When I used
I suppose you lack executable on your system/
Haven't you try to run
gem install execjs or
bundle install(from your project directory) in console?
Also visit execjs homepage and try instaling any of JS runtimes supported.
I was able to reproduce your error (with ruby 1.9.2). Just add
gem 'therubyracer' to your Gemfile and run
bundle install. For some weird reason ROR is not working out of the box on Ubuntu. See this and search for runtime word for more info.
Please put your Gemfile here. This might help.