This section is from the book "Canadian Banking Practice", by John T. P. Knight.
Question 8. - Bank A clears to Bank B a cheque in favor of Jones or order (and endorsed by him) drawn on a branch of Bank B at a distant point. Across the face of the cheque is written "not negotiable" by the drawer. For this reason the branch upon which the cheque is drawn refused payment and retained the cheque. Bank A refused to accept the cheque, although the cheque bears Bank A's endorsement. Which bank is in error? Would the bank upon which the cheque is drawn incur any responsibility by paying the cheque?
Answer. - Unless the cheque were otherwise crossed, the words "not negotiable" are inoperative and should be disregarded. Such words, even on a crossed cheque, do not limit its transferability, but operate to prevent a holder acquiring title irrespeotive of defects in the title of the transferor, i.e., the holder takes the cheque subject to any equities attaching to it, and can give no better title than he acquires. Bank B paying the cheque in good faith, would incur no responsibility, and should have paid it, but if it elected not to do so, Bank A should have redeemed it on demand.