Filename Collision - Another item with the same name exists on the server.

At one of our merges we encountered an error saying that there is a file collision and we could not complete the process. The error is raised when you are performing the check in after the merge. The merge itself passes with no error. It seem that it happens when 2 files/folders with the same name and location are added to both branches. While performing the merge the source branch treats the new item as a branch action to the destination branch which results in adding the file in the check in process. The merge process does not check if the file already exists and when you perform the check in you get the error and the only option to resolve it is to delete the local file (the file from the merge action). The problem is that we wanted the file from the merge source branch. To fix this we needed to delete the file in the destination branch (after performing undo pending changes for the merge) and than perform the merge again.