Luxating Patela is a genetical problem. There is no way the parents don;t have it, i am sorry to say but that breeder is a very irresponsible one and shouldn;t breed the dogs without running all the necessary tests to make sure this doesn;t happen.
Now, yorkies can have a good life even if they have a luxating patela, but like mmyorkies said, it depends on the degree. If it is not too bad, i would sugere that u do keep him, poor thingie, i wouldn't trust that breeder
Now, i know that it depends on each state legislation, but more likely, if you can prove that you bought your yorkie from that breeder, even if u don;t have a contract, she/he can still be held responsible for selling a puppy with a congenital disease. So find out about that, even if the case is not that bad, you should;t at least be reembursed what u paid for him...that's the only way to teach this people a lesson.
As per your little boy, i hope he is doing fine and get's lots of love!!
Let us know what you decide to do...