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Napoleon is upset with Mr. Frederick because Mr. Frederick cheated Napoleon out of some money.
When the animals took over the farm from Farmer Jones, there was a pile of timber on the farm. They started to try to sell it, and Napoleon tried to have Frederick and Pilkington sort of bid against each other so that the price of the timber would be higher.
Napoleon eventually sold the timber to Frederick. He later found out that all the money Frederick gave him was fake.
When he found this out, he was, not surprisingly, upset.
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