Phandalyn is a paladin in the Tavern and Inn against the western wall of Baldur's Gate Southwest in the main room. When you first enter, he will approach. If you have no evil party members, he will say,

Phandalyn: Your party is free of the taint of evil. Please pass unmolested.
He will attack the party if it has at least one evil member.

Phandalyn: I sense evil in your party, friend. I cannot allow you or your evil companions to threaten the good people of Baldur's Gate.
Killing Phandalyn gives your party 3,700 xp and decreases your Party Reputation by 3.