diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CandidateResolver.java b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CandidateResolver.java
index 44538203e55..4a502a84e8a 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CandidateResolver.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CandidateResolver.java
@@ -229,30 +229,23 @@ public class CandidateResolver {
 
         constraintSystem.addSupertypeConstraint(context.expectedType, descriptor.getReturnType(), ConstraintPosition.EXPECTED_TYPE_POSITION);
 
-        if (!constraintSystem.isSuccessful()) {
-            resolvedCall.setResultingSubstitutor(constraintSystem.getResultingSubstitutor());
-            completeNestedCallsInference(context);
-            List<JetType> argumentTypes = checkValueArgumentTypes(context, resolvedCall, context.trace,
-                                                                  RESOLVE_FUNCTION_ARGUMENTS).argumentTypes;
-            JetType receiverType = resolvedCall.getReceiverArgument().exists() ? resolvedCall.getReceiverArgument().getType() : null;
-            InferenceErrorData.ExtendedInferenceErrorData errorData = InferenceErrorData
-                    .create(descriptor, constraintSystem, argumentTypes, receiverType, context.expectedType);
-
-            context.tracing.typeInferenceFailed(context.trace, errorData);
-            resolvedCall.addStatus(ResolutionStatus.OTHER_ERROR);
-            if (!CallResolverUtil.hasInferredReturnType(resolvedCall)) return null;
-            return resolvedCall.getResultingDescriptor().getReturnType();
+        if (constraintSystem.hasContradiction()) {
+            return reportInferenceError(context);
         }
 
         boolean boundsAreSatisfied = ConstraintsUtil.checkBoundsAreSatisfied(constraintSystem, /*substituteOtherTypeParametersInBounds=*/true);
-        if (!boundsAreSatisfied) {
+        if (!boundsAreSatisfied || constraintSystem.hasUnknownParameters()) {
             ConstraintSystemImpl copy = (ConstraintSystemImpl) constraintSystem.copy();
             copy.processDeclaredBoundConstraints();
             boundsAreSatisfied = copy.isSuccessful() && ConstraintsUtil.checkBoundsAreSatisfied(copy, /*substituteOtherTypeParametersInBounds=*/true);
             if (boundsAreSatisfied) {
                 constraintSystem = copy;
+                resolvedCall.setConstraintSystem(constraintSystem);
             }
         }
+        if (!constraintSystem.isSuccessful()) {
+            return reportInferenceError(context);
+        }
         if (!boundsAreSatisfied) {
             context.tracing.upperBoundViolated(context.trace, InferenceErrorData.create(resolvedCall.getCandidateDescriptor(), constraintSystem));
         }
@@ -267,12 +260,33 @@ public class CandidateResolver {
         if (status == ResolutionStatus.UNKNOWN_STATUS || status == ResolutionStatus.INCOMPLETE_TYPE_INFERENCE) {
             resolvedCall.setStatusToSuccess();
         }
+        JetType returnType = resolvedCall.getResultingDescriptor().getReturnType();
         if (isInnerCall) {
             PsiElement callElement = context.call.getCallElement();
             if (callElement instanceof JetCallExpression) {
-                DataFlowUtils.checkType(resolvedCall.getResultingDescriptor().getReturnType(), (JetCallExpression) callElement, context, context.dataFlowInfo);
+                DataFlowUtils.checkType(returnType, (JetCallExpression) callElement, context, context.dataFlowInfo);
             }
         }
+        return returnType;
+    }
+
+    private <D extends CallableDescriptor> JetType reportInferenceError(
+            @NotNull CallCandidateResolutionContext<D> context
+    ) {
+        ResolvedCallImpl<D> resolvedCall = context.candidateCall;
+        ConstraintSystem constraintSystem = resolvedCall.getConstraintSystem();
+
+        resolvedCall.setResultingSubstitutor(constraintSystem.getResultingSubstitutor());
+        completeNestedCallsInference(context);
+        List<JetType> argumentTypes = checkValueArgumentTypes(
+                context, resolvedCall, context.trace, RESOLVE_FUNCTION_ARGUMENTS).argumentTypes;
+        JetType receiverType = resolvedCall.getReceiverArgument().exists() ? resolvedCall.getReceiverArgument().getType() : null;
+        InferenceErrorData.ExtendedInferenceErrorData errorData = InferenceErrorData
+                .create(resolvedCall.getCandidateDescriptor(), constraintSystem, argumentTypes, receiverType, context.expectedType);
+
+        context.tracing.typeInferenceFailed(context.trace, errorData);
+        resolvedCall.addStatus(ResolutionStatus.OTHER_ERROR);
+        if (!CallResolverUtil.hasInferredReturnType(resolvedCall)) return null;
         return resolvedCall.getResultingDescriptor().getReturnType();
     }
 
diff --git a/compiler/testData/diagnostics/tests/inference/upperBounds/useBoundsIfUnknownParameters.kt b/compiler/testData/diagnostics/tests/inference/upperBounds/useBoundsIfUnknownParameters.kt
new file mode 100644
index 00000000000..0734871e4ec
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/upperBounds/useBoundsIfUnknownParameters.kt
@@ -0,0 +1,11 @@
+package Hello
+
+open class Base<T>
+class StringBase : Base<String>()
+
+class Client<T, X: Base<T>>(x: X)
+
+fun test() {
+    val c = Client(StringBase()) // Type inference fails here for T.
+    val <!UNUSED_VARIABLE!>i<!> : Int = <!TYPE_MISMATCH!>c<!>
+}
\ No newline at end of file
diff --git a/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
index 0d855419520..d9a61f6c701 100644
--- a/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
@@ -2469,6 +2469,11 @@ public class JetDiagnosticsTestGenerated extends AbstractDiagnosticsTestWithEage
                     doTest("compiler/testData/diagnostics/tests/inference/upperBounds/kt2856.kt");
                 }
                 
+                @TestMetadata("useBoundsIfUnknownParameters.kt")
+                public void testUseBoundsIfUnknownParameters() throws Exception {
+                    doTest("compiler/testData/diagnostics/tests/inference/upperBounds/useBoundsIfUnknownParameters.kt");
+                }
+                
                 @TestMetadata("useBoundsToInferTypeParamsSimple.kt")
                 public void testUseBoundsToInferTypeParamsSimple() throws Exception {
                     doTest("compiler/testData/diagnostics/tests/inference/upperBounds/useBoundsToInferTypeParamsSimple.kt");