From RFC4511:
A size limit that restricts the maximum number of entries to be returned as a result of the Search. A value of zero in this field indicates that no client-requested size limit restrictions are in effect for the Search. Servers may also enforce a maximum number of entries to return.
The size limit in #1 is the client-requested size limit, which cannot override the server-side time limit, referenced in the above quote from RFC4511. No matter what value the client-requested time limit contains, that value cannot override the server enforcement.