Refactor type instantiation logic when typing function values to handle union types

Author: noti0na1

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

@@ -1929,13 +1929,21 @@ class Typer(@constructorOnly nestingLevel: Int = 0) extends Namer
         NoType
     }
 
-    if pt.existsPart(_.isInstanceOf[TypeVar], StopAt.Static)
-        && untpd.isFunctionWithUnknownParamType(tree)
-        && !calleeType.exists then
+    def instantiateInUnion(tp: Type): Unit = tp match
+      case tp: OrType =>
+        instantiateInUnion(tp.tp1)
+        instantiateInUnion(tp.tp2)
+      case tp: FlexibleType =>
+        instantiateInUnion(tp.hi)
+      case tp: TypeVar =>
+        isFullyDefined(tp, ForceDegree.flipBottom)
+      case _ =>
+
+    if untpd.isFunctionWithUnknownParamType(tree) && !calleeType.exists then
       // try to instantiate `pt` if this is possible. If it does not
       // work the error will be reported later in `inferredParam`,
       // when we try to infer the parameter type.
-      isFullyDefined(pt, ForceDegree.flipBottom)
+      instantiateInUnion(pt)
 
     val (protoFormals, resultTpt) = decomposeProtoFunction(pt, params.length, tree.srcPos)