relate to different legal concepts. A failure to perform is indicative of a breach of contract rather than a mutual agreement to cancel. Introducing a new party pertains to assignment or novation, neither of which involves canceling the original contract. Extending the performance period does not terminate the contract; instead, it postpones obligations which remain intact. Thus, the key characteristic of discharge by rescission lies in the collaborative decision to invalidate the original contract.