Final answer:
Rescission is the term that refers to the cancellation of a contract with the aim of returning all involved parties to their pre-contractual state, voiding the contractual agreement.
Step-by-step explanation:
The cancellation of a contract and restoration of the parties to the same position they held before the contract was entered into is referred to as rescission. This legal term describes a remedy used to bring a contract to an end and return the parties to the positions they would have been in had the contract never been formed. Rescission is the answer to the question presented, which is to identify the term that encapsulates the concept of undoing a contract so that all parties revert to their original state prior to the agreement.
To achieve rescission of a contract, a party must provide a legitimate reason, such as mutual mistake, fraud, misrepresentation, lack of capacity, or undue influence. Upon rescission, both parties are no longer obliged to fulfill any unperformed obligations under the contract, and any benefits conferred are usually returned. It essentially voids the contractual agreement.