Hometown Victory for New England Village : Bequest: Rockford, Mass., outfoxes the Smithsonian Institution in a dispute over a millionaire’s gift.

David beat back Goliath on Friday in the tiny seacoast village of Rockport, Mass.

The dispute was between the small New England village and the venerable Smithsonian Institution. The issue was a $1-million bequest left to Rockport by longtime resident and millionaire Franz Denghausen. The town wanted to use the money to convert an old school into a new library, but the Smithsonian--another beneficiary of his will--said the town had to pay for the conversion itself before it could spend Denghausen’s gift.

In the end Rockport outfoxed Washington.

Indeed, the town will get its $1 million, and the Smithsonian, according to a press release faxed far and wide Friday, is satisfied that it “acted in accordance with its legal duty to ensure that the terms of the bequest were fulfilled . . . “

The struggle began six months before Denghausen, a poet/sculptor/ from Rockport died. It was then, in the spring of 1987, that he told Ann Fisk, the director of the Rockport Art Assn., that he wanted to rescue the town’s 40,000 books from their lovely but cramped headquarters in an old Beaux-Arts style building, and provide the funds for a new library.

According to Fisk, Denghausen wanted a new library with a plenty of space for reference books, bright courtyards and a separate room where people could just talk. He also wanted it named for his wife, Luisita, who had died in 1986 and to whom he had been long devoted.

“They were a very lovely couple,” says Fisk. For 36 years they had lived in a big old house on a hill over looking the sea, and they spent their days together; she sketched and painted; he built stabiles and read. Their winters were spent at the Ritz Carlton in Boston where Fisk says they roamed the museums and attended the theater.

“When it came to Rockport,” adds Fisk, “Franz was a real bricks-and-mortar man. He was always quietly, very quietly, giving money to rehab something in town.”

So it came as no surprise to the library trustees that Denghausen was delighted that they were going to use million to convert a vacant elementary school into a new library. In fact, before Denghausen died in October of complications from a fall--and, some say, heartbreak that his wife was gone--the library director arranged for him to visit a nearby town where a similar conversion had been done.

“He knew exactly what we had in mind for the Rockport library,” says Camilla Ayers, a library trustee. “The problem was the Smithsonian didn’t even know him,” nor his intentions for his hometown.

Nevertheless, the Denghausens were quite fond of the Smithsonian.

Between both their wills the elderly couple had left almost $10 million to the Smithsonian. In the course of examining Franz’s will, however, the Smithsonian’s lawyers interpreted the codicil addressing the new library as saying that if the town wanted to convert the school to a library it had to first put up the money for the renovation before it touched Denghausen’s million.

But Rockport, with its $14-million budget and outstanding school bond issue, simply couldn’t afford the renovation without Denghausen’s gift. Like much of New England, Rockport, a retirement village 35 miles north of Boston with a population of 6,000 that triples in the summer, has been facing cutbacks. “We’re already squeezed,” said Ayers. “We can’t afford legal fees and litigation.”

Meantime, at the Smithsonian’s lawyers’ urging, the executor of Denghausen’s will petitioned the probate court, located in Salem, Mass., for clarification of the will. A judge was to decide who got what.

The people of Rockport went into action. One woman personally spent $60 to fax press releases about the feud to the major news organizations around the country. And the word, fashioned by the townspeople, spread quickly that the Smithsonian, facing its own budget crunch, was after the town’s piddling million. It wasn’t enough that it got $10 million. It wanted every cent, the townspeople said.

Despite the Smithsonian’s denials that it was after Rockport’s bequest, what began as an obscure legal dispute in probate court this spring turned into a full-blown media circus by summer. Suddenly everyone--the local congressmen, the Massachusetts attorney general, even troops of petition-signing school children--were championing the town’s cause, and the Smithsonian was fielding media calls by the dozens.

“We heard from just about everybody ,” sighed Madeleine Jacobs, spokeswoman for the Smithsonian. “Really, I can’t say enough that the Smithsonian never intended to steal the town’s money. Our position has been greatly misstated.”

In Washington, where sources most often prefer to remain anonymous, the word from one knowledgeble insider on the Rockport brouhaha was this. “The Smithsonian wants out of this mess.”

And so it happened yesterday morning on the Salem, Mass., courthouse steps where state Attorney General James M. Shannon announced that he had personally brokered a settlement. “There were some ambiguities in the will,” said Shannon, who is running for re-election this fall, “but after the fiduciary responsibilities were sorted out, well there’s a happy ending. The judge signed the settlement and Rockport will get its money.”