Wouldn't the Paladin know if he was committing an evil act or not? In his mind he was simply defending someone. If he was told that killing this person was an evil/unlawful act, he would have found a different means to stop the person.
The DM probably picked the most despicable crime there is. I think most characters in this situation, paladin or not, would have done the same thing.
Having consequences for these actions, like a trial or a vendetta against the paladin is reasonable enough. Have the commoner be resurrected, or tainted by an evil god/spirit, and let him continue doing evil deeds.
I also agree that applying modern laws and ideals to fantasy worlds does not work all that well. Suddenly the characters are charged with trespassing, breaking and entering, assault, murder, uttering threats. Then they have to use all of their adventuring money to pay for legal fees.
Also, wasn't the court reserved for nobles during the medieval times?