The paying bank's customer didn't facilitate the alteration. They have a valid claim against the bank, which I trust they backed up with an affidavit. The paying bank has a claim against the depositary bank, which should refund the money. The fact that the check issuer didn't stop payment on the first check is unfortunate, but it doesn't negate the alteration claim.
John S. Burnett
Fighting for Compliance since 1976
Bankers' Threads User #8