Previous to the remaining Regulator’s arrival in Lincoln, a letter was sent to Jesse Evans asking if the Dolan faction wanted peace or War. The men received a reply for peace and Tom Folliard, Billy, Doc Scurlock, Joe Bowers and Ygninio Salazar rode to the plaza at Lincoln and met with James Dolan, Jessie Evans, William Campbell, Edgar Waltz and Billy Matthews on February 18th 1879. It was the evening of the one year anniversary of the killing of Tunstall. An agreement was made, and drinks were poured. Citizens of Lincoln took note of the celebration, including Sheriff Kimbrell. Kimbrell promptly left to Fort Stanton to get support to arrest Bonney and Salazar on a warrant (possibly) for failing to appear. The men in their agreement were celebrating well past ten o’clock pm…and then Huston Chapman appeared.
Billy the Kid and the group were outside Juan Patron’s place and slowly moving down to Frank McCullum’s Saloon and restaurant, which was built adjacent to the ruins of the McSween house. Chapman had just returned from Las Vegas with Juan Patron and was suffering from neuralgia, which had worsened due to the cold weather. Chapman had just put up Mrs. McSween’s horse and buggy in the corral and was walking back to the Baca house when he encountered the intoxicated mob.
Mr. William Campbell halted in front of Mr. Chapman and obstructed his path. “May I please inquire as to your identity and destination?” he asked. “My name is Chapman,” he responded softly, “and I am conducting my business.” “Then you shall dance,” Mr. Campbell growled, drawing a revolver and pressing it against Mr. Chapman’s chest. Mr. Chapman shook his head. “I refuse to dance for any inebriated mob,” he remarked. “You must be mindful of your language, sir,” Mr. Campbell warned, “or we will force you to dance.” Mr. Chapman removed the bandage from his face to gain better visibility. “You cannot intimidate me, gentlemen,” he asserted. “I recognize you, and your efforts are futile. Might I be speaking with Mr. Dolan?” “No,” Jesse Evans replied, “but you are conversing with a highly valued associate of his.” 
At this moment Dolan fired his pistol and at the same time Campbell’s trigger finger tightened in the reflex. Chapman gasped “my God, I am killed!” and collapsed, his clothes set a light by the powder flash from the gun.
 The peace deal was broken.
After the shooting, historian Fred Nolan stated in his book that Mr. Campbell led the group up the street to McCullum’s, declaring that he had fulfilled his promise to God and General Dudley by killing Chapman. He also announced his intention to proceed to Fort Stanton and kill Charlie Scase, Mrs. McSween’s cattle detective. Although he had previously stated that he would not kill Scase on the post, Mr. Campbell was now prepared to do so wherever he encountered him.
The men proceeded to McCullum’s and ordered drinks and canned oysters. Here Mr. Dolan provided Edgar Waltz with a pistol and instructed him to place it in Chapman’s hand, but Waltz declined. Billy the Kid volunteered to do so, but ultimately did not due to concerns regarding Dolan’s unstable nature. Instead, he, Salazar and Tommy quickly left the saloon and headed towards San Patricio. By 11:30pm, Sheriff Kimbrell, accompanied by Lieutenant Dawson, Dr. Lyon and 20 cavalrymen arrived in Lincoln.
After learning of the murder Dudley sent in some “reinforcements” to most likely to help sweep things under the rug before Governor Wallace and secret service agent Wild caught wind of Chapmans murder.
Lt. Goodwin on the scene, understood what Dudley was trying to do and convinced Sheriff Kimbrell to go after Billy Tom and Salazar and even sent a small Detachment of soldiers with them to aid in arrests. Most likely the goal was to capture them and kill them to put the blame on them for killing Chapman before anybody else knew the actual details.
Despite the posse’s efforts, Tom, Salazar, and the Kid could not be located. The news of Chapman’s murder deeply troubled Governor Wallace, prompting him to urgently travel to Lincoln. In an effort to bring the perpetrators to justice, he issued requests for their arrest and offered a reward for Jesse Evans and William Campbell. They were eventually apprehended and indicted for the crime, they managed to escape from Fort Stanton. Billy, meanwhile, reached out to Governor Wallace to request immunity in exchange for his testimony regarding the night of the murder. After meeting with the Governor, an agreement was reached for Billy to provide his testimony.