How do courts determine whether the parties to an agreement intended to create a legal relationship?

Courts determine whether parties intended to create a legal relationship by examining the context and circumstances of the agreement, including the language used in the contract and the conduct of the parties. They look for objective evidence of intent, such as the presence of consideration, formalities, or specific language indicating a binding agreement. Additionally, courts consider the nature of the agreement and the relationship between the parties, differentiating between social and commercial arrangements. Ultimately, the goal is to ascertain whether a reasonable person would interpret the actions and Words of the parties as intending to create enforceable obligations.