ANNAPOLIS, JULY 27 -- In another court victory for former Maryland governor Marvin Mandel, the state's highest court ruled today that he cannot be sued over a bill he vetoed.

The Court of Appeals, in a precedent-setting decision, unanimously held that the governor of Maryland has absolute immunity from civil lawsuits arising from the veto or signing of legislation, regardless of his motives.

The court reversed a ruling by a Baltimore Circuit Court judge who had held that two former owners of a Prince George's County racetrack had the right to seek relief for their 1978 claim that Mandel and six associates had conspired to defraud them of $2.3 million in profits. Today's ruling applies only to Mandel and other governors. Mandel's co-defendants still will be required to go to trial.

"The effect of this is that a governor in the Free State could be bribed for his veto and the people who were affected would not have any rights whatsoever against it," said Roy L. Mason, attorney for the former racetrack owners.

While the protection established in today's ruling extends only to action on bills that reach the governor's desk, attorneys associated with the case said the decision represents the first time that any court in the nation has found that a governor may not be held liable for monetary damages while exercising a constitutionally mandated duty.

"This will be a leading opinion in the area of gubernatorial immunity," said Mandel, who argued a part of his case before a panel of judges specially selected to exclude his appointees. "It will have an effect on governors all over the country."

Most states have only recognized a "qualified" immunity for governors and other members of the executive branch or an immunity that prevents civil lawsuits only when official acts were carried out in good faith, attorneys said.

The Mandel lawsuit, brought by brothers James Francis O'Hara III and Michael Patrick O'Hara, stemmed from the events that led to Mandel's resignation from office and 1977 conviction on federal mail-fraud and racketeering charges.

After the Democratic governor served 19 months in prison and was released, his conviction was overturned on the ground that the jury had been improperly instructed that it could convict him of defrauding Marylanders of the intangible right to honest government.

At issue is Mandel's 1971 veto of a bill that would have allowed 18 additional racing days at the now-defunct Marlboro Racetrack. While Mandel maintains that he vetoed the bill because he considered it unconstitutional, the O'Haras allege that his action was intended to depress the value of the track's stock while a group of his friends were secretly negotiating to buy the facility.

Mandel's veto was overridden, allegedly with Mandel's consent, after the O'Haras sold their share of the track.

Appearing before the Court of Appeals last month, Mandel argued that governors should be shielded from civil suits arising out of any of their official acts, not just vetoes, as is the president of the United States, judges and Maryland legislators. Otherwise, governors could find themselves constantly in court to defend unpopular decisions, he said.

The Court of Appeals declined to go that far, however. Instead, it held that a gubernatorial veto is an extention of the legislative process and that because Maryland's lawmakers have absolute immunity for their actions in the General Assembly, the governor should, too, when acting on legislation.

In a footnote to the court's 38-page opinion, Judge Lawrence Rodowsky warned that it does not shield governors from criminal prosecution or from civil suits alleging violations of the state constitution.

Mandel said he nonetheless believes that the ruling could have applications for other "constitutionally mandated acts" performed by the governor, such as preparing a budget. Mason disagreed, saying the court deliberately kept its decision narrow.

Mason said his clients might petition the U.S. Supreme Court to hear an appeal of the Maryland court's ruling or amend their complaint against Mandel to charge him with violating the state Constitution.