Matthew, Edward, Bobadil, and Stephen speak disparagingly about Downright. Bobadil states that, with what he taught Matthew earlier about fighting, the latter should be able to kill Downright easily.
Bobadil continues to boast about his fighting skills. But like the sword that Stephen bought earlier, these boasts are wholly inauthentic.
Bobadil boasts of his past exploits in fighting, acting out as he does so. He brags that, if the Queen knew about him, he could save her three quarters of her annual costs in fighting wars. He says he would select a group of the right men and teach them how to fight properly. Edward (probably sarcastically) points out that Downright ought to be afraid of Bobadil.
This represents the height of Bobadil’s self-delusions, essentially saying that he alone could vastly improve Queen Elizabeth’s (very strong) military forces. All this talk sets Bobadil up for a fall when Downright re-enters.
Just then, Downright arrives. Amazed that he has run into “these bragging rascals” yet again, he tells Bobadil to draw his sword. Bobadil tries to back out of the fight; Downright quickly and easily disarms him. Matthew, terrified, runs away.
Downright’s anger towards Bobadil is clearly linked to the latter’s constant boastfulness. Embarrassingly for both Bobadil and Matthew, Downright quickly gets the better of them. This shows them both up as inauthentic.
Downright leaves. Bobadil tries to excuse his cowardly behavior to Edward and Stephen by claiming he is bound by a “warrant of the peace” not to fight. Bobadil then claims he was “struck with a planet” that supernaturally prevented him from drawing his weapon. He leaves. Stephen picks up Downright’s discarded cloak.
Bobadil’s excuses are desperate and unconvincing, not to mention contradictory. Firstly, he claims that he is bound by law to act peacefully, which is patently untrue. Secondly, he tries to claim some kind of supernatural intervention that prevented him from fighting—which is patently ridiculous.