diff --git a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/ConstraintInjector.kt b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/ConstraintInjector.kt
index 360e18df6ae..e23c8d24d53 100644
--- a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/ConstraintInjector.kt
+++ b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/ConstraintInjector.kt
@@ -154,6 +154,11 @@ class ConstraintInjector(val constraintIncorporator: ConstraintIncorporator, val
                     ?: error("Should by type variableConstructor: $typeVariableConstructor. ${c.allTypeVariables.values}")
 
             var targetType = type
+            if (targetType.isError) {
+                c.addError(ConstrainingTypeIsError(typeVariable, targetType, position))
+                return
+            }
+
             if (type.contains(this::isCapturedTypeFromSubtyping)) {
                 // TypeVariable <: type -> if TypeVariable <: subType => TypeVariable <: type
                 if (kind == UPPER) {
diff --git a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/model/ConstraintPositionAndErrors.kt b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/model/ConstraintPositionAndErrors.kt
index bcbdb71844d..0f2c7ceb68e 100644
--- a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/model/ConstraintPositionAndErrors.kt
+++ b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/model/ConstraintPositionAndErrors.kt
@@ -92,4 +92,10 @@ class CapturedTypeFromSubtyping(
     val position: ConstraintPosition
 ) : ConstraintSystemCallDiagnostic(INAPPLICABLE)
 
-class NotEnoughInformationForTypeParameter(val typeVariable: NewTypeVariable) : ConstraintSystemCallDiagnostic(INAPPLICABLE)
\ No newline at end of file
+class NotEnoughInformationForTypeParameter(val typeVariable: NewTypeVariable) : ConstraintSystemCallDiagnostic(INAPPLICABLE)
+
+class ConstrainingTypeIsError(
+    val typeVariable: NewTypeVariable,
+    val constraintType: UnwrappedType,
+    val position: IncorporationConstraintPosition
+) : ConstraintSystemCallDiagnostic(INAPPLICABLE)
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/cast/bare/UnrelatedColon.ni.txt b/compiler/testData/diagnostics/tests/cast/bare/UnrelatedColon.ni.txt
index a4550a556ef..3deb20fc81f 100644
--- a/compiler/testData/diagnostics/tests/cast/bare/UnrelatedColon.ni.txt
+++ b/compiler/testData/diagnostics/tests/cast/bare/UnrelatedColon.ni.txt
@@ -1,6 +1,6 @@
 package
 
-public fun test(/*0*/ tr: Tr): [ERROR : G]
+public fun test(/*0*/ tr: Tr): Tr
 
 public interface G</*0*/ T> {
     public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
diff --git a/compiler/testData/diagnostics/tests/controlFlowAnalysis/unresolvedReference.kt b/compiler/testData/diagnostics/tests/controlFlowAnalysis/unresolvedReference.kt
index 8ca621d279d..c090b9640c5 100644
--- a/compiler/testData/diagnostics/tests/controlFlowAnalysis/unresolvedReference.kt
+++ b/compiler/testData/diagnostics/tests/controlFlowAnalysis/unresolvedReference.kt
@@ -1,4 +1,3 @@
-// !WITH_NEW_INFERENCE
 // See KT-6665: unresolved reference (v.bar) should not produce "unreachable code" after it
 
 fun foo(): Int {
@@ -29,14 +28,14 @@ fun foo3(): Int {
 fun bar(): Int {
     val v = 1
     val c = v.<!UNRESOLVED_REFERENCE!>bar<!> ?: 42
-    return <!NI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>c<!>
+    return c
 }
 
 fun bar2(): Int {
     val v = 1
     val c = if (true) v.<!UNRESOLVED_REFERENCE!>bar<!> else 3
-    val b = <!NI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>c<!>
-    return <!NI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>b<!>
+    val b = c
+    return b
 }
 
 fun bar3(): Int {
@@ -45,6 +44,6 @@ fun bar3(): Int {
         true -> v.<!UNRESOLVED_REFERENCE!>bar<!>
         else -> 3
     }
-    val b = <!NI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>c<!>
-    return <!NI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>b<!>
+    val b = c
+    return b
 }
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/delegatedProperty/inference/genericMethods.kt b/compiler/testData/diagnostics/tests/delegatedProperty/inference/genericMethods.kt
index eda496595bc..dd4bb974523 100644
--- a/compiler/testData/diagnostics/tests/delegatedProperty/inference/genericMethods.kt
+++ b/compiler/testData/diagnostics/tests/delegatedProperty/inference/genericMethods.kt
@@ -1,10 +1,9 @@
 // !DIAGNOSTICS: -UNUSED_PARAMETER
-// !WITH_NEW_INFERENCE
 // NI_EXPECTED_FILE
 import kotlin.reflect.KProperty
 
 var a: Int by A()
-var a1 by <!OI;DELEGATE_SPECIAL_FUNCTION_NONE_APPLICABLE, DELEGATE_SPECIAL_FUNCTION_NONE_APPLICABLE!>A()<!>
+var a1 by <!DELEGATE_SPECIAL_FUNCTION_NONE_APPLICABLE, DELEGATE_SPECIAL_FUNCTION_NONE_APPLICABLE!>A()<!>
 
 var b: Int by B()
 
diff --git a/compiler/testData/diagnostics/tests/functionLiterals/return/ForbiddenNonLocalReturnNoType.kt b/compiler/testData/diagnostics/tests/functionLiterals/return/ForbiddenNonLocalReturnNoType.kt
index 0ad96640de8..037dec7797e 100644
--- a/compiler/testData/diagnostics/tests/functionLiterals/return/ForbiddenNonLocalReturnNoType.kt
+++ b/compiler/testData/diagnostics/tests/functionLiterals/return/ForbiddenNonLocalReturnNoType.kt
@@ -1,18 +1,18 @@
 // !WITH_NEW_INFERENCE
 fun test() {
     run {<!RETURN_NOT_ALLOWED!>return<!>}
-    run {}
+    <!NI;UNREACHABLE_CODE!>run {}<!>
 }
 
 fun test2() {
     run {<!RETURN_NOT_ALLOWED!>return@test2<!>}
-    run {}
+    <!NI;UNREACHABLE_CODE!>run {}<!>
 }
 
 fun test3() {
     fun test4() {
         run {<!RETURN_NOT_ALLOWED!>return@test3<!>}
-        run {}
+        <!NI;UNREACHABLE_CODE!>run {}<!>
     }
 }
 
diff --git a/compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.kt b/compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.kt
new file mode 100644
index 00000000000..26de6fec138
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.kt
@@ -0,0 +1,26 @@
+// !LANGUAGE: +NewInference
+
+// FILE: Sam.java
+
+public interface Sam<K> {
+    Sam.Result<K> compute();
+
+    public static class Result<V> {
+        public static <V> Sam.Result<V> create(V value) {}
+    }
+}
+
+// FILE: Foo.java
+
+public class Foo {
+    public static <T> void foo(Sam<T> var1) {
+    }
+}
+
+// FILE: test.kt
+
+fun test(e: <!UNRESOLVED_REFERENCE!>ErrorType<!>) {
+    Foo.foo {
+        Sam.Result.create(<!DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>e<!>)
+    }
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.txt b/compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.txt
new file mode 100644
index 00000000000..c6adb9614d4
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.txt
@@ -0,0 +1,30 @@
+package
+
+public fun test(/*0*/ e: [ERROR : ErrorType]): kotlin.Unit
+
+public open class Foo {
+    public constructor Foo()
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+
+    // Static members
+    public open fun </*0*/ T : kotlin.Any!> foo(/*0*/ var1: Sam<T!>!): kotlin.Unit
+}
+
+public interface Sam</*0*/ K : kotlin.Any!> {
+    public abstract fun compute(): Sam.Result<K!>!
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+
+    public open class Result</*0*/ V : kotlin.Any!> {
+        public constructor Result</*0*/ V : kotlin.Any!>()
+        public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+        public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+        public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+
+        // Static members
+        public open fun </*0*/ V : kotlin.Any!> create(/*0*/ value: V!): Sam.Result<V!>!
+    }
+}
diff --git a/compiler/testData/diagnostics/tests/inference/nestedCalls/binaryExpressions.kt b/compiler/testData/diagnostics/tests/inference/nestedCalls/binaryExpressions.kt
index 7dfa9c04a2c..1d553689322 100644
--- a/compiler/testData/diagnostics/tests/inference/nestedCalls/binaryExpressions.kt
+++ b/compiler/testData/diagnostics/tests/inference/nestedCalls/binaryExpressions.kt
@@ -57,7 +57,7 @@ fun test3(z: Z) {
 //'in' operation
 fun test4(collection: Collection<A<*>>) {
     id(<!OI;TYPE_INFERENCE_NO_INFORMATION_FOR_PARAMETER!>newA<!>() in collection)
-    id(newA<Int>() in collection)
+    <!NI;UNREACHABLE_CODE!>id(newA<Int>() in collection)<!>
 }
 
 //boolean operations
diff --git a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.kt b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.kt
index 032505c6c2f..029c77abb9d 100644
--- a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.kt
+++ b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.kt
@@ -3,7 +3,7 @@ fun foo() {
     fun bar1() = <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!><!NI;DEBUG_INFO_MISSING_UNRESOLVED!>bar1<!>()<!>
 
     fun bar2() = 1 <!NI;OVERLOAD_RESOLUTION_AMBIGUITY!>+<!> <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!><!NI;DEBUG_INFO_MISSING_UNRESOLVED!>bar2<!>()<!>
-    fun bar3() = id(<!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!><!NI;DEBUG_INFO_MISSING_UNRESOLVED!>bar3<!>()<!>)
+    fun <!NI;IMPLICIT_NOTHING_RETURN_TYPE!>bar3<!>() = id(<!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!><!NI;DEBUG_INFO_MISSING_UNRESOLVED!>bar3<!>()<!>)
 }
 
 fun <T> id(x: T) = x
diff --git a/compiler/testData/diagnostics/tests/platformTypes/nullabilityWarnings/elvis.kt b/compiler/testData/diagnostics/tests/platformTypes/nullabilityWarnings/elvis.kt
index c8b19ee5d91..3a0ed4efc32 100644
--- a/compiler/testData/diagnostics/tests/platformTypes/nullabilityWarnings/elvis.kt
+++ b/compiler/testData/diagnostics/tests/platformTypes/nullabilityWarnings/elvis.kt
@@ -1,5 +1,4 @@
 // !DIAGNOSTICS: -UNUSED_VARIABLE -SENSELESS_COMPARISON, -UNUSED_PARAMETER
-// !WITH_NEW_INFERENCE
 
 // FILE: J.java
 
@@ -62,7 +61,7 @@ fun test() {
     takeNotNull(J.getNAny() ?: J())
 
     val x = <!UNRESOLVED_REFERENCE!>unresolved<!> ?: null
-    <!OI;UNREACHABLE_CODE!>val y =<!> <!UNRESOLVED_REFERENCE!>unresolved<!>.<!DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>foo<!> ?: return
+    <!UNREACHABLE_CODE!>val y =<!> <!UNRESOLVED_REFERENCE!>unresolved<!>.<!DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>foo<!> ?: return
 }
 
 fun takeNotNull(s: J) {}
diff --git a/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.kt b/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.kt
index fdaa7e1e5c0..632b8a87ad9 100644
--- a/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.kt
+++ b/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.kt
@@ -10,7 +10,7 @@ class A {
     val a get() = <!DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE!>b<!>
     val b get() = <!NI;DEBUG_INFO_MISSING_UNRESOLVED, TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>a<!>
 
-    val z1 get() = id(<!NI;DEBUG_INFO_MISSING_UNRESOLVED, OI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE, TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>z1<!>)
+    val <!NI;IMPLICIT_NOTHING_PROPERTY_TYPE!>z1<!> get() = id(<!NI;DEBUG_INFO_MISSING_UNRESOLVED, OI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE, TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>z1<!>)
     val z2 get() = l(<!NI;DEBUG_INFO_MISSING_UNRESOLVED, OI;DEBUG_INFO_ELEMENT_WITH_ERROR_TYPE, TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>z2<!>)
 
     val u get() = <!UNRESOLVED_REFERENCE!>field<!>
diff --git a/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.ni.txt b/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.ni.txt
index 1efd38b174b..ed4126242a5 100644
--- a/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.ni.txt
+++ b/compiler/testData/diagnostics/tests/properties/inferenceFromGetters/recursiveGetter.ni.txt
@@ -10,8 +10,8 @@ public final class A {
     public final val b: [ERROR : Error function type]
     public final val u: [ERROR : Error function type]
     public final val y: [ERROR : Error function type]
-    public final val z1: [ERROR : Error type for ParseError-argument VALUE_ARGUMENT]
-    public final val z2: kotlin.collections.List<[ERROR : Error type for ParseError-argument VALUE_ARGUMENT]>
+    public final val z1: kotlin.Nothing
+    public final val z2: kotlin.collections.List<kotlin.Nothing>
     public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
     public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
     public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
index f4f3126903b..c389787247c 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
@@ -9565,6 +9565,11 @@ public class DiagnosticsTestGenerated extends AbstractDiagnosticsTest {
                     runTest("compiler/testData/diagnostics/tests/inference/constraints/equalityConstraintOnNullableType.kt");
                 }
 
+                @TestMetadata("errorUpperBoundConstraint.kt")
+                public void testErrorUpperBoundConstraint() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.kt");
+                }
+
                 @TestMetadata("ignoreConstraintFromImplicitInNothing.kt")
                 public void testIgnoreConstraintFromImplicitInNothing() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/inference/constraints/ignoreConstraintFromImplicitInNothing.kt");
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
index c073d06c620..171d092d4be 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
@@ -9565,6 +9565,11 @@ public class DiagnosticsUsingJavacTestGenerated extends AbstractDiagnosticsUsing
                     runTest("compiler/testData/diagnostics/tests/inference/constraints/equalityConstraintOnNullableType.kt");
                 }
 
+                @TestMetadata("errorUpperBoundConstraint.kt")
+                public void testErrorUpperBoundConstraint() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/inference/constraints/errorUpperBoundConstraint.kt");
+                }
+
                 @TestMetadata("ignoreConstraintFromImplicitInNothing.kt")
                 public void testIgnoreConstraintFromImplicitInNothing() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/inference/constraints/ignoreConstraintFromImplicitInNothing.kt");