diff --git a/src/Filename.cc b/src/Filename.cc
index cc7e0a2..d4d6c9c 100644
--- a/src/Filename.cc
+++ b/src/Filename.cc
@@ -45,7 +45,7 @@ void Filename::resolve(const ResolveContext& context) {
         if (context.scope.is_output_file((file->build_directory / name).lexically_normal())) {
             type = Type::BUILD;
         }
-        if (std::filesystem::exists(file->source_directory / name)) {
+        else if (std::filesystem::exists(file->source_directory / name)) {
             type = Type::SOURCE;
         }
     }
diff --git a/tests/filename-source-vs-build.test b/tests/filename-source-vs-build.test
new file mode 100644
index 0000000..3d1fd1e
--- /dev/null
+++ b/tests/filename-source-vs-build.test
@@ -0,0 +1,49 @@
+arguments ..
+file input empty
+file file empty
+file sub/file empty
+file build.fninja <>
+rule a
+    command = a $in $out
+
+build file: a input
+build output: file sub/file
+
+subninja sub/build.fninja
+end-of-inline-data
+file sub/build.fninja <>
+build file: a ../input
+end-of-inline-data
+file build/build.ninja {} <>
+# This file is automatically created by fast-ninja from ../build.fninja
+# Do not edit.
+
+build_directory = .
+source_directory = ..
+top_build_directory = .
+top_source_directory = ..
+
+rule a
+    command = a $in $out
+
+rule fast-ninja
+    command = fast-ninja ..
+    generator = 1
+
+build file : a ../input
+
+build output : file sub/file
+
+build build.ninja sub/build.ninja : fast-ninja ../build.fninja ../sub/build.fninja
+
+subninja sub/build.ninja
+end-of-inline-data
+file build/sub/build.ninja {} <>
+# This file is automatically created by fast-ninja from ../sub/build.fninja
+# Do not edit.
+
+build_directory = sub
+source_directory = ../sub
+
+build sub/file : a ../input
+end-of-inline-data