diff --git a/src/Installer.php b/src/Installer.php
index 1e75608..90c6ff8 100644
--- a/src/Installer.php
+++ b/src/Installer.php
@@ -609,6 +609,20 @@ function () use ($repo, $initial, $target, $installPath, $stashPath, $basePath)
                         (new Filesystem)->removeDirectory($stashPath);
                     }
 
+                    // When upgrading FROM a path package, parent::update() invokes
+                    // PathDownloader against the old path source which may not exist.
+                    // Track the repo manually — we have already placed the files.
+                    if ($initial->getDistType() === 'path') {
+                        if ($repo->hasPackage($initial)) {
+                            $repo->removePackage($initial);
+                        }
+                        if (! $repo->hasPackage($target)) {
+                            $repo->addPackage(clone $target);
+                        }
+
+                        return \React\Promise\resolve(null);
+                    }
+
                     // Delegate repo tracking (installed.json) to parent — skip the download step
                     // since we have already placed the files ourselves.
                     return $this->delegateRepoTracking($repo, $initial, $target);
diff --git a/tests/ModuleInstallerTest.php b/tests/ModuleInstallerTest.php
index 5e9a7fb..770d56d 100644
--- a/tests/ModuleInstallerTest.php
+++ b/tests/ModuleInstallerTest.php
@@ -137,6 +137,30 @@ protected function parentInstall(InstalledRepositoryInterface $repo, PackageInte
     {
         return \React\Promise\resolve(null);
     }
+
+    public bool $downloadBaseInvoked = false;
+
+    protected function downloadBase(PackageInterface $initial, string $basePath): PromiseInterface
+    {
+        $this->downloadBaseInvoked = true;
+        mkdir($basePath, 0755, true);
+
+        return \React\Promise\resolve(null);
+    }
+
+    protected function downloadFresh(PackageInterface $package, string $path): PromiseInterface
+    {
+        return \React\Promise\resolve(null);
+    }
+
+    public bool $delegateRepoTrackingInvoked = false;
+
+    protected function delegateRepoTracking(InstalledRepositoryInterface $repo, PackageInterface $initial, PackageInterface $target): PromiseInterface
+    {
+        $this->delegateRepoTrackingInvoked = true;
+
+        return \React\Promise\resolve(null);
+    }
 }
 
 final class ModuleInstallerTest extends TestCase
@@ -867,6 +891,67 @@ public function test_update_skips_when_install_path_is_locally_tracked(): void
         (new Filesystem)->remove($baseDir);
     }
 
+    // -------------------------------------------------------------------------
+    // update() merge-strategy guard for path-type initial packages
+    // -------------------------------------------------------------------------
+
+    public function test_update_skips_base_download_and_delegates_repo_manually_when_initial_is_path_type(): void
+    {
+        $baseDir = sys_get_temp_dir().'/update-path-initial-'.uniqid('', true);
+        mkdir($baseDir.'/test-module', 0755, true);
+
+        $composer = $this->createStub(Composer::class);
+        $root = new RootPackage('root/app', '1.0.0.0', '1.0.0');
+        $root->setExtra(['module-dir' => $baseDir]);
+        $composer->method('getPackage')->willReturn($root);
+
+        $initial = new Package('saucebase/test-module', '1.0.0.0', '1.0.0');
+        $initial->setDistType('path');
+
+        $target = new Package('saucebase/test-module', '2.0.0.0', '2.0.0');
+        $target->setDistType('zip');
+
+        $repo = $this->createMock(InstalledRepositoryInterface::class);
+        $repo->method('hasPackage')->willReturnCallback(fn ($p) => $p === $initial);
+        $repo->expects($this->once())->method('removePackage')->with($initial);
+        $repo->expects($this->once())->method('addPackage');
+
+        $installer = new TestableInstaller($this->createStub(IOInterface::class), $composer);
+        $installer->update($repo, $initial, $target);
+
+        $this->assertFalse($installer->downloadBaseInvoked);
+        $this->assertFalse($installer->delegateRepoTrackingInvoked);
+
+        (new Filesystem)->remove($baseDir);
+    }
+
+    public function test_update_downloads_base_and_delegates_repo_to_parent_when_initial_is_not_path_type(): void
+    {
+        $baseDir = sys_get_temp_dir().'/update-zip-initial-'.uniqid('', true);
+        mkdir($baseDir.'/test-module', 0755, true);
+
+        $composer = $this->createStub(Composer::class);
+        $root = new RootPackage('root/app', '1.0.0.0', '1.0.0');
+        $root->setExtra(['module-dir' => $baseDir]);
+        $composer->method('getPackage')->willReturn($root);
+
+        $initial = new Package('saucebase/test-module', '1.0.0.0', '1.0.0');
+        $initial->setDistType('zip');
+
+        $target = new Package('saucebase/test-module', '2.0.0.0', '2.0.0');
+        $target->setDistType('zip');
+
+        $repo = $this->createStub(InstalledRepositoryInterface::class);
+
+        $installer = new TestableInstaller($this->createStub(IOInterface::class), $composer);
+        $installer->update($repo, $initial, $target);
+
+        $this->assertTrue($installer->downloadBaseInvoked);
+        $this->assertTrue($installer->delegateRepoTrackingInvoked);
+
+        (new Filesystem)->remove($baseDir);
+    }
+
     // -------------------------------------------------------------------------
     // updateCode() skip flag
     // -------------------------------------------------------------------------