Maryland's highest court ruled this week that the governor of the state has an executive privilege to withhold certain confidential reports and documents from exposure in the state courts.

A judge, however, may make an incamera (secret) inspection of the documents and rule that the executive privilege must give way when weighed against other factors.

The ruling Friday by the Maryland Court of Appeals is in many respects relies on the U.S. Supreme Court ruling in 1974, that President Nixon's claim of executive privilege for his tape recordings was outweighed by the need to obtain relevant evidence in the Watergate investigation.

The appeals court decision recognizes for the first time an executive privilege for the governor that was never previously incorporated into Maryland law.

The court's ruling concerned the state's claim that a certain confidential report prepared in 1977 for then Gov. Marvin Mandel on the countroversial Arthur F. Goode III case was privileged and should not be turned over to lawyers seeking it for a lawsuit.

Goode, a mental patient at the state-run Spring Grove Hospital Center in Catonsville, left the hospital without permission in February, 1976 and was later convicted of committing two murders.

The family of 9-year-old Jason Verdow, one of the victims sued hospital officials and requested release of the governor's report.

The Maryland attorney general's office however argued that the confidential report was part of the deliberative process used in the governor's decision-making, and should not be divulged.

The U.S. District Court judge hearing the lawsuit, the late C. Stanley Blair, sought the ruling from Maryland's highest court on the extent of executive privilege in Maryland.

The unanimous appeals court ruling, written by Judge John C. Edlrige, said that in the case of the Spring Grove lawsuit it would be proper for the federal trial judge hearing the case to look at the governor's report in-camera and make a determination as to whether the information was privileged.

The ruling said that in future cases where executive privilege claims were made, the interests of the state and those challenging the claim had to be weighed on a case-by-case basis.

"The making of candid conversations . . . may well be hampered if their contents are expected to become public knowledge," the court ruled.

Officials of the attorney generals office said they were satisfied with the ruling. "The governor's decision-making process could be thwarted if he were required to reveal the deliberations used in coming to a policy decision," said Randall M. Lutz, the assistant attorney general who argued the state's case before the appellate court.

Lutz said the decision appeared to lay down in Maryland for the first time the legal principals involved in a claim of executive privilege."

Attorneys for the family seeking the governors report could not be reached for comment yesterday.

Goode, now 26, was sentenced to death in 1977 by a Florida judge for the Verdow murder, and the U.S. Supreme Court last year refused to review his sentence. Goode was previously sentenced to life imprisonment by a Fairfax Circuit judge for the strangling of an 11-year-old Fall Church boy.