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James is a mixed traffic engine, which means he pull both freight cars and coaches. He is proud of his smart red paint, and his driver tells him that he brightens up everyone's day. One day shortly afterwards, James begins boasting to Thomas and Percy, saying that he is the smartest and most useful engine on the line. Thomas disagrees as he states that every engine on the railway is useful and Sir Topham Hatt says so. Percy also remarks that James is getting too puffed up for his own good, to which James puffs crossly away.
Later, James boasts to Gordon that he is the pride of the line, but Gordon tells him that he is only a goods engine. James is cross and mentions that he pulls coaches too, to which Gordon states it's not enough times like him. Then, James falsely tells Gordon that Sir Topham Hatt has plans for him, and Gordon believes him, much to James' concern as he has no way of proving that.
Later that day, Thomas is shunting shining new coaches in the yard when he spots James in a siding. James asks if the coaches are for him, but Thomas tells him that they're for Gordon's express, and that he will fetch James' freight cars next. James decides to lie to Thomas, telling him that Sir Topham Hatt told him that he is to take the coaches, and that Gordon is to pull the cars. With Thomas convinced that the red engine was telling the truth, he leaves and soon, James is coupled to the coaches and steams out of the yard. Just then, Thomas returns with James' freight cars and a few minutes later, Gordon arrives. The express engine asks where his coaches are and Thomas tells him about James and that the cars are for him. Gordon and his driver are furious and they immediately go and tell Sir Topham Hatt what has happened.
Meanwhile, James is enjoying himself enormously, thinking he got away with his "clever plan". But then, James arrives at Elsbridge and there standing on the platform is Sir Topham Hatt and he is very cross with the red engine. He quickly reprimands James and he sends him to his shed for his naughty actions and James is now told stay there until he is wanted again. James ends up spending the rest of the day stuck in his shed all while being teased by the other engines, especially Gordon and Henry. The next day, James is let out of the shed and apologizes to Thomas for lying to him. Thomas is quick to forgive James and then gives him some cars. James then shunts cars in the harbor for the rest of the day.
As James and his crew prepare to head home, a man arrives and tells James' driver that he is to attend an important meeting with Sir Topham Hatt which he must not be late for, and he asks for a ride in James' cab. James' driver recognizes the man as a railway inspector and agrees. When James arrives at Knapford, the inspector praises James on giving him a splendid ride and remarks that Sir Topham Hatt must be proud of the red engine. Sir Topham Hatt agrees and tells James that once again he has proven himself to be a Really Useful Engine.