The test book says only the first sentence is correct. Could anybody please explain why?
1. She said we`d have to follow her instructions.
2. She said we should have to follow her instructions.
Well, I don't know how your test book presented the statements or question about the statements. But the contraction in #1, "we'd" is not for "we should", rather it represents "we would". There is no valid contraction for "we should".