"Res judicata" literally means "a matter judged." The fundamental principle it represents is that parties are precluded from re-litigating claims or issues that have already been resolved by a final judgment from a court with proper authority.

Claim preclusion bars the reassertion of the same cause of action between the same parties after a final judgment on the merits. Issue preclusion, on the other hand, prevents parties from re-litigating specific factual or legal issues that were actually litigated and necessarily decided in a prior action.

The three core elements for claim preclusion are: (1) a final judgment on the merits; (2) the subsequent suit involves the same parties or their legal privies; and (3) the claim asserted in the second suit arises out of the same transaction or occurrence as the first litigation.

A "final judgment on the merits" means the earlier court decision conclusively resolved the parties’ legal rights and liabilities. Examples include a dismissal with prejudice and a summary judgment, both of which indicate a substantive decision on the case.

The "transactional test" asks whether the claims in the subsequent suit arise out of the same transaction, occurrence, or series of connected transactions as those that were resolved in the first lawsuit. This test aims to prevent litigants from splitting related claims into multiple lawsuits.

The four elements for issue preclusion are: (1) the issue in the second action is identical to one decided in the first; (2) the issue was actually litigated in the prior proceeding; (3) the determination of the issue was essential to the final judgment; and (4) the party against whom preclusion is asserted had a full and fair opportunity to litigate the issue.

The "actually litigated" requirement means the issue must have been contested by the parties and resolved by the decision-maker, either through a factual finding or a legal ruling. An issue that was merely stipulated to by the parties was not actively contested and therefore would not be considered actually litigated.

Mutual issue preclusion traditionally allows only parties to the original lawsuit (or their privies) to use a prior judgment to prevent relitigation of an issue. Non-mutual issue preclusion allows someone who was not a party to the original suit to do so; it can be either defensive (new defendant prevents plaintiff from relitigating a lost issue) or offensive (new plaintiff uses a prior finding against the defendant).

The Supreme Court in Federated Department Stores v. Moitie held that even decisions believed to be legally incorrect are entitled to preclusive effect if they are final judgments on the merits. This underscores the importance of finality in judicial decisions and discourages relitigation based on perceived errors.

Under the Full Faith and Credit Clause of the U.S. Constitution, federal and state courts are required to give the same preclusive effect to judgments rendered by courts of other states as those judgments would receive in the courts of the originating state. This prevents forum shopping and promotes the stability of judicial decisions across state lines.