Pearce had been expected to discuss terms with the Championship new boys after Posh director of football Barry Fry yesterday told the club's local press that Cherries had accepted a bid for the player.
But Dean Court chairman Eddie Mitchell told the Echo that no deal for the star had been agreed after it was discovered Pearce's former club Portsmouth were entitled to HALF of any sale figure.
The clause was inserted into Pearce's contract after he signed for Cherries on a free transfer from Fratton Park in August 2007.
But as the 23-year-old had not previously been the subject of any transfer activity during his time at Dean Court, the sell-on agreement had gone unnoticed.
Mitchell, who declined to discuss the terms of Peterborough's bid, told the Echo: I thought about Peterborough's offer and spoke to Pearcey about his situation and I decided that we would consider the bid favourably if it were revised slightly.
Peterborough came back with another offer and I told them to email it to the club and suggested that we would probably go with it.
I didn't say yes' just that we would probably go with it once we had seen it in writing.
They did that and then we opened Pearcey's file and, to our horror, we discovered that, in 2007, the club entered into a sell-on clause that handed Portsmouth 50 per cent of any sale. That horrified us and since then we have done nothing.
My view on what was entered into at that time is that is seems ludicrous. As far as I know, Pearcey wasn't aware of this sell-on clause.
I don't know who entered into it, but whoever was running the club at that time obviously felt it was a good idea.
All I can say is we would never enter into something like that.
Pearcey must have shown some potential when they signed him so it seems ridiculous to agree to something like that. To some degree, this clause jeopardises the player's future at this club.
Pearce could still leave Dean Court this summer if Cherries can reach an agreement with Portsmouth over the sell-on clause, but Mitchell was adamant he wanted the star to stay.
Mitchell added: We are going back to Portsmouth and we will offer them a certain amount of money to come out of that contract.
Nothing is going to happen any time soon and if we have our way, Pearcey will be walking out next season as captain.
Pearcey would be the last person I would want to lose at this club, but he would also be the first person I would want to move up the ladder. He is an honest player and is tremendously committed.
He has been a star man for me and I am a huge admirer of him, both as a captain and a player.