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It unexpectedly gained independence in 1440 after Pope Eugene IV, embroiled in a struggle with the Council of Basel, made a sale of territory to the Republic of Florence. By error, a small strip of land went unmentioned in the sale treaty and its inhabitants promptly declared themselves independent. An early centre in Italy for tobacco production, Cospaia eventually evolved into a commerce haven which, in 1826, was divided between Tuscany and the Papal States. Each citizen was awarded a silver coin by the church to help convince them to continue farming tobacco.
The Republic of Cospaia did not have a formal government or official legal system. There were no jails and there was no standing army or police force within the tiny nation. There was a council of elders and a chief's family who governed at one point. They met in the Church of Annunciation for councils.