A circuit court judge in Denton, Md., cleared the way last week for construction of a condominium hotel on a prime piece of waterfront property in historic St. Michaels, tossing out of court the town's contention that there should be a moratorium on harbor construction until the town could decide what kind of harbor development it wanted.

In a 22-page decision, Judge J. Owen Wise overturned a decision by the St. Michaels Board of Appeals and said that Chevy Chase developer Gerald I. Goldberg should be given a building permit for his proposed hotel in 30 days. At the same time, the judge said that the board could alter the building permit if it believed the proposed project did not comply with St. Michaels' zoning code.

A building permit for Goldberg's proposed four-story, $2.5 million condo-hotel was awarded last summer but revoked in early fall after the St. Michaels appeals board found out that the project was to include 50 two-bedroom condominium units instead of the 50 hotel rooms Goldberg originally had proposed.

Shortly after the appeals board's decision, the St. Michaels town commissioners hastily passed a 10-month building moratorium on its maritime commercial zone to buy time to consider development objectives for the town's limited waterfront.

Goldberg filed suit in Talbot County Circuit Court in early September, asking for a reversal of the appeals board's decision and claiming that the moratorium should be ruled illegal because the town had adopted it under procedures that violated the state's law requiring local governments to hold open meetings.

The appeals board defended its action before Wise at hearings in December, saying that Goldberg had "misstated or misrepresented" facts on his application for the building permit.

But Wise, noting that the town passed the harbor building moratorium in a meeting that was not advertised, ruled in late December that the moratorium was illegal and suggested that the town work out a compromise with Goldberg on the details of the hotel project.

Town Manager William B. Nicholson Jr. said the town commissioners had been offered a compromise but that they rejected it because it would not have altered the project significantly.

In his decision, filed with the Talbot County Circuit Court last week, Wise said that the new building permit could include such restrictions and provisions as the appeals board might want to impose "based on evidence presented and as the board deems required for proper application, interpretation and enforcement of the St. Michaels zoning code."

Wise said that the appeals board should have modified the building permit in the first place, instead of summarily revoking it.

"The board declined to exercise the powers of the zoning inspector to issue a modified permit, saying it was inappropriate because there would still be too many omissions . . . to do so," Wise said. "After such an extensive hearing and record, it is difficult to ascertain what major omissions there are, and the board did not specify them."

Wise said the board was "arbitrary and capricious" in failing to issue a modified permit and that revoking the permit was neither "reasonable or required."

Goldberg's proposal is for a kind of hybrid development increasingly found in resort areas. Condo-hotels -- in which individual investors own a unit that provides tax benefits and rental income -- are largely responsible for the recent surge in resort building across the United States.

Goldberg has claimed that the condominium nature of the hotel is just a "financing" structure and does not make it an apartment complex. According to his plan, owners would use their units 14 days a year or less; the units would be managed as hotel suites the rest of the year.

Some town residents, however, protested that the condominium is a form of ownership and could affect how the hotel in managed. Hotels up to four stories high are allowed in the commerical maritime zone in St. Michaels, but apartment complexes are not. The appeals board had questioned the ownership form in its decision to revoke the permit, saying that it was an indication that Goldberg was proposing an apartment complex rather than a hotel.

Wise, however, said the form of ownership was not "germane" to the appeals board decision and should not have been considered. He said that the appeals board could modify the permit to reduce the number of rooms in each hotel suite or require more parking spaces.

The town commissioners adopted a second harbor construction moratorium last fall when it became clear that the first moratorium might not be legal. Nicholson said, however, that because that moratorium was not in effect when Goldberg first was given his building permit, it could not be used by the town to delay the permit.

Nicholson said that the St. Michaels town commissioners were considering appealing Wise's decision to the Maryland Court of Special Appeals but that they had not reached a conclusion yet. He said the appeals board was scheduled to meet this week to reconsider the details of Goldberg's project.