Reader Macy Shubak recently asked me the following question:
How do you feel about using “books and records” as in “Investor may inspect the Company’s books and records”? I think one or the other of the words can be deleted. It would be better to delete “books,” since “records” is broader. “Records” includes physical and electronic records, whereas “books” sounds like hard copy materials. I think “books” is a term of art that refers to financial books, but I still think referring to “records” alone would pick up such financial books.
Essentially, I agree with Macy. Here’s why:
Let’s consider first the meaning of books. It could mean corporate books, which Black’s Law Dictionary defines as “Written records of a corporation’s activities and business transactions.” But that doesn’t pick up the financial aspect that Macy mentioned. In that regard, a better bet would be books of account, which Black’s considers to be a synonym of shop books, which it defines as “Records of original entry maintained in the usual course of business by a shopkeeper, trader, or other businessperson.”
So books is ambiguous, in that it has a broader meaning and a narrower, bookkeeping-related meaning.
Now let’s consider records. Black’s doesn’t offer a definition of records—it’s too general a word. But for our purposes, all that matters is that both definitions that Black’s offers for books lead with the word records. So whatever meaning you might ascribe to the word books, books constitute records. It follows that in the phrase books and records, the word books is redundant.
This doesn’t come as a surprise. In “material contracts” filed on the U.S. Securities and Exchange Commission’s EDGAR system, the phrase books and records occurs more than four times as often as the phrase records and books. When one way of ordering the words in a couplet predominates over the other way, that suggests that the phrase is used as much for purposes of incantation as for whatever meaning the individual words might convey.
If you want to convey just the bookkeeping-related meaning, I think you can do better than books. How about using instead a phrase beginning records relating to?
9 thoughts on ““Books and Records”?”
This is an excellent topic for contract drafters to consider. "Books and records" is one of those phrases that is used as boilerplate in a contract, and no one pays any attention to the phrase until the opposing party wants to audit not only your company's financial books but also records, including records relating to contractual performance or non-performance that have nothing to do with financial books. This provision begs for revision, as you note, especially if you are the one facing the audit.
I think the source of "books and records" can be found in the corporate code – for example Del. Gen. Corp. Law Sec 220, which defines the rights of a stockholder to inspect the "books and records" of the corporation. I'm sure the language often gets included in agreements – particularly shareholder agreements – because it mirrors the language of Sec. 220.
Love your blog!
Brian: Good point. I did a quick search of Delaware caselaw and a treatise and didn't find anything of interest on the subject. No one should be surprised that the DGCL includes a loose phrase such as "books and records." The drafting of the DGCL, like that of statutes generally, leaves a lot to be desired. That's something I wrote about in this October 2006 blog post: https://www.adamsdrafting.com/2006/10/16/drafting-…. Ken
I think this is another case where you're going to have to concede to the power of the law. I can't imagine any practitioner deliberately opening up the ambiguity debate by not tracking the statute. Until the law gets fixed, anyone who tries to depart from the language (compelling as the grammar and drafting arguments may be) is just asking for trouble.
Plus, there is (or at least was) a difference in the two. I'm going back a long ways in the memory here, but "books" meant things like "minute books" (records of the board's actions) and "records" meant things like stockholder lists (clerical). There used to be (and may still be, I have no idea) a lot of argument about the difference between the two and whether a "proper purpose" had to be shown for a shareholder to obtain access. Delaware took the position that every stockholder had an absolute right to the records (the list) but had to show a proper purpose for the books when it adopted s220.
I'd caution that Black's isn't a particularly good reference here. You might check out this old law review article to get a better understanding before blindly swinging the sword of common sense on legally operative language. http://www.jstor.org/pss/1070196
Random: I have long track record of occasional errant swings of the sword of common sense on this blog. I would say it's part of the marketplace of ideas, but the mixed metaphors don't work well together.
One problem with your objection is that the vast majority of contract references to "books and records" have no bearing on DGCL 220 or any other statute language.
And even if DGCL 220 is relevant, what's the nexus between the contract language and the statute? If the contract somehow has to echo the statute, the safest thing would presumably be to say something like "as required under DGCL 220." If the connection is something else, I have no reason to accept your suggestion that any risk is involved. I’ll be checking this out myself in due course, but I invite you to run a couple of scenarios by me.
And if contract language concerns certain kinds of records, then be explicit. That would be far preferable to relying on magic-wordery parsing of the terminology.
This all seems to explain much, though I wouldn't assume that a court would feel obliged to interpret the phrase in accordance with the statute or as previously treated in common law. I also don't much like the way the article linked by randomjohn switches without any thought from "books and records" to "books and papers" to "two specific types of corporate papers" and back to "books and records" – perhaps a further sign that it would be best to nail the concept more precisely in the contract.
The phrase does seem to have become embedded in US laws and accounting practice, eg see http://cfr.vlex.com/vid/1-31-books-records-keepin…
In the UK, the phrase used in the s. 147, Companies Act 1948 was “books of account” (no reference to records). When this Act was replaced by the Companies Act 1985, s.221 (equivalent to the old s. 147), the phrase used was “accounting records” (no reference to books), and this phrase has been repeated in the latest Act, the Companies Act 2006. Interestingly, whilst googling “books and records” I discovered the phrase being used by a UK accountant to refer to the accounting records provisions of the Companies Act 2006.
So, books and records seem to be synonyms, like will and testament. Great for a resounding phrase, but not good for contracts.
When drafting a provision that does relate to a corporate statute (such as Illinois' right to examine "books and records of account"), I think following the statutory language makes sense, however poorly worded it may be. In most cases, you want to give access to exactly what the statute requires, neither more nor less. The best way of insuring that result is to track the statutory language.
When you are providing access to records in other scenarios, it makes sense to be more precise. For example, in connection with a license agreement, it would make sense to give the licensor access to "Licensee's accounting records which are relevant to the calculation of the royalty due under this Agreement."
David: But what does "relate to" mean? I think the nexus needs to be a lot clearer if one's to make a reasoned decision. At some point I'll be exploring this. Ken