Naughty or Nice? is a magazine story.
Percy has just collected a load of old newspapers when Harold flies by and challenges Percy to a race. Percy declines as he doesn't want to spill his load, but Harold won't take no for an answer and sets off. Harold's spinning blades blow the newspapers into the air. Percy has to stop while his crew collects up all the old newspapers.
Back at the main station, the Fat Controller speaks sternly to Percy. He has recieved complaints about Percy making a mess. Shortly, Percy is sent to fetch a crane truck. He then meets Terence above the railway embankment pulling a dead tree-trunk. Even with his caterpillar tracks, the slope is far too steep for Terence. The tree-trunk breaks loose and rolls onto the line. Percy uses his crane truck to move it. Terence is thankful, but Percy is late again.
The next day, Percy goes to the wash-down. His paintwork gleams in the sun as he collects his carriages to fetch the Fat Controller from the Mayor's office. On the way, Percy meets Elizabeth who is burning bad coal. Soot from Elizabeth's funnel flies all over Percy. The Fat Controller is shocked to see Percy in such a state. Angry, the Fat Controller tells Percy he is going to take him out of service.
When Harold, Terence and Elizabeth hear about this, they rush to the main station to tell Sir Topham Hatt the full story. They all confess that they are the naughty ones and Percy was just being nice as usual. The Fat Controller promptly brings Percy back on duty and admits he had been wrong. He calls Percy a good engine who is always good to his friends.
- Terence's face changes size throughout this story.
- In the first illustration, the top of Percy's coal bunker is green.