Contracts are legally binding documents, which means you can't normally cancel a contract without the consent of both parties. When one party breaches the contract, however, it may nullify the agreement. For example, a tenant who stops paying rent has breached her contract and can be evicted. An unethical business practice that is legally prohibited may be a breach of contract, but could also be a legal violation that nullifies all or part of your contract.

Breach of Contract

Breach of contract is governed by both the contract itself and state laws. Some contracts have clauses indicating when a breach will nullify the contract and outlining steps that might be taken to cure the breach. For example, you might sign a contract with a vendor indicating that if he does not deliver services, he has five days to cure the breach before the contract is voided. Some types of contracts become null and void immediately after they're breached. If your business's tenant doesn't pay rent, for example, you must serve them with notice and, if rent is not paid, you can begin eviction proceedings.

Unethical Business Practices

Many unethical business practices are illegal, and they may also be a breach of your contract. If your business provides services to another vendor and is not paid, this unethical business practice will also likely be a breach of your contract that gives you the right to sue. Federal and state laws also govern unethical business practices. For example, the federal Truth in Lending Act requires lenders to provide accurate information about loans. A lender must provide a consumer with information about the loan's interest rate and total cost. Failing to do so could nullify the contract.

Severability

Many contracts contain severability clauses designed to protect the contract if one portion is found illegal. For example, if you require employees to undergo genetic testing to keep their jobs, this is a violation of discrimination laws and is unenforceable. A severability clause, however, might mean that the rest of the contract is still enforceable. Even in these instances, a court may rule that a contract is unconscionable, which occurs when the terms of the contract are so draconian that no "reasonable person" would sign it. Unconscionability can override even a severability clause.

Law vs. Ethics

Although the law is designed to protect people from ethical breaches, not all unethical behaviors are illegal, and therefore may not affect a contract. You might feel that an interest rate for a business loan is unethical, but unless state usury laws prohibit the interest rate, the unethical nature of the rate won't affect your contract and failing to pay the loan will be a breach of your contract. Similarly, you can fire an employee for any non-discriminatory reason that's not prohibited by your contract.