Were the defendants holders in due course?

As manager of the import/export department at Avon Products, Stratford Skalkos had authority to requisition checks up to $25,000 on his signature alone. For nearly three years, Skalkos used that authority to steal $162,538.65 from Avon. Skalkos followed a simple pattern: he altered the names of the payees so that, although they sounded like company suppliers, they were actually businesses to whom he owed money personally. For example, he used Avon checks made out to “Amerex Corp.” to pay his American Express bill and checks to “Metropolitan Opng. Co.” to pay the Metropolitan Opera Association, Inc. for opera tickets. By the movement of one letter, E.J. Audi, Inc. (a furniture store) became “E. Jaudi, Inc.”

Avon sued the recipients of the checks, demanding that the funds be returned. The trial court ruled that the defendants were entitled to keep the money because they were holders in due course and thus took the checks free of any claims or defenses. Avon appealed.