What was expected to be Proud Appeal's Kentucky Derby turned unexpectedly into the Court of Appeal's Derby today.

After losing an extraordinary, day long legal battle, Churchill Downs permitted two horses to run in the Derby who had been excluded from the field when entries were taken Thursday. A third horse excluded from the race already had been shipped off the grounds.

That means that Mythical Ruler and Flying Nashua will be allowed to start in Saturday's 5:38 p.m. (WJLA-TV-7) race will start from post positions 21 and 22, respectively. No more than 21 are expected to go off, however, because the filly Wayward Lass, a last-minute entry Thursday, ran and finished third in the Kentucky Oaks today.

When 23 horses were entered in the race, the track invoked a rule limiting the filed to the 20 with the greatest career earnings. But lawyers for the owner of Flying Nashua, who had been bumped to 21st place by Wayward Lass' unexpected last-minute entry, found a loophole in the track's actions.

Kentucky's rules of racing state that a horse may not be excluded from a race because of the presence of another stable's two-horse entry. That usually applies to run-of-the-mill races here in which the maximum number of entrants is 12.But since there were two such stable entries in the Derby field, Flying Nahsua's lawyer appeared before Circuit Court Judge Charles Leibsen at 8 a.m. and argued that the colt had been improperly excluded from the race.

Leibsen agreed, saying, "The rule is clear and unmistakable. It has been overlooked and not followed by track stewards." He ordered Churchill Downs to let Flying Nashua run.

While those legal proceedings were in progress, the owners of Mythical Ruler, who had been despondent and irate about their exclusion from the Derby, decided to jump into the fray too. While they were preparing to appear before Leibsen, Churchill Downs had gone into another courtroom to appeal the Flying Nashua decision.

There, Edward S. Bonnie, the lawyer for Flying nashua's owner, Ulf Jensen, argued that the stewards should not arbritarily deprive his client of the "once-in-a-lifetime chance" to run in the Derby. "Racing has survived because it is a game of rules, not a game of stewards' discretion," he said.

Court of Appeals Judge Michael O. McDonald upheld the lower-court ruling, and Churchill Downs knew it was licked. "We were faced with a similar complaint for Mythical Ruler," track president Lynn Stone said, "and the odds didn't look so good." So the track decided to permit all three horses who had been excluded by the earnings rule -- the two litigants plus Law Me.

Law Me, however, had already been shipped from Churchill Downs and owner Edwin Whittaker said he thought his colt's exclusion on the basis of earnings was fair. "When I entered the race, I knew the rules and regulations," he said.

Churchill Downs faced another potential hassle if it redrew the post positions for the new, 22-horse Derby field. For example, if Derby favorite Proud Appeal, who had drawn the favorable No. 5 post position Thursday, had would up in post 22 on a new draw, his owners might have been at the courthouse door in the morning. So the track put Mythical Ruler and Flying Nashua in the two outside posts. "My understanding is that both trainers agreed to accept that," said Stone.

The horse who was the cause of this whole chaotic episode will be scratched.

The controversy over the 20-horse limit began when owner Carl Lizza decided to put his filly, Wayward Lass, in the race as a part of a stable entry with Noble Nashua. Wayward Lass had also entered in today's Kentucky Oaks, but her presence in the Derby lineup knocked out Flying Nashua. Lizza decided this morning that because of the filly's bad post position (No. 20) for the Derby, he would run her in the Oaks, after all, and scratch her from the Derby Saturday.

Now that the lawyers and the courts have determined who will run for the record $408,100 purse, the anticipated crowed of 130,000 and millions of people across the country can settle down to pondering who will win.

This is an exceptionally interesting, competitive race. Ordinarily, the Derby would attract 20 or more entrants only in years when there seemed to be no superior colts in the field. But several 3-year-olds will bring glowing records and reputations into the 107th Derby.

Proud Appeal, the probable favorite has won all five of his races this year and has lost only once in his career. After he ran a mile in a sensational 1:33 3/5 in the Gotham Stakes at Aqueduct, a Kentucky breeder bought a half-interest in him for $5 million. Only one important question about Proud Appeal remains: can he go 1 1/4 miles?

Cure the Blues was unbeaten, and seemed invincible, until a month ago.

Then he lost by a nose to Proud Appeal in the Wood Memorial Stakes. But racing people still respect his ability, his jockey Bill Shoemaker and his trainer LeRoy Jolley, whose horses always seem to run their best in the Derby.

Pleasant Colony didn't have much of a reputation until the Wood Memorial, but after he won that race with a powerful stretch run, trainer Johnny Campo told the world, "We'll win the Derby!" His assessment has a lot of support, since Pleasant Colony is the one horse in the field who looks like a sold 1 1/4-mile horse.

In addition to these three favorites, the Derby lineup has plenty of depth: Bold Ego, the winner of the Arkansas Derby and the likely front-runner on Saturday; Tap Shoes, who is being trained by a living legend, 80-year-old Horatio Luro, and Splendid Spruce, the winner of the Santa Anita Derby.

Yet this Derby is less likely to be decided by the horses than by the jockeys their strategy and racing luck. The last time the Derby had such a large field was 1974, and that 23-horse scramble was a farce. Inferior horses ran one-two because they stayed out of trouble; the best horse in the field never got close. It was in the wake of that race that Churchill Downs decided to limit the Derby field to 20 horses, in order to bring a measure of order to its race.

The track's intentions did not quite work out today.