The scene depicts the Pompton mutiny, which took place in Bloomingdale, New Jersey on 21 January 1871. Three Continental Army NCOs — Sergeant David Gilmore, Sergeant John Tuttle and Sergeant-Major George Grant — led a drunken mutiny of 300 soldiers, seeking improvements in their pay and conditions.

The Pompton mutineers were following the example of the Pennsylvania Line, 1,500 of whom had mutinied on 1 January, just 20 miles from the Pompton camp, and successfully forced significant changes to their terms of enlistment.

But where the Supreme Executive Council of Pennsylvania had quickly caved to the mutineers' demands, the commander of the New Jersey Line and two commissioners from the New Jersey Legislature flatly refused the Pompton mutineers' demands, and on 23 January ordered them to stand down under threat of harsh punishment.

The mutineers returned to camp, but by this point news of the rising had reached Washington's headquarters in New Windsor, New York. Likely calculating that allowing two mutinies to succeed in less than a month could have a catastrophic impact on discipline in the Continental Army, Washington wrote to Major-General Robert Howe on 22 January, ordering him to march on Pompton with a large detachment to put down the rising. Washington was unequivocal that there would be no negotiation, telling Howe:

The object of your detachment is to compel the mutineers to unconditional submission—and I am to desire you will grant no terms while they are with arms in their hands in a state of resistance. The manner of executing this I leave to your discretion, according to circumstances—If you succeed in compelling the revolted troops to a surrender you will instantly execute a few of the most active and most incendiary leaders.

Washington also wrote to the Governor of New Jersey, William Livingston, to explain that he was taking extreme steps to prevent further rebellion:

Having received information from Colo. Shreve of the defection of the Jersey line, and apprehending the most dangerous consequences may ensue unless an immediate stop shall be put to such horrid proceedings; I am now taking the most vigorous coercive measures for that purpose.

[...]

I doubt not, we shall deri[ve] every aid from the good People of Your State in suppressing this Mutiny not only from a conviction of the da[n]gerous tendency of such proceedings to effect the entire dissolution of the army, but as it may affect Civil, as well as Military authority to have a redress of grievances demanded with arms [...]

On 26 January, Howe did exactly as he was instructed; surrounding the camp, he ordered the mutineers to form up on parade, then had the New Jersey regiments' officers identify the ringleaders. The three NCOs who had been appointed leaders of the rising were tried on the spot by an ad hoc court-martial, presided over by Lt. Col. Ebenezer Sproat. Gilmore and Tuttle were convicted and sentenced to be executed immediately, by a firing squad chosen from among the mutinous troops. Grant, meanwhile, was pardoned; in his report to Washington, Howe explained this decision:

[Grant] I have reprieved because the officers inform me that they were guided in their naming him more by his having been the Commanding officer of the party than from any Circumstances of aggravation in his own Conduct, and because it appeared in evidence that tho he had been compelled to take the Command he had endeavoured to prevail upon the men to return to their duty. these reasons, Sir, induced me to Spare him, which I am persuaded your Excellency will approve.

The Journal of the American Revolution has a detailed account of the mutiny and its aftermath. You can also find scans of Washington's correspondence relating to the Pennsylvania and New Jersey mutinies at the Library of Congress; the National Archives also have transcribed versions of some of that correspondence.