Customers of Cottman Transmission Systems Inc. who paid for unnecessary transmission repairs should be compensated, the state Court of Special Appeals has ruled.

In overturning a trial judge's decision, Maryland's second-highest court yesterday ordered Cottman to be tried on allegations it charged for unneeded repairs and for repairs never made.

In January 1988, Maryland's attorney general charged the Fort Washington, Pa., company with violating the state's consumer protection law after receiving 114 complaints about Cottman's business practices.

Attorney General J. Joseph Curran Jr. today said the decision "really does reinforce the spirit of the consumer protection law."

Curran said the case will be scheduled for trial in Baltimore Circuit Court unless the attorney general's office can reach a settlement with Cottman to pay restitution to customers.

Evidence presented in court by the attorney general's office showed that Cottman charged for parts that didn't need to be replaced and in some cases for parts never installed. The company also charged customers just to inspect transmissions when they could have been diagnosed for free.

Baltimore Circuit Judge Thomas E. Noel ruled in 1989 that Cottman engaged in deceptive trade practices and ordered the company to pay a $100,000 fine.

However, Noel refused to order restitution for deceived customers and found that Cottman was not responsible for the actions of its franchise owners.

In an opinion by Associate Judge Dale R. Cathell, the court rejected the trial judge's reasoning in not ordering restitution for customers who paid for unneeded repairs.

Since the state's suit was filed, only three of Cottman's 13 Maryland transmission centers remain open under the Cottman name, said William Leibovici, chief of the Consumer Protection Division.