So a group of ten men approaches the party, vastly outnumbering them and threatening to kill them by having their weapons out, demand gold, start attacking when their demands aren't met, and you are surprised they kill them like they would kill ten goblins? The paladin just removed ten murderers from the city in self-defence. Each of them could've been a rogue of equal level capable of beating him two on one. Good on them.

Had the ten men had good intentions, they would've come forth with at least the spokesperson having his weapons sheathed and threatening to call down the guard on them. Responding to a murder attempt in kind seems perfectly reasonable to me in a civilization where bandits stalk the alleys, assasssins the roofs, evil wizards the mountains and shape-shifting evil whatever-their-original-form-is the woods. A civilization where any man you see could be a level 1 peasant or level 16 rogue and you wouldn't know until he hits you with that deadly sneak attack.

A paladin should be an example of goodness and lawfulness. An exemplar to anyone aspiring to be good, with gifts given to them by gods or the very plane of goodness itself or some nonsense. Also, their life is valuable, no reason to just waste it because those ten random bandits might be redeemable even though they just demanded your coin or your life. There's orphanages to be donated to and true villains to be redeemed!