Dear Dr. Don,
"John" issues a cheque in favour of "Julie" and adds a condition that the payment is to be made only when Julie fulfills a condition. Julie obtains the payment from the bank without complying with this condition.
John demands damages from the bank for not ensuring the compliance. What is "conditional endorsement," and how is it effective between the parties mentioned above?
-- Ricky Requires
Although the spelling of a few words in your message is not quite cricket for the U.S., I'm assuming you're talking about a U.S.-based financial transaction. You're describing a restrictive (conditional) endorsement of a check. (This is also known as a restrictive "indorsement" in legal terms.)
The requirements for a restrictive endorsement vary by state law, so you are best served by working with an attorney in seeking recourse for a check with a restrictive endorsement that has been cashed without the payee meeting the terms of that endorsement.
A restriction properly made and as allowed by law can be used by the payer ("John") to force the payee ("Julie") to accept the condition by endorsing and cashing the check. The bank isn't likely to have an obligation to enforce the terms of the conditional endorsement.
Therefore, the payer's recourse is most likely to be against the payee, not the bank. It's the payee who may have warranted that the condition has been met by endorsing the check.
Again, the law concerning a restrictive endorsement varies by state. However, some state statutes may contain language similar to the following, which can be viewed in the "Universal Commercial Code § 3-206. Restrictive Indorsement":
A person paying the instrument or taking it for value or collection may disregard the condition, and the rights and liabilities of that person are not affected by whether the condition has been fulfilled.
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