diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CallResolver.java b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CallResolver.java
index baa2e099bc0..75fc8857b2f 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CallResolver.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/CallResolver.java
@@ -347,6 +347,9 @@ public class CallResolver {
         constraintSystem.addSubtypingConstraint(descriptor.getReturnType(), context.expectedType,
                                                  ConstraintPosition.EXPECTED_TYPE_POSITION);
 
+        TypeSubstitutor substituteDontCare = ConstraintSystemWithPriorities
+            .makeConstantSubstitutor(resolvedCall.getCandidateDescriptor().getTypeParameters(), ConstraintSystemImpl.DONT_CARE);
+
         // constraints for function literals
         // Value parameters
         for (Map.Entry<ValueParameterDescriptor, ResolvedValueArgument> entry : resolvedCall.getValueArguments().entrySet()) {
@@ -356,8 +359,15 @@ public class CallResolver {
             for (ValueArgument valueArgument : resolvedValueArgument.getArguments()) {
                 if (!JetPsiUtil.isFunctionLiteralWithoutDeclaredParameterTypes(valueArgument.getArgumentExpression())) continue;
 
+                ConstraintSystem systemWithCurrentSubstitution = constraintSystem.copy();
                 addConstraintForValueArgument(valueArgument, valueParameterDescriptor, constraintSystem.getCurrentSubstitutor(),
-                                              constraintSystem, context);
+                                              systemWithCurrentSubstitution, context);
+                if (systemWithCurrentSubstitution.hasContradiction() || systemWithCurrentSubstitution.hasErrorInConstrainingTypes()) {
+                    addConstraintForValueArgument(valueArgument, valueParameterDescriptor, substituteDontCare, constraintSystem, context);
+                }
+                else {
+                    constraintSystem = systemWithCurrentSubstitution;
+                }
             }
         }
 
@@ -753,7 +763,7 @@ public class CallResolver {
 
 
         // Solution
-        if (!constraintsSystem.hasTypeConstructorMismatch() && !constraintsSystem.hasConflictingConstraints()) { //no contradiction
+        if (!constraintsSystem.hasContradiction()) {
             candidateCall.setHasUnknownTypeParameters(true);
             return SUCCESS;
         }
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystem.java b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystem.java
index e369e975945..c18be884f4e 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystem.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystem.java
@@ -64,6 +64,11 @@ public interface ConstraintSystem {
      */
     boolean isSuccessful();
 
+    /**
+     * Return <tt>true</tt> if constraint system has no contradiction (it can be not successful because of the lack of information for a type variable).
+     */
+    boolean hasContradiction();
+
     /**
      * Returns <tt>true</tt> if type constraints for some type variable are contradicting. <p/>
      *
@@ -133,4 +138,6 @@ public interface ConstraintSystem {
      */
     @NotNull
     TypeSubstitutor getCurrentSubstitutor();
+
+    ConstraintSystem copy();
 }
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java
index 0151e20b868..3ca82d3d353 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java
@@ -105,6 +105,16 @@ public class ConstraintSystemImpl implements ConstraintSystem {
         typeParameterConstraints.put(typeVariable, new TypeConstraintsImpl(positionVariance));
     }
 
+    @Override
+    @NotNull
+    public ConstraintSystem copy() {
+        ConstraintSystemImpl newConstraintSystem = new ConstraintSystemImpl();
+        newConstraintSystem.typeParameterConstraints.putAll(typeParameterConstraints);
+        newConstraintSystem.errorConstraintPositions.addAll(errorConstraintPositions);
+        newConstraintSystem.hasErrorInConstrainingTypes = hasErrorInConstrainingTypes;
+        return newConstraintSystem;
+    }
+
     @NotNull
     public ConstraintSystem replaceTypeVariables(@NotNull Function<TypeParameterDescriptor, TypeParameterDescriptor> typeVariablesMap) {
         ConstraintSystemImpl newConstraintSystem = new ConstraintSystemImpl();
@@ -116,9 +126,7 @@ public class ConstraintSystemImpl implements ConstraintSystem {
             assert newTypeParameter != null;
             newConstraintSystem.typeParameterConstraints.put(newTypeParameter, typeConstraints);
         }
-        for (ConstraintPosition constraintPosition : errorConstraintPositions) {
-            newConstraintSystem.errorConstraintPositions.add(constraintPosition);
-        }
+        newConstraintSystem.errorConstraintPositions.addAll(errorConstraintPositions);
         newConstraintSystem.hasErrorInConstrainingTypes = hasErrorInConstrainingTypes;
         return newConstraintSystem;
     }
@@ -221,6 +229,11 @@ public class ConstraintSystemImpl implements ConstraintSystem {
         return !hasTypeConstructorMismatch() && !hasUnknownParameters() && !hasConflictingConstraints();
     }
 
+    @Override
+    public boolean hasContradiction() {
+        return hasTypeConstructorMismatch() || hasConflictingConstraints();
+    }
+
     @Override
     public boolean hasConflictingConstraints() {
         for (TypeParameterDescriptor typeParameter : typeParameterConstraints.keySet()) {
diff --git a/compiler/testData/diagnostics/tests/inference/inferInFunctionLiterals.kt b/compiler/testData/diagnostics/tests/inference/inferInFunctionLiterals.kt
new file mode 100644
index 00000000000..a677ec097c3
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/inferInFunctionLiterals.kt
@@ -0,0 +1,12 @@
+package n
+
+//+JDK
+import java.util.*
+
+fun expected<T>(t: T, <!UNUSED_PARAMETER!>f<!>: () -> T) : T = t
+
+fun test(arrayList: ArrayList<Int>, list: List<Int>) {
+    val <!UNUSED_VARIABLE!>t<!> = expected(arrayList, { list.reverse() })
+}
+
+fun <T> List<T>.reverse() : List<T> = this
\ No newline at end of file