Taking your information literally, the check required both indorsements (due to the "&" between the payee names) for negotiation. If John believes he suffered a loss because he received no proceeds from the check (it this mess ever gets to court, he would have to substantiate he suffered a loss), he can provide you an affidavit that he did not indorse the check and received no benefit from the check. You would then be able to file a "without entry" claim against the depositary bank for breach of its transfer and presentment warranties under the UCC. If you're paid the full amount of the check, you'll want to issue another check payable to both parties -- you really don't want to get involved in their discussions over how much each is owed.
John S. Burnett
Fighting for Compliance since 1976
Bankers' Threads User #8