Hancock National Bank v. Farnum

Background

A creditor who had won a judgment against a Kansas corporation and then returned an unsatisfied execution sued a person alleged to be a stockholder in another state to collect up to the stock’s par value. The Rhode Island Supreme Court refused to give the Kansas judgment the same effect it has in Kansas, so the creditor sought review in this Court, arguing that the Constitution’s full faith and credit clause and the related federal statute required Rhode Island to treat the Kansas judgment as Kansas courts do.

Reasoning

The core question was whether a state must give to another State’s judgment the same binding effect that the judgment has in the State where it was rendered. The Court examined Kansas law and prior decisions, which treat a judgment against a corporation as not only binding on the corporation but, absent fraud or collusion, also binding on its stockholders. The Court held that Congress’s statute prescribing authentication requires courts to give the same local effect to an authenticated judgment, and that a federal court sitting in Kansas must be treated the same as a Kansas state court. Because Rhode Island failed to treat the Kansas judgment as binding on the stockholder to the same extent, the Supreme Court reversed and sent the case back for further proceedings consistent with this view.

Real world impact

The decision means courts in other States must give a Kansas judgment the same force over a corporation’s stockholder that Kansas law gives it, so creditors can sue stockholders elsewhere to the same extent. The only defenses available in the other State are those the stockholder could have raised in Kansas, and the ruling treats federal courts sitting in a State the same as that State’s courts for this purpose. The case was reversed and remanded for further proceedings.

Dissents or concurrances

One Justice dissented from the Court’s decision; the opinion notes the dissent without stating its reasoning.