I am speaking as a seller that (this very week) made a very large mistake in underestimating estimated shipping costs on an item already paid for by a buyer. The shipping ended up being more than the entire purchase price of the item ($150), and I was forced to admit to the buyer I could not send the item he already paid for as promised.
If you sell an Item, every effort should be made to insure that the buyer is completely satisfied, including full disclosure of any possible defect. The condition of the chrome may have been open to interpretation, but in my opinion, anything less than perfect on a product should be brought to a sellers attention. As you thought you had reason to suspect this persons integrity, I believe you handled this well by canceling the check. If the seller (who is out the same money as you) thinks differently, well thats too bad. At this point, you should both cut your losses.
In my case, I overnighted a money order for the entire purchase price, shipping, and whatever postage the buyer sent to me along with a very apologetic letter. I followed this up with an email. I'm sure I look like an ass to this gentlemen, but I believe this was my responsibility.