The U.S. Court of Appeals here approved yesterday a jury's findings that the U.S. Capitol Police illegally arrested 1,200 Mayday demonstrators in 1971. But it said that the $12 million in damages awarded to the arrested protesters was excessive.

In a series of three opinions written by U.S. Circuit Judge J. Skelly Wright, the appelate panel ruled 2 to 1 that the demonstrators were falsely arrested and falsely imprisoned and that their First Vmendment rights were viloated.

However, the court reversed findings by the jury that the prosecutions were malicious on the part of the government and that the conditions under which the protesters were held constituted cruel and unusual punishment.

The court ordered that a new trial be held on the amount of damages to be paid to the arrested demonstrators, saying the jury that reached the $12 million verdict had been "set loose to work its discretion informed only by platitudes about priceless rights" and not given specific instructions about the amount of damages they should consider.

Pointing out that the arrests came near the end of the demonstration, the court said that the $7,500 in damages awarded to each individual solely for the violation of their First Amendment rights "is totally out of proportion to any harm that has been suffered."

"Loss of an opportunity to demonstrate constitutes loss of First Amendment rights 'in their most pristine and classic form' (but) does not mean . . . the monetary recompense should be extravagant," Wright said.

The demonstration at issue occurred on the east steps of the Capitol on May 5, 1971. It came after several days of Washington demonstrations in which as many as 12,000 persons had been arrested as they besieged the government to seek an end to the Vietnam war.

As demonstrations at the time went, it was a generally peaceful assembly at which members of Congress spoke, the jury found. Although U.S. Capitol Police Chief James Powell testified that he felt he was confronting "an unruly, noisy, out-of-control mob," even D.C. Police Chief Jerry V. Wilson testified at the trial that "it was a reasonably orderly crowd,' marred be only a few particular misbehaviors."

In a biting dissent to which he accused Wright and U.S. Circuit Judge Harold Leventhal of "legal bankruptcy" and "a complete blindness to reality," U.S. Circuit Judge Edward A. Tamm said the arrests were justified because of the atmosphere of the capital city after the previous few days of occasionally violent protests.

Tamm accused Wright and Leventhal of enumerating the events of the "with masochistic demonstration delight," and writing opinions based on a "library analysis rather than the grim realities of the urban forum."

"In the ivory tower atmosphere of this courthouse my brothers upheld an unfortunate jury verdict arrived at upon evidence of a single day's occurrence completely isolated from the violent and tragic events which immediately preceded it," Tamm wrote.

However, in writing for the majority Wright said there was no doubt that the jury in the Capitol demonstration case was well aware of the preceding days' events. The jurors also had been told the two conflicting views of the demonstration - one describing it as peaceful, the other violent - and decided clearly which view it believed to be true, he said.

"In the final analysis, the action below was in the mold of the classic jury trial," with the panel assessing the credibility of the witnesses and choosing to believe the protesters' version, Wright said.

Chief Powell had argued during the trial that he should be immune from prosecution because he was acting in "good faith" and that his actions were "reasonable in light of all the circumstances."

But the court found that Powell's argument "has a serendipitious quality about it." The panel pointed out that the jury found Powell had not taken adequate steps to disperse the crowd without arrest and that he had even refused an offer to make announcements over the demonstrator's public address system that they would be arrested unless they left.

In finding that Powell had violated his won written procedures for mass arrests, the court said "a jury would in our judgment be entitled to conclude that Chief Powell was not acting in good faith."

Although the jury found Powell guilty of malicious prosecution, the appellate panel ordered a new trial on that issue to determine if Powell's order to arrest actually started the chain of events that led to criminal charges being filed against those who were arrested.

The major portion of the opinion by Wright dealt, however, with the protesters' claims that their First Amendment rights were violated when their demonstration was disruted by the arrests.

The court found that the violation of these rights was "directly attributable to the arresting officers." It agreed with the jury that ReP. Ronald Dellums (Calif.), who was speaking when the arrests began, had his First Amendment rights violated as well.

In support of its finding that Dellums had a right to an undisturbed audience, the court said. "A speaker will be deprived of an opportunity to affect those minds if his audience is arrested and carted away. Certainly the harm is as great as if the speaker had himself been silenced."

The appellate court suggested that the retrial on damages could be carried out before U.S. District Chief Judge William B. Bryant, in whose courtroom the case was tried, rather than before another jury.

Judge Leventhal wrote a separate opinion agreeing with Wright's findings, saying that in civil litigation "a price must be put" on otherwise "priceless" rights such as the loss of a constitutional freedom.

But, "an award for violation of a First Amendment right must be commensurate with the value to the plaintiff of the right that has been lost," Leventhal added.

Justice Department and District attorneys were still reading the opinions and said they would have no comment yesterday.

Local American Civil Liberties Union attorney Ralph J. Temple said he considered the ruling a "victory" since it accepted the basic grounds of the lawsuit that the arrests were illegal. He said he did not agree with the need for a new trial on the issue of damages, "but we we are prepared to make that undertaking."