A federal appeals court ruled that Harvard University’s investment arm broke a contract when it spun off its stake in a Canadian window-shade company to a for-profit firm set up by former managers of the university’s $26 billion endowment.

The opinion released yesterday by the 1st Circuit Court of Appeals closed one chapter in a bitter four-year international legal row between Harvard and the Montreal-based company, Blinds To Go.

Harvard invested $15 million in the retailer in 1995. In 2001, Harvard sold its investment to a fund run by Charlesbank Capital Partners, a private equity firm established by former Harvard Management Company staffers eager to spread their wings beyond Harvard and arrange deals involving other institutional investors. A few months later, Charlesbank tried to force Blinds To Go to buy back the stake, but a dispute erupted over the price.

While the appeals court accepted Blinds To Go’s claim that Harvard violated its investment contract, the three-judge panel refused to force Harvard to give up its stake on terms advantageous to the company. Instead, the judges affirmed a lower court’s order unwinding the sale to Charlesbank and returning the investment to Harvard.

The author of the appeals court opinion, Judge Bruce Selya, called it an outcome that “pleased no one.”

The agreement between Harvard and Blinds To Go allowed the university to transfer its holding to “affiliates” without impediment. However, any transfer to a non-affiliate triggered the rights of Blinds To Go to step in and buy back the Harvard stake.

The CEO of Blinds To Go, Stephen Shiller, said in court papers that the owners of the family-run firm felt violated by Harvard’s conduct.

“I cannot emphasize enough the importance of the partnership with Harvard College from the perspective of Blinds To Go. We had never before had a private investor and took the leap of faith with Harvard because it was an institution we thought we could trust and felt comfortable with,” Mr. Shiller wrote in a 2004 affidavit. “We also viewed the prestige of being associated with Harvard as critical because we were, and still are, a Canadian company seeking to penetrate the U.S. market. Sale of our shares from a nonprofit entity controlled by Harvard to a for-profit entity controlled by private individuals is inconsistent with our goals.”

Charlesbank commenced the legal maneuvering in 2002 by filing a lawsuit in federal court in Boston alleging that Blinds To Go artificially depressed its earnings in order to lower the price at which the company was required to buy the investment back. Company officials vehemently denied those allegations and returned the volley by suing Harvard and Charlesbank in a Canadian court for transferring the investment in violation of the contract.

The financial impact of yesterday’s decision on the players is difficult to gauge from the public court files. Many records relating to the case are redacted or sealed in their entirety. The appeals court issued its opinion in the case under seal on March 22 and released it yesterday after neither side objected.

Officials at Blinds To Go and Harvard did not return calls seeking comment for this story. A spokeswoman for Charlesbank, Janet Kelly, said the firm declined to comment.

The legal saga drew in many of the major players at Harvard Management. The then-chief of Harvard’s investment operation, Jack Meyer, was required to give a deposition, as was a man who oversaw Harvard’s expansion into private placement investments in the 1980s, Michael Eisenson.

The transition of Harvard’s investment managers and the school’s money to outside firms like Charlesbank has been prompted in part by pressure from alumni who complained about the compensation paid to Harvard’s inhouse investment staff.

Mr. Meyer, who left Harvard last year, often grumbled about the publicity generated by disclosures of the salaries and performance-related bonuses paid to Harvard’s investment managers. Some were paid as much as $35 million in 2003.

The compensation figures become public under state and federal law because Harvard is a nonprofit entity and manages most of its money internally. Private investment funds such as Charlesbank are under no obligation to disclose salaries to the public.

In response to alumni objections, in 2004 Harvard placed a cap on compensation for its investment staff. The move apparently contributed to Mr. Meyer’s departure and the exodus of about 30 Harvard Management Company staffers to Mr. Meyer’s new hedge fund, Convexity Capital Management. Harvard has committed $500 million to the new venture.