Mr Chapman's GP believed he had been told and casually mentioned the diagnosis in a general discussion about his symptoms, meaning it came as a total shock.
The PHSO said the Countess of Chester took a year to respond to a complaint by the family, did not listen to their concerns and initially did not acknowledge where it had gone wrong.
It also found that consultations with doctors were not recorded properly in Mr Chapman's medical records and sometimes not recorded at all.
Rebecca Hilsenrath KC, chief executive officer at the PHSO, called the investigation a "disturbing case".
"When you hear this kind of diagnosis in this way, you lose a sense of dignity and the opportunity to make your own decisions about how to live your life," she said.
"The family's trauma was compounded by their treatment during the hospital's internal complaints handling."
Ms Parker said a relative had offered to pay for her father to have treatment privately, but he had "such faith in the NHS" that he turned it down.
She added: "Medical staff have a duty of care to tell patients what is really happening.
"It was very traumatic for us all to lose him after being told that he would be fine."
The PHSO had recommended the Countess of Chester Hospital NHS Foundation Trust acknowledge its failings and apologise to Mr Chapman's family, make service improvements, improve its record keeping, and pay his wife £1,200.
It said the trust had complied.