General Washington told Arnold to defend Rhode Island after the British captured Newport in December 1776. At that time, the militia did not have enough weapons and supplies to attack the British. Arnold was near his home, so he visited his children, and he spent much of the winter in Boston, where he tried to convince a woman named Betsy Deblois to marry him. She said no. In February 1777, he learned that Congress had not promoted him to major general. He tried to resign, or quit, but Washington did not let him. But Washington did write to members of Congress about the promotions. He wrote that "two or three other very good officers" might quit if Congress kept promoting people for political reasons instead of based on who could fight and lead the best.
Arnold decided to go to Philadelphia to talk about his future. On the way, he heard a British force was marching toward a place in Danbury, Connecticut where the Continental army had put its supplies. Arnold, David Wooster, and Connecticut militia General Gold Selleck Silliman led the militia to stop them. This was the Battle of Ridgefield. Arnold he led a small group of soldiers to stop or slow down the British as they returned to the Atlantic Ocean. Arnold was again wounded in his left leg.
Then Arnold went on to Philadelphia, where he talked with members of Congress about his rank. Because of his good leadership at Ridgefield and because Wooster had died, Congress promoted Arnold to major general, although he did not outrank people who had been promoted before him. Arnold was not happy about this, and he tried to quit the army again. He wrote out a letter of resignation on July 11. But that day, people in Philadelphia learned that the British had captured Fort Ticonderoga. Again, Washington told Arnold he could not quit. Washington ordered Arnold to go north and help defend it.
Arnold arrived in Schuyler's camp at Fort Edward, New York on July 24. On August 13, Schuyler sent Arnold with 900 soldiers to help soldiers at Fort Stanwix. There, Arnold used a trick win. Arnold had a Native American messenger go into the camp of British Brigadier General Barry St. Leger. The messenger said that Arnold's army was much larger and closer than it truly was. St. Leger's Native American soldiers abandoned him, so St. Leger and the rest of his soldiers had to leave too.
Arnold then went back to the Hudson, where General Gates led the American army. They had gone to a camp south of Stillwater. Arnold fought very well in the Battles of Saratoga, even though he argued with General Gates and Gates told him he could no longer lead in the field. During the second battle, Arnold, against Gates' orders, went to the battlefield and led attacks on the British defenses. He was again severely wounded in the left leg late in the fighting. Arnold himself said it would have been better had it been in the chest instead of the leg. Burgoyne surrendered ten days after the second battle, on October 17, 1777. Because of Arnold's bravery at Saratoga, Congress restored his command seniority, meaning he outranked people who had been promoted to the same rank before him. However, Arnold believed they did so because they felt sorry that he had been injured. What he really wanted was an apology for not promoting him sooner.
Arnold spent several months trying to heal from his injuries. Instead of cutting off his left leg, he had it set in a cast. It healed, but it was shorter than the right leg. He returned to the army at Valley Forge in May 1778. Many of the men who fought with him at Saratoga clapped when they saw him. There he took part in the first recorded Oath of Allegiance along with many other soldiers, as a sign of loyalty to the United States.
After the British withdrew from Philadelphia in June 1778 Washington appointed Arnold military commander of the city. Even before the Americans reoccupied Philadelphia, Arnold began planning to make money from the change in power there. He did many business deals designed to earn money from war-related supply movements and from his rank as a general. Powerful local men sometimes stopped Arnold's plans. Together, these people found enough evidence to publicly accuse Arnold of making money improperly. Arnold demanded a court martial so he could publicly prove he did nothing wrong. He wrote to Washington in May 1779, "Having become a cripple in the service of my country, I little expected to meet [such] ungrateful returns."
Arnold spent a lot of money in Philadelphia. He went to many social events, such as balls. During the summer of 1778, Arnold met Peggy Shippen, the 18-year-old daughter of Judge Edward Shippen, a Loyalist sympathizer who had done business with the British while they occupied the city. When the British had ruled Philadelphia, Major John André had also wanted to marry Peggy. Peggy and Arnold married on April 8, 1779. Peggy and her friends had learned how to write letters to the men they liked even when there were armies in between, even though the military did not want people to talk to the enemy. Joseph Stansbury, a Philadelphia merchant, helped Peggy and her friends send some of their messages.
Sometime early in May 1779, Arnold met with Stansbury. Stansbury, whose testimony before a British commission apparently erroneously placed the date in June, said that, after meeting with Arnold, "I went secretly to New York with a tender of [Arnold's] services to Sir Henry Clinton." Ignoring instructions from Arnold not to involve anyone else in the plot, Stansbury crossed the British lines and went to see Jonathan Odell in New York. Odell was a Loyalist working with William Franklin, the last Colonial Governor of New Jersey and the son of Benjamin Franklin. On 9 May Franklin introduced Stansbury to Major André, who had just been named the British spy chief. This was the beginning of a secret correspondence between Arnold and André, sometimes using his wife Peggy as a willing intermediary, that culminated over a year later with Arnold's change of sides.
André spoke to General Clinton, who gave him broad authority to pursue Arnold's offer. André then drafted instructions to Stansbury and Arnold. This first letter opened a discussion on the types of assistance and intelligence Arnold might provide, and included instructions for how to communicate in the future. Letters would be passed through the women's circle that Peggy Arnold was a part of, but only Peggy would be aware that some letters contained instructions written in both code "and" invisible ink that were to be passed on to André, using Stansbury as the courier.
By July 1779, Arnold was providing the British with troop locations and strengths, as well as the locations of supply depots, all the while negotiating over compensation. At first, he asked for indemnification of his losses and £10,000, an amount the Continental Congress had given Charles Lee for his services in the Continental Army. General Clinton, who was pursuing a campaign to gain control of the Hudson River Valley, was interested in plans and information on the defenses of West Point and other defenses on the Hudson River. He also began to insist on a face-to-face meeting, and suggested to Arnold that he pursue another high-level command. By October 1779, the negotiations had ground to a halt. Furthermore, Patriot mobs were scouring Philadelphia for Loyalists, and Arnold and the Shippen family were being threatened. Arnold was rebuffed by Congress and by local authorities in requests for security details for himself and his in-laws.