diff --git a/redo/builder.py b/redo/builder.py
index f7a9ac9..237c8db 100644
--- a/redo/builder.py
+++ b/redo/builder.py
@@ -183,6 +183,8 @@ class _BuildJob(object):
                 return self._finalize(0)
             else:
                 err('no rule to redo %r\n' % t)
+                sf.set_failed()
+                sf.save()
                 return self._finalize(1)
         # There is no good place for us to pre-create a temp file for
         # stdout.  The target dir might not exist yet, or it might currently
diff --git a/redo/paths.py b/redo/paths.py
index a966af2..17c852d 100644
--- a/redo/paths.py
+++ b/redo/paths.py
@@ -32,7 +32,7 @@ def possible_do_files(t):
     # since t is an absolute path, dirbits[0] is always '', so we don't
     # need to count all the way down to i=0.
     for i in range(len(dirbits), 0, -1):
-        basedir = '/'.join(dirbits[:i])
+        basedir = '/'.join(dirbits[:i]) or '/'
         subdir = '/'.join(dirbits[i:])
         for dofile, basename, ext in _default_do_files(filename):
             yield (basedir, dofile,
diff --git a/t/122-defaults-parent/all.do b/t/122-defaults-parent/all.do
index 838ea31..917d634 100644
--- a/t/122-defaults-parent/all.do
+++ b/t/122-defaults-parent/all.do
@@ -1,7 +1,6 @@
 rm -f x/shouldfail
 
 log=$PWD/$1.log
-rm -f "$log"
 
 expect_fail() {
 	local rv=$1
@@ -15,8 +14,19 @@ expect_fail() {
 	fi
 }
 
+# These should all fail because there is no matching .do file.
+# In previous versions of redo, it would accidentally try to use
+# $PWD/default.do even for ../path/file, which is incorrect.  That
+# could cause it to return success accidentally.
+
+rm -f "$log"
 cd inner
-expect_fail 11 redo ../x/shouldfail   # should fail
-expect_fail 12 redo-ifchange ../x/shouldfail  # should fail again
+expect_fail 11 redo ../x/shouldfail
+expect_fail 12 redo-ifchange ../x/shouldfail
+
+rm -f "$log"
+cd ../inner2
+expect_fail 21 redo ../x/shouldfail2
+expect_fail 22 redo-ifchange ../x/shouldfail2
 
 exit 0
diff --git a/t/122-defaults-parent/inner2/default.do b/t/122-defaults-parent/inner2/default.do
new file mode 100644
index 0000000..ee989e6
--- /dev/null
+++ b/t/122-defaults-parent/inner2/default.do
@@ -0,0 +1,2 @@
+echo "inner/default.do: PWD=$PWD '$1' '$2' '$3'" >&2
+# output file is left empty