What does the term 'privity of contract' refer to?

The term 'privity of contract' specifically refers to the legal relationship that exists between the parties directly involved in a contract. This legal relationship implies that only those who are parties to the contract can have rights or obligations under it. In essence, privity establishes that the terms and conditions of the contract are enforceable only between the individuals or entities that have entered into that agreement.

This concept plays a critical role in contract law as it delineates who can sue for breach of contract and who can enforce the rights conferred by the contract. Since third parties who are not privy to the contract typically do not have any enforceable rights, privity ensures that the contractual relationships remain limited to the specific signatories, protecting their interests and maintaining legal clarity.

The other options do not accurately define privity. Financial obligations pertain to the economic aspects of the contract but do not constitute its legal relationship. The negotiation process refers to the discussions and terms established before a contract is signed, while the responsibilities of a third party would involve individuals not directly involved in the contract, which privity expressly excludes.