diff --git a/Annex/AutoMerge.hs b/Annex/AutoMerge.hs
index 06efdb7f5c..7f982e515d 100644
--- a/Annex/AutoMerge.hs
+++ b/Annex/AutoMerge.hs
@@ -121,7 +121,7 @@ resolveMerge us them inoverlay = do
 	let merged = not (null mergedfs')
 	void $ liftIO cleanup
 
-	unlessM isDirect $ do
+	unlessM (pure inoverlay <||> isDirect) $ do
 		(deleted, cleanup2) <- inRepo (LsFiles.deleted [top])
 		unless (null deleted) $
 			Annex.Queue.addCommand "rm"
diff --git a/CHANGELOG b/CHANGELOG
index 2efc4eb242..79f07ba612 100644
--- a/CHANGELOG
+++ b/CHANGELOG
@@ -20,6 +20,8 @@ git-annex (6.20160528) UNRELEASED; urgency=medium
   * list: Do not include dead repositories.
   * move --to: Better behavior when system is completely out of disk space;
     drop content from disk before writing location log.
+  * Fix bad automatic merge conflict resolution between an annexed file
+    and a directory with the same name when in an adjusted branch.
 
  -- Joey Hess <id@joeyh.name>  Fri, 27 May 2016 13:12:48 -0400