The operation couldn’t be completed. (MCMailErrorDomain error 1045.)

I'm experiencing an issue sending out email using Mail.app on my MacBook Air (13-inch, Mid 2013) running OS X Yosemite 10.10.2 (14C94b).

... shortly after hitting "Send message" button, I'm receiving following error:

The operation couldn’t be completed. (MCMailErrorDomain error 1045.) 

I have NO problem sending out email from my iPhone 6, using same settings and from same network and I am able to connect to remote smtp server via Terminal.app as well. I rechecked my password multiple times and not really sure what else to do...

Any ideas?