I briefly looked at a couple of explanations of the law and yes you're right about the hammer falling. It is said that although the contract is with the seller, the auction house must not misrepresent the item. Now with on-line auctions, lots of potential buyers are unlikely to visit the saleroom to inspect the item and there really should be something in the way of protection if the item is misrepresented, as in this case. I'll plod on with my enquiries.
On the type 98 sword at the same auction house, they mention a nick not far from the hilt, they don't mention the one further down nor the ones on the kissaki (tip). I love their expression about the nick they mentioned, "you have to look to see it", you have to look to see anything!