He said 40 bodies were recovered, including 11 children.
The ship's manifest listed 119 passengers and a crew of six, though ferries frequently carry more people than are officially listed.
Although the ferry left port in relatively clear weather, coast guard chief of staff Capt. Efren Evangelista said it did not have the required clearance and may have been overloaded.
"The coast guard should have inspected it and prevented it from leaving if it found violations," he said. "In this case, the operator of the ship did not inform us it was leaving port."
He said the captain was taken into custody and authorities were looking for the owner, and that they faced possible charges over sailing without proper authorization.
Police officer Roy Almine, who helped in the rescue, said huge waves and strong monsoon winds suddenly hit the boat, causing it to overturn and tossing passengers into the sea.
"There was some kind of whirlwind," Masbate provincial police chief Reuben Sindac said. "There was no rain, no typhoon; the waters were calm when it happened.
"The ferry was not passenger-friendly. There were high railings and tarpaulin on the side so when the vessel overturned, these may have helped to trap the passengers."
Such accidents frequently happen in the Philippine archipelago because of tropical weather, badly maintained passenger boats and weak enforcement of safety regulations.
The typhoon-prone country was the scene of the world's worst peacetime maritime disaster when the ferry Dona Paz sank in 1987, killing more than 4,341 people.
In June, the 23,800-ton Princess of the Stars went belly up during a typhoon close to Romblon province, near Masbate, killing more than 800 people on board.
The discovery of several drums of toxic chemicals held up the retrieval of bodies inside the ship until last week. The chemicals have been removed by marine experts.
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Associated Press writer Jim Gomez contributed to this report.
