A dispute over a contract between two people in the same city would most likely be heard first in a "local court", unless of course the dispute is over something very serious, such as a violent crime.
The correct answer is the State trial court.
The Constitution and laws of each state establish the state courts. The highest court in each state is known as the Supreme Court, some states have Court of Appeals before the Supreme Court.
Before the Court of Appeals comes the State Trial Courts or also referred in some states as Circuit or District Courts. Because the case is a case of a contract it goes to the State Trial Courts because it is not specific legal matter such as family or wills, for example.
