The paladin is perfectly within his rights to slay the evil monsters. He is under no obligation to accept their surrender or offer them mercy.
If you as DM don't feel comfortable with such moral absolutes then you can simply rule zero your game to be however you want.
However, I notice how some people say that it is evil to kill evil creatures. How so? Who says so?
To me its evil to not kill evil creatures. How can a society that accepts "evil" beings then turn around and condemn the paladin for destroying them?
Either murder, rape, slavery, necromancy, etc. are acceptable or they are not. If they are not acceptable then evil beings wouldn't be tolerated. They would be rounded up and executed by the paladin and he would be applauded for a job well done.
If such evil is acceptable it follows then that such a "tolerant" society would than have no moral high ground with which to condemn a paladin for "murdering" evil beings.
If everyone has the "right" to their own moral code and no one has the right to judge another, than by what right does one judge the paladin as wrong for slaying evil beings wherever he finds them? For such is his code and his belief and if morality is relative than who are you to judge the paladin and say he is wrong?
So either morality is absolute and the paladin is right.
Or morality is relative and the paladin is still right.
Or (my favorite and Ayn Rand's

)morality is objective...but thats a whole other discussion.
