I am very sorry that this has happened to the puppy that you chose, it makes me so sad.
I agree with other posters here, I wouldn't buy the littermate, and would look for a new breeder all together.
I am also wondering why they didn't opt for surgery, or give the puppy to someone who would be willing to have the surgery done, or even a yorkie rescue group. IMO putting the puppy down should be a last resort the surgery
has pretty good success rate
