This reverts one part of #20261. When we fail with both an ambiguity …

…on one implicit argument and another error on another argument we prefer the other error. I added a comment why this is needed.

compiler/src/dotty/tools/dotc/typer/Typer.scala

@@ -4113,7 +4113,14 @@ class Typer(@constructorOnly nestingLevel: Int = 0) extends Namer
           * `SearchFailureType`.
           */
         def issueErrors(fun: Tree, args: List[Tree]): Tree =
-          def firstFailure = args.tpes.find(_.isInstanceOf[SearchFailureType]).getOrElse(NoType)
+          // Prefer other errors over ambiguities. If nested in outer searches a missing
+          // implicit can be healed by simply dropping this alternative and trying something
+          // else. But an ambiguity is sticky and propagates outwards. If we have both
+          // a missing implicit on one argument and an ambiguity on another the whole
+          // branch should be classified as a missing implicit.
+          val firstNonAmbiguous = args.tpes.find(tp => tp.isError && !tp.isInstanceOf[AmbiguousImplicits])
+          def firstError = args.tpes.find(_.isInstanceOf[SearchFailureType]).getOrElse(NoType)
+          def firstFailure = firstNonAmbiguous.getOrElse(firstError)
           val errorType =
             firstFailure match
               case tp: AmbiguousImplicits =>

tests/pos/i20344.scala

@@ -0,0 +1,28 @@
+trait Monad[F[_]] extends Invariant[F]
+
+trait Invariant[F[_]]
+object Invariant:
+  implicit def catsInstancesForList: Monad[List] = ???
+  implicit def catsInstancesForVector: Monad[Vector] = ???
+
+trait Shrink[T]
+object Shrink extends ShrinkLowPriorityImplicits:
+  trait Buildable[T,C]
+  implicit def shrinkContainer[C[_],T](implicit v: C[T] => Traversable[T], s: Shrink[T], b: Buildable[T,C[T]]): Shrink[C[T]] = ???
+trait ShrinkLowPriorityImplicits:
+  implicit def shrinkAny[T]: Shrink[T] = ???
+
+trait Distribution[F[_], -P, X] extends (P => F[X])
+type GenBeta[A, B, X] = [F[_]] =>> Distribution[F, Beta.Params[A, B], X]
+type Beta[R] = [F[_]] =>> GenBeta[R, R, R][F]
+
+object Beta:
+  trait Params[+A, +B]
+trait BetaInstances:
+  given schrodingerRandomBetaForDouble[F[_]: Monad]: Beta[Double][F] = ???
+
+object all extends BetaInstances
+
+@main def Test =
+  import all.given
+  summon[Shrink[Beta.Params[Double, Double]]]