Am I obligated to pay my friend for the watch, considering that I paid him three-quarters of its price before it was lost, or is he obligated to return the amount to me?

If the bag was lost due to theligence on the part of the entrusted person, then he must guarantee you the value of the watch. However, if it was lost without negligence on his part, then there is no guarantee upon him, and you must pay him the rest of the money. The jurisprudential rule is that "the trustworthy hand is not liable unless there is transgression or negligence on its part." It is recommended that you reconcile with him on something you both agree upon, such as dividing the amount.