diff --git a/compiler/testData/diagnostics/tests/inference/typeInferenceExpectedTypeMismatch.kt b/compiler/testData/diagnostics/tests/inference/typeInferenceExpectedTypeMismatch.kt
index 29ceac5cdec..9ce13d9435a 100644
--- a/compiler/testData/diagnostics/tests/inference/typeInferenceExpectedTypeMismatch.kt
+++ b/compiler/testData/diagnostics/tests/inference/typeInferenceExpectedTypeMismatch.kt
@@ -3,9 +3,39 @@ package typeInferenceExpectedTypeMismatch
 import java.util.*
 
 fun test() {
-    val <!UNUSED_VARIABLE!>s<!> : Set<Int> = <!TYPE_INFERENCE_EXPECTED_TYPE_MISMATCH!>newList<!>()
+    val s : Set<Int> = <!TYPE_INFERENCE_EXPECTED_TYPE_MISMATCH!>newList<!>()
+    use(s)
 }
 
 fun newList<S>() : ArrayList<S> {
     return ArrayList<S>()
 }
+
+trait Out<out T>
+trait In<in T>
+
+trait Two<T, R>
+
+trait A
+trait B: A
+trait C: A
+
+fun <T, R> foo(o: Out<T>, i: In<R>): Two<T, R> = throw Exception("$o $i")
+
+fun test1(outA: Out<A>, inB: In<B>) {
+    foo(outA, inB)
+
+    val b: Two<A, C> = <!TYPE_INFERENCE_EXPECTED_TYPE_MISMATCH!>foo<!>(outA, inB)
+    use(b)
+}
+
+fun <T> bar(o: Out<T>, i: In<T>): Two<T, T> = throw Exception("$o $i")
+
+fun test2(outA: Out<A>, inC: In<C>) {
+    <!TYPE_INFERENCE_CONFLICTING_SUBSTITUTIONS!>bar<!>(outA, inC)
+
+    val b: Two<A, B> = <!TYPE_INFERENCE_CONFLICTING_SUBSTITUTIONS!>bar<!>(outA, inC)
+    use(b)
+}
+
+fun use(vararg a: Any?) = a
\ No newline at end of file
diff --git a/core/descriptors/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java b/core/descriptors/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java
index 4f0a027201e..dad8cfbe66d 100644
--- a/core/descriptors/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java
+++ b/core/descriptors/src/org/jetbrains/jet/lang/resolve/calls/inference/ConstraintSystemImpl.java
@@ -39,6 +39,7 @@ import java.util.List;
 import java.util.Map;
 import java.util.Set;
 
+import static org.jetbrains.jet.lang.resolve.calls.inference.ConstraintPosition.EXPECTED_TYPE_POSITION;
 import static org.jetbrains.jet.lang.resolve.calls.inference.ConstraintSystemImpl.ConstraintKind.EQUAL;
 import static org.jetbrains.jet.lang.resolve.calls.inference.ConstraintSystemImpl.ConstraintKind.SUB_TYPE;
 import static org.jetbrains.jet.lang.resolve.calls.inference.TypeBoundsImpl.BoundKind.*;
@@ -58,9 +59,6 @@ public class ConstraintSystemImpl implements ConstraintSystem {
     private final TypeSubstitutor currentSubstitutor;
     private boolean hasErrorInConstrainingTypes;
 
-    @Nullable
-    private ConstraintSystem systemWithoutExpectedTypeConstraint;
-
     private final ConstraintSystemStatus constraintSystemStatus = new ConstraintSystemStatus() {
         @Override
         public boolean isSuccessful() {
@@ -109,14 +107,12 @@ public class ConstraintSystemImpl implements ConstraintSystem {
 
         @Override
         public boolean hasOnlyExpectedTypeMismatch() {
-            if (systemWithoutExpectedTypeConstraint == null) {
-                // the expected type constraint isn't added, there can't be an error with it
-                return false;
-            }
-            if (!isSuccessful() && systemWithoutExpectedTypeConstraint.getStatus().isSuccessful()) {
+            if (isSuccessful()) return false;
+            ConstraintSystem systemWithoutExpectedTypeConstraint = filterConstraintsOut(EXPECTED_TYPE_POSITION);
+            if (systemWithoutExpectedTypeConstraint.getStatus().isSuccessful()) {
                 return true;
             }
-            if (errorConstraintPositions.size() == 1 && errorConstraintPositions.contains(ConstraintPosition.EXPECTED_TYPE_POSITION)) {
+            if (errorConstraintPositions.size() == 1 && errorConstraintPositions.contains(EXPECTED_TYPE_POSITION)) {
                 // if systemWithoutExpectedTypeConstraint has unknown type parameters, it's not successful,
                 // but there can be expected type mismatch after expected type is added
                 return true;
@@ -215,6 +211,17 @@ public class ConstraintSystemImpl implements ConstraintSystem {
                                     Conditions.<ConstraintPosition>alwaysTrue());
     }
 
+    @NotNull
+    public ConstraintSystem filterConstraintsOut(@NotNull ConstraintPosition... excludePositions) {
+        final Set<ConstraintPosition> positions = Sets.newHashSet(excludePositions);
+        return filterConstraints(new Condition<ConstraintPosition>() {
+            @Override
+            public boolean value(ConstraintPosition constraintPosition) {
+                return !positions.contains(constraintPosition);
+            }
+        });
+    }
+
     @NotNull
     public ConstraintSystem filterConstraints(@NotNull final Condition<ConstraintPosition> condition) {
         return replaceTypeVariables(Functions.<TypeParameterDescriptor>identity(),
@@ -273,9 +280,6 @@ public class ConstraintSystemImpl implements ConstraintSystem {
     ) {
         if (constrainingType != null && TypeUtils.noExpectedType(constrainingType)) return;
 
-        if (constraintPosition == ConstraintPosition.EXPECTED_TYPE_POSITION) {
-            systemWithoutExpectedTypeConstraint = copy();
-        }
         addConstraint(SUB_TYPE, subjectType, constrainingType, constraintPosition);
     }
 
@@ -483,8 +487,7 @@ public class ConstraintSystemImpl implements ConstraintSystem {
     @Override
     public TypeSubstitutor getResultingSubstitutor() {
         if (getStatus().hasOnlyExpectedTypeMismatch()) {
-            assert systemWithoutExpectedTypeConstraint != null;
-            return systemWithoutExpectedTypeConstraint.getResultingSubstitutor();
+            return filterConstraintsOut(EXPECTED_TYPE_POSITION).getResultingSubstitutor();
         }
         return resultingSubstitutor;
     }