Whether you should refund any or all of the money or not really depends on what the buyer was expecting. Did you advertise that the puppy would stay small? The buyer has a picture of the grandsire that she posted. Did the buyer see the parents and the grandsire before she bought the puppy? Unless you told her or guaranteed her that the puppy would stay small, then there is no reason, legally, that you should refund the money. I do see both sides of the issue, though. I definately think that all three dogs -- mother, father, grandsire -- are 100% yorkie, even though they don't all meet the standard.
Good luck getting the issue resolved!
