A resident sues a state's corporation in federal court for a defective automobile, based on a state contract. Should the federal court hear on the merits?

• A. No, because contract claims are state law and there is no federal jurisdiction.
• B. Yes, because Article III vests jurisdiction over contracts.
• C. No, because there is no case or controversy.
• D. Yes, because it affects interstate commerce.

Answer: (A)

The key idea is federal courts sit in with limited power and only when a federal question is involved or there is complete diversity of citizenship (plus the amount in controversy, if needed). A contract claim based purely on state law does not by itself create federal jurisdiction.

Here, the suit is a state-law contract claim brought in federal court. There is no federal question presented in the claim, and the problem statement does not establish complete diversity or an amount in controversy. The fact that the defendant is a state’s corporation does not automatically grant federal jurisdiction; it can even destroy diversity if the plaintiff is from the same state. Interstate commerce involvement alone is not enough to confer jurisdiction over a purely state-law contract claim.

So there isn’t a federal basis to hear the merits, and the proper conclusion is that the federal court should not hear the case on the merits.