Pedantically no. There's like a .00000000000000000000001% chance the Paladin can win

But practically speaking, I agree. No chance of winning in combat without help.
You know, 750 posts over a week into the thread it's easy to forget minor details. The dragon did say if you give me the man you can live, which is not how it's been playing back in my head. Thanks for bringing that up.
Implied threat that if the Paladin doesn't give the man he will die vs
fact 3: Paladin successfully persuaded dragon not to kill him. I'm back to the DM totally botched this encounter. The dragon's reaction after the persusasion attempt makes no sense. Thanks for reminding me of it's actual words. The Paladin succeeded in persuading the dragon not to kill him. It shouldn't be threatening his life right after the good persuasion unless he positions his life inbetween the dragon and something it wants more.
As for the Paladin, if Paladin's existed in real life I would think he didn't have an obvious course of action. I think he needed to reasonable verify it had became a no-win situation before giving up the NPC though. However, this is the game and the metagame knowledge that he should have persuaded the dragon not to kill him and the best he could get is the dragon threatening to kill him unless he gave the dragon the NPC.
So I would like to draw line. In the game I think the metagame knowledge made the Paladin's act justifiable. It is a game afterall. In real life, I think further attempts would have needed made since metagame knowledge couldn't make you believe this is the best outcome I can get.