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Hamilton was established on November 17, 1882 and was named in honor of Capt. Albert James Hamilton. Hamilton was first known as "Toll Gate," named for a toll gate on the Jackson Military Road. The original county seat of Marion County was Pikeville. Capt. Hamilton wanted to move the county seat to Toll Gate and offered to donate 40 acres of his land to the community. In 1882, the land donation from Captain Hamilton was accepted following a referendum and the name of the community was officially changed to Hamilton. Albert James Hamilton (December 7, 1838 - January 9, 1901) was born in Marion County, Alabama. In 1861, he enlisted in the 16th Alabama Infantry. Four months later he helped organize Company F, 5th Mississippi Cavalry. He later raised Company F, 7th Alabama Regiment from Marion County, and became the company captain. In 1865, Captain Hamilton was elected and served one term as sheriff. From 1869 to 1875, he served in the Alabama State Legislature.
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Capt. Hamilton was a successful planter, a member of the Methodist South Church and Masonic Lodge. He was married to Mary Louise Terrell, (May 5, 1848 - June 23, 1899), who was the daughter of Judge John Dabney Terrell,
Jr. of Pikeville. The Hamilton family home and grave site, Hamilton City Cemetery, is still preserved today. The roots of Hamilton go back to the early History of Alabama. The town is located on the Jackson Military Road. During the War of 1812, General Andrew Jackson commissioned the development of the road as a shortcut between New Orleans and Nashville. Jackson and his army camped at Military Ford, three miles south of Hamilton, as they ventured homeward following the Battle of New Orleans. Hamilton is rich in Cherokee Tribal history and has had a number of major figures actively involved in early Alabama politics. A state charter was granted to Hamilton in 1896. On January 1, 1897, William R. White was elected as the first mayor.