In 1764 King George III had ruled in favor of New York in a dispute between New York and New Hampshire over the region that later became the state of . New York then refused to recognize claims to property derived from grants by New Hampshire governor during the preceding 15 years when the territory had been governed as a de facto part of New Hampshire. Consequently, the people of the disputed territory, called the , resisted the enforcement of New York's laws within the Grants. 's militia called the , noted for successes in the war against the British in 1775, was originally formed for the purpose of resisting the colonial government of New York. In 1777 the statesmen of the Grants declared it a , and by early 1778 had erected a state government.
During 1777–1785, Vermont was repeatedly denied representation in the Continental Congress, largely because New York insisted that Vermont was legally a part of New York. Vermont took the position that because its petitions for were denied, it was not a part of the United States, not subject to Congress, and at liberty to negotiate separately with the British. The latter led to some exchanges of prisoners of war. The peace treaty of 1783 that ended the war included Vermont within the boundaries of the United States. On March 2, 1784, Governor George Clinton of New York asked Congress to declare war for the purpose of overthrowing the government of Vermont, but Congress made no decision.
By 1787 the government of New York had almost entirely given up plans to subjugate Vermont, but still claimed jurisdiction. As a member of the legislature of New York, Hamilton argued forcefully and at length in favor of a bill to recognize the sovereignty of the State of Vermont, against numerous objections to its constitutionality and policy. Consideration of the bill was deferred to a later date. In 1787 through 1789 Hamilton exchanged letters with , a lawyer representing Vermont. In 1788 the new Constitution of the United States went into effect, with its plan to replace the unicameral Continental Congress with a new Congress consisting of a Senate and a House of Representatives. Hamilton wrote:
One of the first subjects of deliberation with the new Congress will be the independence of Kentucky [at that time still a part of Virginia], for which the southern states will be anxious. The northern will be glad to find a counterpoise in Vermont.
In 1790 the New York legislature decided to give up New York's claim to Vermont if Congress decided to admit Vermont to the Union and if negotiations between New York and Vermont on the boundary between the two states were successfully concluded. In 1790, negotiators discussed not only boundary, but also financial compensation of New York land-grantees whose grants Vermont refused to recognize because they conflicted with earlier grants from New Hampshire. Compensation in the amount of 30,000 Spanish dollars was agreed to, and Vermont was admitted to the Union in 1791.
