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.