In a situation where Larry owes money to me and I owe money to Rob, who can Larry pay to fulfill his obligation?

In the scenario presented, Larry has an obligation to pay you, while you, in turn, owe money to Rob. The correct choice is that Larry can pay Rob to fulfill his obligation because it establishes a relationship known as "set-off." When Larry pays Rob, it effectively reduces your debt to Rob since he is paying off your obligation through his payment.

This arrangement can benefit all parties involved. If Larry pays you instead, it wouldn't directly help in alleviating your obligation to Rob unless you then immediately pay Rob with that money. By Larry paying Rob directly, the flow of money remains clear and efficient and can simplify the debts between the parties without unnecessary intermediary steps.

When considering the other options, a payment to a third party not involved in the debt would not fulfill Larry's obligation to you; similarly, if he pays no one, then the obligation remains unfulfilled. Therefore, paying Rob not only addresses Larry’s debt but also simplifies your situation with Rob by reducing the amount owed on your end.