BOOK REVIEW : Ship’s Legend Goes on a Romp : FLYING DUTCH <i> by Tom Holt</i> ; St. Martin’s Press/Thomas Dunne $18.95; 252 pages

It’s futile to read “Flying Dutch” without imagining Tom Holt saying to himself, “Wait till Terry Gilliam gets a load of this !”

Few British humorists besides filmmaker and former Monty Python member Gilliam have generated entire worlds from that rather peculiar talent. If Holt, author most recently of “The Walled Orchard” and “Goatsong,” doesn’t share Gilliam’s dark side, no matter; “Flying Dutch” is full of alchemists, idiots, ancient mariners and common everyday twits, just the sort of people most likely to misunderstand one another and thus cause all kinds of amusement.

The novel is based on the tale of the Flying Dutchman, but Holt’s narrator purports to clear up the “slight misunderstanding” about the legendary ship captain perpetrated by Richard Wagner. Wagner, it seems, ran into the captain, Julius Vanderdecker, in Paris in 1839 and, to the Dutchman’s amazement, did not engineer a hasty retreat when told that his bar mate had been born in 1553.

At Wagner’s prodding, Vanderdecker related his story, which the composer subsequently turned into a successful opera--though the captain, it should be noted, hated Wagner’s epithet, thought “Der Fliegende Hollander” a “pack of lies,” and considered legal action.

The real Vanderdecker, we learn, is not Wagner’s reckless, half-mad daredevil but an ordinary sea trader who agreed to help a rich alchemist, Montalban, escape the Spanish Inquisition. After setting sail, however, the ship’s crew found that the beer supply had gone bad, whereupon the captain--having noticed that his passenger was unaffected by the crisis--broke into Montalban’s trunk and discovered an enormous flagon.

Retiring to the crow’s nest, Vanderdecker began to swill its contents, but after wildly brandishing the bottle to chide Montalban for his selfishness, the captain lost his balance and fell to the deck far below, from which he immediately arose unhurt.

The alchemist, it turned out, had created the elixir of life, and Vanderdecker had become immortal--an apparently blissful state in which Montalban and the crew, seeing that the previously untested potion really worked, promptly joined him.

It’s soon evident that an exceedingly Gilliamesque fly has gotten into the ointment, however, for the sailors now reek to high heaven. “The Great Pong,” as Vanderdecker calls it, abates for a month every seven years, but for most of their days the crew of the Verdomde is condemned to sail the seven seas--having left Montalban in England--with its captain conducting endless experiments in an attempt to solve the riddle of the stink.

The Verdomde, meanwhile, always seems to be in the wrong place at the wrong time--upwind of the Spanish Armada in 1588, anchored off Elba when a diminutive pub crawler asks for a lift in 1815, cruising off Cape Trafalgar and Waterloo when. . . . You get the idea.

Holt has the good sense to make Vanderdecker’s historical misadventures no more than comical asides. The plot turns on Vanderdecker’s life insurance policy, which carries a doubling clause that would bankrupt the issuing company should it ever have to pay off. Vanderdecker and his crew often do have terrible accidents, hoping one will eventually prove fatal. Jane Doland, an accountant for the enormous conglomerate that swallowed up Vanderdecker’s original insurer, has inadvertently uncovered the corporation’s Achilles’ heel, and Jane’s superiors ask her to cut a deal with the captain.

Things, naturally, don’t work out as expected. A BBC producer envisions a prize-winning story when he notices that the Verdomde, in port for repairs, is a genuine 16th-Century galleon. Jane, who has no sense of smell, falls in love with Vanderdecker.

The complications Holt throws into the second half of the novel aren’t exactly all of a piece, nor so imaginative as the story line that sets the book in motion, but they do bring the story to a satisfying conclusion. Suffice it to say that Vanderdecker and his crew--and, yes, Jane--all live, as Holt puts it, “happily. Ever after.”’

“Flying Dutch” is remarkable for its ingenious retelling of a familiar myth, but what makes the novel work is Holt’s sardonic, breezy tone. Vanderdecker, contemplating possible death, sees that his life had become “one long sherry party, and it was high time he made his excuses and left.” The landlubbers who occasionally spot the Verdomde are said to assume “the fish finger people are filming yet another commercial.”

Lines like these abound in “Flying Dutch,” and as it closes, one does rather hope for a sequel. Any sea captain who reads Scientific American while wearing a doublet and Hush Puppies is worth meeting again.

Next: Carolyn See reviews “Back in the Blue House” by Jeff Giles (Ticnor & Fields).