Penny is a house elf who has served the Malfoy family for generations. While Penny's loyalty to the Malfoy family is unquestionable, she has been abused and mistreated. Freeing Penny from the Malfoys' control would be a kind and compassionate act. However, the Malfoys may not take kindly to their house elf being liberated. It is ultimately up to you to decide if you should free Penny.