I have both and use them for pretty different purposes. iPad is my e-reader but like to have books on iPhone as back up e-reader on the fly when in a pinch, or PDF reference on the go, as phone is always with me no matter what. But I very, very rarely read books on it as it is tedious. I usually just end up playing word games like if I'm in a waiting room at the doctor office and didn't feel like bringing my bag with my iPad. The thing is, iPad is not so large that I couldn't just hold it in my hand in the case either. I just don't always bring it to appointments, but I do bring it to work every day.
But for surfing and reading for any length of time (which is at home or a free WIFI spot for me) or PDF annotations, highlighting that I do, I have to use iPad as iPhone is just too small.