If at that time (before the puppy leaves the breeders home) any puppy is CLEARLY not going to fit the standard of the parent club the breeder is registering with, then YES, I think it is a very fair and ethical way to deal w/ things. Especially since many of the buyers of Yorkies simply want a happy/healthy pet! The honest truth though, is that a lot of these people go in wanting a pet, but after falling in love w/ it and getting tons of complements (by people who don't really know the breed anyway) they want to then breed their Yorkie and that's simply not right. I can understand if they wanted to do so and went back to the breeder and said, hey look...and presented their questions...that's one thing. But many are just going off and doing it and think that all they need is another registered dog and *poof* you have healthy "Champion lineage" puppies and charge an insane amount of money for sh*$ Yorkies.
It's insane and all cycles can be broken. Where do we begin?? *raises hand* I'll go first happily!