Faculty of law blogs / UNIVERSITY OF OXFORD

The Commenda Contract: How Italian Merchants of the Middle Ages Helped Shape Modern Private Equity (And Why It Still Matters)


Javier Vicente García
Senior Associate at Pavia e Ansaldo


Time to read

4 Minutes

Is the modern corporate lawyer doomed to reading pink newspapers unto the ages of ages? Is their Grand Tour confined into a circle—albeit a magical one? A recent transaction carried out between the Spanish football league and the private equity firm CVC, based on a legal mechanism with origins dating back to the Middle Ages, suggests a different conclusion: that lawyers with a deep-seated non-legal cultural background can provide a good service to their clients, too.

Let us go back to 12th century Italy. In 1156, the young and ambitious Ansaldo Baialardo received a sum of money from the Genoese merchant Ingo da Volta to finance the former's commercial voyage along the Mediterranean coast and to return with the profits obtained. Those profits were to be divided according to the usual customs of maritime trade at that time in the Republic of Genoa: three quarters (¾) for the capitalist partner and one quarter (¼) for the travelling partner, in addition to returning the capital initially received. The venture, which proved successful, ended leading to a long collaboration between Baialardo and da Volta over the following decades (Postan, Rich and Miller, 1963).

Several centuries later, the Spanish football league (popularly known as ‘LaLiga’) have recently closed a deal with the Luxembourg-based private equity fund CVC Capital Partners for the management of the broadcasting rights of the games. But, instead of just creating a NewCo in which LaLiga transfers the rights and CVC enters as a minority shareholder, they chose to also use a rather old-fashioned mechanism provided for in the somewhat superseded Spanish Commercial Code of the 19th century: the so-called ‘cuentas en participación’, a commercial contract whereby CVC provides funds and LaLiga undertakes to share the relevant profits, if any.

In particular, the cuentas en participación, apparently obsolete until recent times and mainly limited to specific projects such as film financing or real estate, allow merchants 'to take an interest in the transaction of other merchants, contributing thereto the amount of capital they may agree upon, and participating in the favourable or unfavourable results thereof in the proportion they may determine' (Article 239 of the Commercial Code). They fundamentally differs from incorporating a company in two aspects: the absence of equity, as the capital is exclusively received by one party, and the lack of recognition of any separate entity with legal personality apart from the parties to the agreement.

According to the Spanish Supreme Court's case law, the cuentas en participación are a 'transition between the commercial company, which creates a legal personality, and the purely contractual relationship', being 'one of the oldest forms of association or commercial cooperation known to business law, which keeps the capitalist partner hidden from third parties, whether or not he is a merchant, which harmonises with the interest of the manager or entrepreneur in increasing his liquidity, without the obligation to pay interest and to repay the sums received.' For the Spanish football league, the use of this mechanism represents 'a long-term agreement that aligns the interests of LaLiga, the Clubs and CVC', while keeping 'intact from this new company its sporting, organisational and management competences for the commercialisation of broadcasting rights.' Yet its critics, including some of the competition's historic teams, such as Real Madrid, FC Barcelona and Athletic Bilbao, offer another explanation: that the main reason for LaLiga's agreement with CVC would be to avoid the legal regime on the ownership of broadcasting rights, which would belong to the individual football clubs participating in the competition.

Baialardo's journey financed by da Volta in the 12th century and CVC's portion in the profits of the Spanish football championship shared a common feature: both transactions were structured through the ‘commenda’, a contract widely used by Genoese and Venetians merchants in the Middle Ages to finance maritime trade—in the first case, explicitly; in the second case, insofar as the Spanish cuentas en participación historically derives from the commenda (as does the Italian ‘associazione in partecipazione’).

Through the commenda contract, a land-based investing party (stans) could entrust a travelling party (tractator) to ship goods to another port, sell them there and return with the profits or with other goods acquired with the price obtained, although this structure admitted several variants (Alfaro, 2022). A tractator could also provide his own funds (eg from the proceeds of previous ventures, as was the case with Baialardo), and even become a stans himself (just as da Volta). When the tractator contributes his own capital, the contract is called ‘bilateral commenda’ and the profits are equally divided between the parties, although this also involves sharing the losses (Van Doosselaere, 2009), which does not happen in the ‘unilateral’ or ‘mere’ commenda.

The commenda not only proved to be ‘a medieval innovation of the highest importance and [that it] contributed greatly to the fast growth of maritime trade’ (Sabatino Lopez, 1976 cited in Y. González de Lara, 2018), but also a solid and flexible enough institution to endure through the centuries and to have been used by a private equity fund in a major financial transaction in 2021, which is longer limited to maritime trade and appearing under a different name—but keeping the risk sharing purpose in business ventures intact.

Three conclusions stand out. The first is not to underestimate the tools available in the current legal system, however outdated they may seem: the proliferation of limited liability companies and the use of other more contemporary financing instruments seemed to have cornered the commenda. But, as a matter of fact, legal institutions that survive over time do so because they provide a successful answer to problems or needs of individuals and the groups to which they belong. Think it over: we are seldom smarter than our grandparents. Law should not be an exception.

Second, human issues tend to be universal, or at least exceed the borders of a given territory. This is the rationale behind why the mechanisms provided by other legal traditions could be useful. In fact, the commenda seems to have emerged in the Arabian Peninsula before spreading west (Harris, 2009). So the corporate lawyer (any type of lawyer, actually) would do well not to ignore legal institutions beyond his country, his field or even his time: cuentas en participación  are regulated by mere five paragraphs written in a rather imprecise Spanish by modern standards that may not tell us much; unless we understand their origins, history and purpose.  Make no mistake: technological innovations do not always entail a legal innovation (Alfaro, 2016).

Third, strong cultural foundations are not just intended for college professors of classics or middle-aged urban dilettantes. Business lawyers can draw inspiration from non-so-obvious heterogeneous sources (such as the history of the maritime trade in the High Middle Ages!) to find creative solutions to current matters and ultimately provide a better service to their clients.

Javier Vicente García is a Senior Associate at Pavia e Ansaldo.


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